Ovum comment: Motorola warns of Q2 loss

Motorola pre-released its Q2 results last night and they make horrible reading.

Handset shipments will be 35-36m, down 32% over the year giving rise to revenues of $8.6-8.7bn which is $0.75bn down on the previous guidance.  The company will make an operating loss of 2-4 cents per share, compared to the guidance of a profit of 2 cents per share.

The company announced that it does not now expect its Handset Division to return to profitability this year.

Motorola blamed weakness in Asia and Europe. It appointed Stu Reed to the role of President of the Handset division. He is currently EVP of the firm's integrated supply chain operation.

Ovum's director of wireless intelligence, Martin Garner, comments:

The steepness of the fall at Motorola is scary. Up until Q4 06 shipments had been on a strong upward trend. This quarter shipments are down 47% on Q4 06 when you would normally expect them to be up 5-10%.

In our view the biggest single problem is the product portfolio, which is under siege in all segments across most of the world. One aspect of that is that Motorola has had a rather US-centric view of what its portfolio should look like - fine for selling in the US, but not fine elsewhere. Motorola has completely missed the Nokia N-Series charge and the Sony Ericsson lead-experience success.

It is now trying to put that right with devices like the Z8 'media monster', but we have seen no evidence yet of a coherent push to repair the damage, nor any sign that Motorola is currently able to differentiate in any segment (as it did with the RAZR) by creating something truly new.

What we have seen is a $100m charge this year for redundancies of more than 10% of the workforce, the departure of Ron Garriques to Dell, the appointment of a new CFO and President of the Handset Division and mounting pressure on CEO Ed Zander to quit.

The problem with fixing the portfolio is that it is a long hard road. Unless there are some excellent products to announce in the next few months, Motorola will continue on its downward path.

It would not now surprise us to see Motorola overtaken both by Samsung and Sony Ericsson during this year, leaving it as the number 4 supplier.

If that happens we should also expect to see more redundancies and exits from certain areas of the market.

Stu Reed takes on possibly the most difficult job in the industry. One piece of advice we would offer him would be to move a lot of the portfolio decision-making out of the US in order to get a more balanced world view. This will be one of a large number of hard choices the company has to make in the coming year.

Martin Garner is director of Wireless Intelligence, the Ovum GSMA joint venture

 

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