Motorola’s breakup into two companies — mobile phones and infrastructure — won’t happen next summer as planned, the company said today in its Q3 earnings release. Why not? Co-CEO Sanjay Jha: “While our strategic intent to separate the company remains intact, we are no longer targeting the third quarter of 2009, primarily due to the macro-economic environment, stresses in the financial markets and the changes underway in Mobile Devices.”
Meanwhile, as expected, the company will continue to cut costs — $800 million in 2009 — including $600 million from its mobile phone division, which is going through a radical realignment: As expected, Motorola will focus on three mobile platforms going forward — Google’s (GOOG) Android for mid- and high-end phones, Microsoft’s (MSFT) Windows Mobile for some smartphones, and an in-house platform for low-end phones. The first new Windows Mobile phones will launch sometime in the second half of next year, while Jha says to expect Motorola’s first Android phones in time for next Christmas.
In the meantime, Motorola will be cancelling a bunch of phones that would have launched with Nokia (NOK) Symbian or Linux-Java operating systems.
Motorola sold 25.4 million mobile phones last quarter, down more than 30% year-over-year — representing an awful 8.4% estimates market share. Revenue came in at $7.5 billion, missing analysts’ $7.8 billion consensus. The company’s net operating loss fell to $452 million in Q3, down from a $10 million operating loss a year ago.
EPS gets a little hairy: The company posted an 18 cent per share loss, but if you back out 23 cents of “highlighted items” relating to its semiconductor business changes, Sigma Fund investment impairments, etc., it looks like a 5 cent per share profit, ahead of analysts’ 2 cent per share consensus.
Guidance bad, at least for this quarter: Motorola expects earnings of 2 to 4 cents per share from continuing operations in Q4, lower than analysts’ 7 cents per share consensus. Full-year closer to target: 5 to 7 cents per share (from continuing operations), in line with expectations of 6 cents per share.
LIVE Confererence Call notes:
7:56 A nice surprise: Upbeat music. Sounds like we’re on an island of some sort.
8:05 Intros, disclaimers. Co-CEO Greg Brown going over broad results. Taking further proactive actions: No longer targeting Q3 of next year. Further reducing costs, global in nature, impact all of businesses, supply chain, and corporate functions. Y/y cost savings $800 million in 2009.
8:06 Focusing on product differentiation. Turning over to Paul for financial results. Then Greg coming back to discuss infrastructure, Sanjay will discuss mobile devices last.
8:07 Paul discussing writedowns, including software/silicon changes, Freescale writedown.
8:10 About $600 million of the $800 million in cost cuts will come from mobile devices.
8:14 Still going over numbers from release.
8:15 Greg Brown back to talk about infrastructure business. Revenues flat; operating margins up. Home sales up 19% y/y, sequentially lower. Video solutions up 25%, 4.1 million digital entertainment devices.
8:16 Networks sales down on lower iDEN and GSM sales, divestiture of a business. Benefitted from favourable product and region mix. Expect slightly lower sales, higher operating margins. Expecting home to be up double digits.
8:18 Government and public safety sales up 9%. Enterprise down 8% from year-ago quarter.
8:21 Sanjay joining to talk about mobile devices. 90 days a “productive start.”
8:22 8.4% estimated market share. North America 50% of total sales, Latin America 23% of sales. Asiapac-EMEA the rest. $122 ASP, up from Q2, due primarily to mix. Stock in channel down sequentially.
8:23 Sequential improvement in operating loss due primarily to lower operating expenses. Now expect to exceed $600 million cost reduction target this year. Over 11 million W series devices, over 3 million Razrs, 1 million Rokrs, 1 million Razr 2s.
8:24 Expecting lower than normal seasonal volume. Growth being driven by smartphone and low end; expect sales and units to be down. Operating loss expected to increase sequentially due to lower volumes.
8:24 Have had too much complexity. Today over 20 combinations of software, silicon, and UI platforms. This has resulted in high costs and portfolio gaps in 3G, smartphones, very low tier. Aggressive plans to rebuild and reposition business. Final settlement agreement with Freescale, ending contractual purchases. $150 million charge to be paid next year. For 2009, 2010, will focus on TI and Qualcomm and preferred UMTS suppliers. No longer planning to develop certain OSes. Will focus on Android, Windows Mobile, and P2K. ODM solutions for low and very low tier. Will no longer offer new OSes on internally developed Linux Java or Symbian UIQ. $370 million of charges on inventory write down.
8:26 Will focus on differentiation. Focusing on smartphones, messaging devices. More Windows Mobile devices. First Android targeted for holiday season 2009. Yikes! Focus on North America, Latin America, certain markets in Asia. In other markets will make investments commensurate with portfolio strength.
8:26 Reducing plans for first half of next year; “will be challenging.”
8:29 “Good progress” in split-up but being delayed because of economy, changes to mobile device business, lower demand for mobile devices.
8:30 Q&A beginning.
8:31 Not “getting out” of any region in particular. Focusing resources where we have best brand recognition. Will continue to participate in Europe, but focus will be NA, LatAm, parts of Asia. Not providing unit guidance.
8:32 Some carriers saying as much as 30% of shipments are smartphones, so weak for MOT. But changes will be good in medium to long term.
8:33 Roadmap or colour: What type of production volumes or cutting in footprint will it take to break even? Expectation for 2009 is improving losses over this year. Directionally, guide you to improvement in losses. Won’t guide you today to when we will break even, but changes will position us, more aligned to where the market is headed.
8:35 Android can only run on super powerful phones? In 2009, we will expand our footprint from just high tier to high and medium tier. Plan a large number of devices addressing a number of price points in the wireless handset market using Android, as well as using Windows Mobile. Will see both platforms address much larger market share than they’ve addressed in the past, especially in 2010.
8:37 Second half Windows Mobile, Christmas Android. Not going to guide to market share; focused on financial results vs. market share. Retrenching comments: Slide in share? Fewer new products will have consequential effects on volumes.
8:47 How do you take market share from Apple (AAPL) and RIM (RIMM) when it’s being used by so many vendors? We have, as you know, invested in Linux Java platform. Commercializing proprietary operating systems and creating an ecosystem around it — large number of third party app developers, services — quite a difficult thing to do. See large ecosystems centered around Android and Windows Mobile. That’s going to be more important as messaging changes from text to graphical. Being able to have ecosystems more connected to IT and mobile Internet more important to us. Will work very hard — ourselves and Android folks in California — to ensure that we deliver differentiated products. Opening an office in Seattle to work closer with Microsoft. Thing can deliver differentiation without owning the platform. Lots of apps we can bring. Judgment that we made here is that we can differentiate using platform while using their ecosystem.
8:55 New post: Motorola: No Google Android ‘GPhones’ Til Next Christmas
8:55 Talent? Time to market? Android phone as an example, still a year from now. Is mindset that once we get new platform approaches for 3G and smartphones and different OSes, more in line with better companies in industry at spinning new products? One of the things that we need to do better is execution on our software strategy. Nothing wrong with strategies; execution has been poor. Talent is in software execution.
9:04 What are you looking for from split besides environment being better? Breakeven? When you solidify around Windows Mobile and Android, several phones in the past actually do use Windows Mobile (Q) and weren’t very successful. Buttons, shortcuts, etc. Above and beyond just OS and may speak to design criteria that Moto has used in the past. How much has that surprised you? What can you do to solidifying? How can you change design culture? On separation: Obviously environment are premier thing we have to keep an eye on. Collectively decided as would have expended reasonable amount of cash on separation: Preserving cash, maximizing earnings on the way. Improving platform, profitability, better cash generation progress, overall stability in tracking return to top line growth and significant profitability improvement before we’d consider it.
9:06 Have been too focused on bright shiny objects, not enough focus on user experience. Design team does wonderful job, just does it in a more limited sphere. As we go forward, as complete user experience, services, user interface become more important. True that WinMo6 has not delivered experience that I think Apple has been able to deliver. But as you look at plans that 6.5 and 7 makes, significantly new added features, which will help, in platform. Platforms we’ve chosen are capable of delivering better experience. Targeting new teams, one in Ca., one in Seattle, to deliver experiences. That’s where we have to differentiate. That’s the bottom line. That’s where our competitors have done much better than we have. That’s where we’ll focus and time will tell.
9:08 Call over.
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