As expected, Motorola had a terrible Q1. Mobile sales dropped 39% year-over-year and the company missed the Street’s already lowered expectations for revenue.
Nothing exciting during the conference call: CEO Greg Brown noted that Motorola is hard at work figuring how to split itself into two companies, but wouldn’t offer any new details on the spinoff. The company plans to focus development on new 3G, messaging, and touchscreen phones, as well as cheaper phones for emerging markets, and didn’t mention Google’s (GOOG) Android platform once.
Motorola reported $7.45 billion in Q1 sales, down 21% year-over-year and missing the Street’s $7.75 billion consensus. The struggling mobile phone maker posted a $194 million loss, or 9 cents per share, worse than its $181 million loss during Q1 2007. Excluding costs from job cuts, the company posted a 5 cents per share loss — 2 cents better than the 7 cents per share loss the Street was expecting.
The company sold 27.4 million phones last quarter, down 40% from 45.4 million a year ago. Mobile revenue dropped 39% year-over-year to $3.3 billion, and the division’s Q1 operating loss widened 79% year-over-year to $418 million.
The rest of Motorola’s business did better. Particularly strong: “Enterprise Mobility Solutions,” whose sales increased 5% year-over-year to $1.8 billion, and operating earnings jumped 91% year-over-year to $250 million.
Motorola’s Q2 guidance stinks, too: The company expects to post a 2 cents to 4 cents loss, worse than the 1 cent loss the Street predicted.
LIVE conference call notes:
8:01 Call begins. Standard disclaimer.
8:02 CEO Greg Brown joins. Giving quarterly highlights. Looking over legal, structural, etc. aspects of spinoff. Board reached settlement to avoid proxy battle.
8:03 Going over financials from release.
8:05 Impact of lower sales partially offset by reduction in operating costs.
8:08 Greg Brown back. Est 9.5% market share, due to losses in North America. Still largest region, 44% of sales. ASP up slightly as mid- to high-end phones did well.
8:09 Product highlights: Not much. Design teams planning and integrating Qualcomm (QCOM) and TI chipsets. Will utilise Linux Java for customer commitments. No talk about Android.
8:10 Expecting better phones in the second half, next year. Improved feature sets for music, touch, and messaging. Wider range of price points, etc.
8:11 Expecting sales to be flat to slightly up sequentially, and operating loss similar to Q1.
8:12 Home division: Strong demand for HD and DVR devices. Product mix, high level of transportation costs hurt margins. N.A. sales grew 10% and accounted for 83% of sales.
8:13 Shipped over 3 million IP devices. (Set top boxes?)
8:14 Wireless networks: Investing in WiMax, LTE. Expecting slightly higher sales, flat margin next quarter.
8:16 Government sales up 4%.
8:18 Big deal w/ Royal Malaysian Police for digital conversion. Nice!
8:19 Expect y/y increase for enterprise mobility solutions sales next quarter, double-digit margins.
8:20 Q&A begin
8:20 Flat guidance in handset revs suggest lower market share? Yes.
8:21 Introduced 6 new devices in Q1. Expect more products in Q2. As we transition into 2009, you’ll see us pursue areas and gaps where we’re not competing today. 3G, messaging, touch.
8:23 Leadership search progressing pretty well, but no specific updates.
8:23 Is 27.4 million units the absolute bottom? ASP in Q1 was reflection of mix around mid- to high-tier. Expect in Q2 revs to be flat to slightly up.
8:24 Product portfolio “only going to get stronger” — can’t get much worse.
8:27 Inventory: Flat. Stock in channel is improved. WiMax market: 4G momentum is strong. Lots of WiMax interest, Sprint and Clearwire domestically. Addressable market hard to say. Don’t expect material contribution in 2008 from WiMax.
8:29 How much did foreign currency help? What pct of phones 3g? WCDMA “really small.” Overall TAM perspective looking at low double-digit range. Forex: Sales mix about 50/50 US/non. Outside the US, still do a lot of business in USD. Forex relatively insignificant.
8:31 Problems in high-growth Asia? Represents a fantastic oppty. Combination of product refresh and localised customer requirements. China: Touch-based products, etc. Ming successful. India: Same thing. More about product refresh, cheaper phones. Another opportunity that will allow us upside oppty.
8:33 Timeline for how the split will go? Work is well underway. Many issues to work through. Will take several months for us to work through. Don’t expect separation to be until sometime in 2009. QCOM/TI chipsets out in 2008 or 2009? Starting already in Korea.
8:37 Death spiral on mobile side? Why not using ODM more? Cost footprint vs. marketshare? Will look to rationalize manu footprint. ODM will increase.
8:42 Cost to separate companies will be big, but no estimate of how much.
8:43 Any considerations that would alter path? Absolutely on the path of creating two new businesses, believe it’s the right thing to do for focus, alignment, structural efficiencies for those respective businesses that are quite different.
8:46 Cost reduction efforts broadly across Motorola — not just mobile phones.
8:50 Simplifying software platforming, focus on messaging, touch, lower cost devices.
8:53 Today roughly 40% of handsets are made outside Motorola. Will always look to optimise, improve mix.
8:56 TI and QCOM for UMTS in 2009.
8:56 Given cash burn, buyback, safety of dividend? Can we pay it? Yes. Wise use of capital? Won’t comment further on what we’re going to do in the future with regard to dividend.
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