Skip to main content

Motorola's good quarter not all that good

Motorola (MOT) recently released earnings and the stock got a little boost. Was the stock gain warranted? Is Motorola out of the woods?

First, we can acknowledge there are a few positives mixed in with the negatives. After three quarters of declining earnings, two of which showed losses, MOT actually showed a profit of $60M. That is very good news and may indicate that the worst is behind the company and the tide is turning, to mix a couple of metaphors. On the negative side, the year-over-year comparison is stark: 3rd quarter earnings in 2006 were $968M, more than 16 times greater that this year's 3rd quarter.

On the revenue side, this year's 3rd quarter revenues of $8.8B were less than 10% lower than last year's $10.6B. $8.8B was a small improvement over the previous quarter's revenue and that's another positive. Still, earnings have plunged while revenues have shown a moderate decline. This indicates something's still wrong with Motorola. And this earnings shortfall comes despite progress in cost-cutting.

Segment results --

Home and Networks Mobility had segment sales of $2.4 billion, up 6 percent compared with the year-ago quarter. Excluding special items, operating earnings were $165 million, compared with operating earnings of $231 million in the year-ago quarter. As a future profitability driver, I'm interested to see if Motorola can leverage their early entry into WiMax and become a leading supplier of chips in this sector.

Enterprise Mobility Solutions had segment sales of $2.0 billion, up 47 percent compared with the year-ago quarter. Excluding special items, operating earnings were $336 million, compared with operating earnings of $280 million in the year-ago quarter.

As for the Mobile Devices segment, read on...

Cell phone problems --

Some of this quarter's numbers indicate improvement (increased number of units shipped, higher gross margins lower expenses) but there are still issues in the cell phone unit. Sales, at $4.5B were down 36% from the previous year's quarter and the segment incurred an operating loss of $138 million, compared with operating earnings of $843 million in the year-ago quarter.

In terms of product mix, Motorola has problems at the top and bottom ends of the market. At the high end, it has no product to directly compete with Apple's iPhone, for example. At the low end, it is losing share to its main competitors, Nokia, Samsung and Sony Ericsson. This means Motorola is not benefiting from the strong growth in emerging markets where lower-priced phones dominate.

Conclusion --

I still see nothing compelling in Motorola's story. A better quarter financially may indicate the beginning of a turnaround but that notion is being undercut by the fact that the company has slid from number two to number three in the world wide cell phone market.

In looking at the 8-K, operating earnings for the company as a whole were actually negative and MOT would have shown another quarterly loss if not for positive numbers in the categories Other Income (interest income, gains on sales of investments and businesses and the catch-all category "Other") and Earnings from Discontinued Operations.

This is not the sign of the definitive turnaround investors have been hoping for. The stock could very well weaken further from here.

Disclosure: author owns no shares of MOT

Comments

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional