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Analysis: Motorola draws final card

Posted: 05 Feb 2009 ?? ?Print Version ?Bookmark and Share

Keywords:Motorola handset business? net Q4 loss? mobile phone market?

Another very challenging set of results from Motorola Inc. has set the scene on what must be the embattled firm's last attempt at being a major player in the manufacturing of mobile phones, according to Richard Windsor, technology specialist at brokers Nomura Securities.

Windsor said that, assuming Mobile Device EBIT approximates to cash flow, the division is now burning close to $2 billion a year, meaning that if it was a stand alone company, it would probably have filed for bankruptcy by now.

Motorola reported Feb.3 a net loss of $3.6 billion for Q4 compared with a profit of $100 million a year earlier. Revenues fell 26 percent from a year earlier to $7.14 billion.

However, as Windsor noted, while these were in line with reduced expectations, "a machete was taken to expectations for 2009."

The company said it remained committed to its plan to separate its mobile devices division from the rest of its business, but that it now did not expect this to happen in 2009.

The embattled mobile phone maker slid to fifth place from fourth in global rankings in the last quarter, and said it expects its handset division to post a loss in 2009.

19.2million handsets were shipped, giving share of around 6.3 percent, but handset losses ballooned to nearly $0.5 billion, "as the business continues to be far larger than the revenue opportunity it addresses," said Windsor.

Motorola has now ceded 77 percent of its market position in phones which peaked in Q4 06 at 26 percent.

Fortunately, the Home and Networks Mobility and Enterprise Mobility Solutions divisions once again took up the slack with solid performances in all areas, leading to a modest operating profit.

However, as Windsor stressed, guidance for Q1 implies further heavy declines in revenue and another thumping loss.

The previously announced cost reduction program is now expected to reduce total costs by $1.5 billion, of which $1.2 billion is to come from the Mobile Devices group.

Hope in Android
Motorola reiterated the company was still committed to using Microsoft Corp's Windows Mobile software but that most of its focus in 2009 was on Google Inc's Android platform.

However, Windsor pointed out the new handsets based on the Android OS are still on the drawing board and are expected to hit the market in late 2009 and 2010.

"This is Motorola's last chance. If Android fails to deliver the needed revenue and profit recovery, then the focus will be oriented on managing the business for oblivion", said Windsor.

He added Android is not as straight forward as it sounds as there is no guarantee of compatibility between different implementations and the platform has been shown to be exceptionally insecure. This means Motorola could end up modifying Android to a point where it becomes a proprietary OS.

"Time will tell whether Motorola can develop a differentiated and compelling user experience on Android but if history is a guide, the signs are not good."

- John Walko
EE Times

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