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Feb. 4, 2009

Huge losses continue to mount at Motorola. The troubled handset maker reported a fourth-quarter loss on write-downs and provided a-lot-worse-than-expected guidance for the first quarter of 2009.

Needless to say, Wall Street analysts weren't pleased by the news.

Problems in Motorola’s handset division have large implications for the company, reports UBS Investment Research analyst Maynard Um.

“Much of the company's future success requires continued improvement in the company's mobile phone business, the majority of revenue and operating profit of the Mobile Device Sector,” Um reports.

He added “overall, failure to execute in this very critical division with respect to new product design, production and operating efficiency could have a drastic and very negative impact on future earnings estimates going forward, which could lead to further weakness in Motorola's stock.”

Now Motorola plans to deepen cost cutting and suspend quarterly dividend payments in an effort to strengthen its balance sheet. The company added that Edward Fitzpatrick, senior v.p. and corporate controller will add the role of CFO to his duties, replacing Paul Liska.

“In light of the severe and unprecedented economic climate and the global challenges we face everyday, we have implemented aggressive measures to drastically cut costs and improve financial flexibility, particularly in Mobile Devices," said Greg Brown, Motorola's CEO.

"The cost-reduction actions under way are expected to generate aggregate savings of approximately $1.5 billion in 2009,” added Brown.

The company lowered its first-quarter guidance to a loss of 10 cents to 12 cents per share. Analysts had expected a 6-cent loss for the first quarter.

Devaluation of Motorola’s non-cash assets accounted for $1.56 of the $1.57 per share loss. The per-share write-down included 91 cents in tax valuation costs and 71 cents of goodwill impairment.

Mobile industry analysts had expected the company to post a 1-cent per-share loss for the fourth quarter, with more optimistic analysts predicting the company would break even.

Overall, Motorola posted losses of $3.6 billion, or $1.57 per share, for the fourth quarter ended Dec. 31, 2008, when compared with profits of $100 million, or 4 cents per share, in the corresponding 2007 period.

Motorola posted sales of $7.136 billion, a 26 percent decline over last year’s sales of $9.646 billion. Motorola has struggled to keep its wireless handset segment profitable, however.

Fourth-quarter losses in that segment deepened to $595 million on top of last year’s $388 million loss.

Some are now saying that 2009 will be the year that "Motorola will make or break", hinting that the company is currently navigating through some very tough times and that it is burning through cash at an alarming rate.

Revenue also took a hit, falling 51 percent to $2.35 billion from $4.811 billion in 2008.

Motorola's handset division, which accounts for about 40 percent of the company’s sales, has been burning a lot of cash for quite some time now.

The company thought of selling it off in March 2008, but ultimately canceled the idea when a suitable buyer failed to emerge with a decent price.

Some wireless industry analysts point to a series of missteps in Moto's handset division, including missed deadlines and the launch of a cameraphone without 3G support, which the industry viewed as a major mistake, both from a marketing standpoint, as well as on a technological basis.

In addition to the 3,000 job cuts announced last October, Motorola said last month that it would cut about six percent of its staff, or 4,000 additional workers. About 73.2 percent of those cuts would be in the handset division.

Motorola needs to continue its very agressive cost reduction program if it is to remain in business, and there's no doubt that 2009 will be a very difficult year for the handset maker, both at home and abroad.

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Source: Cellular South.