Motorola's strong play in emerging markets came back to bite the vendor in the fourth quarter. The vendor warned it will miss financial expectations for the fourth quarter because of weak mobile-phone sales and falling handset prices. Motorola said it sold 66 million handsets in the fourth quarter, a 48 percent increase from the previous year, but lower prices hurt profit margins. Motorola said the problem was due to an "unfavorable geographical and product-tier mix of sales." Shares of Motorola were down $1.67, or 8.13 percent, at press time. Motorola now expects to earn between 13 cents and 16 cents a share, down from the estimated 39 cents a share.
Goldman Sachs said in a research note that it believes Motorola's warning supports its already cautious view of the handset market. Primarily, the lack of upside in end market demand will likely lead to increased price competition. The shift in the industry toward the lower average selling price (ASP) in emerging markets further aggravates the situation.
"As a result, we believe that Motorola will see several quarters of ASP weakness, causing us to lower our handset segment operating margin estimate by 100 basis point plus in fiscal year 2007," said the firm.
For more about Motorola's fourth-quarter warning:
- read this article from the WSJ (sub. req.)