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Turnaround Progress At Motorola

Posted on Friday, Aug 15th 2008

In my most recent post on Motorola, I looked at its turnaround prospects and first quarter results and concluded that the company is not to be written off. Second quarter results, reported July 31, showed a marked improvement that took most by surprise.

Q2 revenue was $8.1 billion, up 7.5% q-o-q and down 7% y-o-y. Net earnings were $4 million or $0.0 per share, compared with losses of $194 million last quarter and $38 million last year. Adjusted earnings were $0.02 per share; analysts expected a loss of $0.03 per share on sales of less than $8 billion. Motorola had positive operating cash flow of $204 million and ended the quarter with net cash of $3.6 billion.

This notable improvement was driven by strong growth in the Home and Networks Mobility and Enterprise Mobility Solutions segments. Home and Networks Mobility grew 7% to $2.7 billion due to strong demand for HD, HD/DVR and IPTV devices. Enterprise Mobility Solutions segment sales were $2.0 billion, up 6% mainly due to strong international sales growth of 21%. Motorola recently announced plans to acquire AirDefense, a leading wireless LAN security provider.

Not all segments reported sales increases: Mobile Devices sales declined 22% to $3.3 billion and were at the same level as the previous quarter. Mobile Devices reported an operating loss of $346 million, versus $332 million last year and $418 million last quarter. Compared with Q108, ASP was down slightly to $118, mainly due to the mix. The company shipped 28.1 million handsets in the quarter and maintained its share of the global handset market. It is at the top position in the US market with 25.8% market share, but is down from 27% last quarter.

Motorola is on track to save $1 billion in costs in 2008, with 60% of the savings coming from Mobile Devices. Operating expenses decreased $264 million compared with Q207 and $469 million compared with the first half of 2007. So despite lower sales, Motorola managed an operating profit of $82 million, an increase of $114 million over Q207.

Continuing with its plan of splitting up Motorola, the company recently announced some key management changes. Dr. Sanjay Jha, former COO of Qualcomm, is going to be the co-CEO of Motorola and the CEO of the Mobile Devices businesses. Greg Brown, currently the co-CEO, will also serve as the CEO of the Broadband Mobility Solutions business, which consists of the Home and Networks Mobility and Enterprise Mobility Solutions businesses.

Motorola plans to launch five 3G handsets and a total of 34 devices in the year. For Q3, it expects earnings in the range of $0.0 to $0.02 per share. For the full year, EPS is expected between $0.06 and $0.08. Motorola expects net cash level at the end of the year to be comparable to the $4.3 billion at the end of 2007. It is currently trading around $10 with a market cap of about $23 billion. The stock hit a 52-week low of $7.03 on July 7.

Chart for Motorola Inc. (MOT)

Note: Interesting read from Business Week: Marcial: Time to Ring Up Motorola?

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