Ovum says Motorola's mobile phone division is struggling

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Ovum says Motorola's mobile phone division is struggling

Even David "Goldenballs" Beckham's promotional activity of Motorola products can't help the mobile phone vendor's Quarter 4 and full year 2007 results gloom in the handset division.

Company sales for the quarter were $9.65 billion for the quarter, up 9 percent sequentially but down 18 percent over the year. Gross margin was down 2 percentage points sequentially to 26 percent, but flat over the year. Operating loss widened to $-190k (130 k) from $-100k (70 k) in Q3 and a profit of $753 million a year earlier.

For the full year, sales were $36.6 billion down from $42.8 billion in 2006. Gross margin fell by 3 percentage points to 27 percent and operating earnings were $-550 million down from $4.09 billion in 2006.

Motorola shipped 40.9 million handsets in Q4. Average sale price fell $3 to $118, bringing sales of $4.8 billion, down 38 percent year on year. The division returned an operating loss of $-388 million compared with a profit of $341 million in Q4 06.

Incoming CEO Greg Brown said that he feels privileged to be CEO of Motorola. He thanked all the staff, suppliers and customers of Motorola and he re-iterated that they are absolutely not satisfied with the current position and are working as hard as possible to fix it. He also expects Motorola to lose further handset market share in Q1 2008 and said the portfolio will be more robust in 2009.

According to Martin Garner, Mobile director at Ovum, given the length and depth of the handset problems, it's increasingly difficult to see why shareholders should see logic in keeping the divisions together.

The handset volumes are well below Motorola's normal seasonal pattern. Greg Brown pointed to heavy competition, gaps in the portfolio (3G, China and other emerging markets), new product development being late and weakening demand for existing products (KRZR, RAZR2). On the latter, it's not clear if this was driven by US consumer conditions, said Garner.

He wonders if there are valuable synergies between the other divisions and a handset business that is in such difficulty. Or would it be better to break the company up?

“There has been speculation about who might buy the handset division. We think that a sale is unlikely. But there might be interest in a Sony Ericsson style joint venture,” said Garner.

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