Motorola Turnaround Plan Gains Steam in Third Quarter
For Motorola, which for years struggled to recover as its once hot RAZR smartphone grew cold and old, the latest earnings results not only return it to profitability a quarter ahead of its projections but also tees up potential investor enthusiasm for its pending split, which is currently slated for the first quarter.
"We think the upcoming split of the company will drive an increase in total shareholder value," said Jay Goldberg, a Deutsche Bank analyst in his research report. "We think both companies can prove viable entities that could be valued greater on the sum of the parts basis."
He pointed to the company's ability to grow revenues in a tough economic environment and steep competition from rival Apple's iPhone. Said Goldberg: "It has been a long decline, but there are clear signs of progress."
Motorola, which is preparing to split its mobile phone and set-top box business from its networking and enterprise phone business in the first quarter next year, generated revenues of $5.8 billion in the third quarter, up 6% from the same time last year. And on the profit side, the company reported net income of 12 cents a share for its continuing operations, compared with 1 cent a year ago. Motorola's third quarter revenues and earnings beat analysts expectations on both fronts.
In a recent interview with DailyFinance, here's what Motorola co-CEO Sanjay Jha had to say about the company's strategy for growth and its pending split:
In the most recent quarter competed, Motorola Mobility posted revenues of $2 billion, a tad better than Goldberg's estimate of $1.9 billion. That was helped, in part, by the average selling price for the phones rising to $223 in the quarter, up from $208 in the previous quarter. Motorola's mobile business also posted a smaller GAAP operating loss than expected at $43 million, versus a loss of $57 million. Based on continuing operations, Motorola Mobility generated a modest pro-forma operating profit of $3 million.
And in the current quarter, Motorola, as a whole, is expected to do better than its previous forecasts. The company now expects to generate earnings between 14 to 16 cents a share. Motorola Mobility, meanwhile, expects its sales to rise on a sequential basis, as the company expands its reach into mid-priced devices.
As the company looks to split in the first quarter, however, it's expected to face some challenges from the likes of Apple's (AAPL) iPhone should it move over to Verizon Wireless (VZ), as many industry watchers expect.
He added, however, a potential cause for concern is Motorola's ability to differentiate itself from a sea of other Android phones. Goldberg predicts it may take another two to three years before its clear whether that strategy is working.
"Still we see some signs of hope. First, Motorola has indicated that they have an improving level of visibility for their business in 2011. We think carriers are beginning to give commitments to new phone launches next year," says Goldberg.