Posted on Monday, 3rd May 2010 by James Martin

Motorola (MOT)

Over the last three years, Motorola (MOT: Charts, News, Offers) has been stuck on a downward spiral that has prompted the company to devise a new game plan to catapult results back to positive territory. According to Motorola insiders, the company’s recent decision to spinoff its handset business may be exactly what the doctor ordered. The separation has not been completed just yet, but things have already started to move in the right direction. Motorola Inc. swung to a profit during the first quarter. How was the company able to come out of its rut with its original structure still intact? How do the latest results from the company stack up against expectations and what does the future hold for the company given its recent performance?

Daily Chart

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Stock Analysis

Motorola’s first-quarter performance definitely came as a surprise to some analysts. After years of declines, another disappointing quarter was highly expected. Luckily for Motorola those pessimistic expectations turned out to be wrong. During the first quarter 2010, Motorola generated $485 million of cash from operations. Quarterly net income was $69 million or 3 cents per share, compared to a net loss of $291 million or 13 cents per share in the prior-year quarter. Strength in Motorola’s other units including network equipment and fewer sales of unprofitable, cheaper phones also bolstered the company’s profit.

The issue plaguing sales at Motorola mainly comes from the oversaturation and highly competitive cell phone market. In this day and time, technology companies have to constantly stay on their toes with the latest trends to keep consumers interested. Consumers have started to demand more from wireless devices, forcing companies to constantly reinvent their product line to meet these needs. Now the market is set to become even more crowded with the entrance of Hewlett-Packard Co (HPQ: Charts, News, Offers), which announced a deal to buy Palm Inc. (PALM: Charts, News, Offers) last week. Motorola is aware of this problem and as a result it has been cranking out new and improved smartphones. It introduced six new Android-powered smartphones including the Backflip and Devour, as well as three products designed for the Asian market, expanding the company’s smartphone portfolio to eight devices. As a result, the company shipped 8.5m handsets, including 2.3m smartphones in the first quarter.

Despite the improving smartphone business, the turnaround is moving too slowly to compensate for the drop in overall phone sales. Motorola’s Enterprise division, which makes police radios, bar code scanners and other equipment for big clients, was able to provide an added revenue boost. Its revenue was $1.7 billion, up 6 percent compared to a year ago. The slight dip in net sales still didn’t prevent the company from beating the Street. Analysts were expecting were expecting 1-2 cents loss on $5.1 billion of sales.

Motorola still has a lot of work to do. The mobile division is still operating in the red but the outlook is positive. Sanjay Jha, Co-Chief Executive of Mobile Devices and Home, said he expects the phone business will be profitable in the fourth quarter. Motorola upped the lower end of its full-year estimate for total shipments to between 12 million and 14 million units. The company is already looking into new acquisitions after the separation of the divisions. Motorola was once the dominant force in the mobile phone business, but now the company will have to do a lot more to achieve that coveted distinction going forward.

More Stuff on Motorola

  • RIM replaces Motorola – RIM replaced Motorola in the Top 5 chart and tied with Sony Ericsson for the No. 4 position.
  • Motorola Cliq XT Gets an Upgrade – T-Mobile USA has released an updated version of the system software on the Motorola Cliq XT.

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