Motorola shares slump after profit warning

Shares in Motorola fell by as much as 12 per cent in early trading yesterday after it trimmed sales forecasts by 1.7 per cent and warned on profits.

The US company, the world's second-largest mobile phone maker after Finland's Nokia, said that "an unfavourable geographical and product-tier mix of sales" meant that sales and earnings in the fourth quarter would be lower than expected.

Motorola's shares fell by $2.20 (€1.67), or 10.7 per cent, to $18.35 in morning trading on the New York Stock Exchange after sinking to as low as $18 earlier in the session - the lowest price since July 2004.

The warning, issued late on Thursday after the markets had closed, triggered downgrades from analysts who noted that, while unit sales remained strong, fierce price competition in the fourth quarter drove down average selling prices.

Analysts speculated that the warning could be the result of a fiercer price contest between Motorola and its larger rival, Nokia, as well as a greater reliance on emerging markets where cheaper handsets are sold.

"This probably means they've been trying to fight Nokia on pricing. It probably means Nokia's going to see a similar trend - high unit volumes and low phone pricing and margins," said Charter Equity Research analyst Ed Snyder.

Motorola said it sold about 66 million handsets during the quarter, up 23 per cent from the third quarter of 2006 and up 48 per cent from the fourth quarter of 2005. But analysts noted that Motorola cut the prices of many of its most popular handsets in the run-up to Christmas in order to maintain market share.

Motorola's popular but ageing RAZR phone and the "Q" smartphone were among the handsets hardest hit, analysts said. They added that demand for Motorola's KRZR K1, designed as the successor to the popular RAZR, had been lower than expected.

Motorola said it now expects to earn between 13 and 16 cents per share on sales of $11.6 billion (€8.9 billion) to $11.8 billion, down from previous estimates of between $11.8 billion and $12.1 billion. The earnings estimate includes about 10 US cents a share in charges.

"We are very disappointed with our fourth-quarter financial performance," said chief executive Ed Zander, "but we remain committed to the strategic direction and long-term financial targets we discussed at our annual analysts' meeting in July 2006."

He said the company would "discuss plans to improve operating profitability" when it announces fourth-quarter earnings later this month.

Motorola gave few additional details about the causes of the shortfall in sales and earnings, other than noting that it occurred in its mobile devices segment. In contrast, it said fourth-quarter results for the networks and enterprise, and connected home segments are expected to meet or exceed internal expectations at the start of the fourth quarter.

In October, Motorola posted third-quarter revenue that disappointed analysts' forecasts due to weaker-than-expected mobile phone sales, particularly in Europe. One month later, Motorola reported very strong mobile phone demand "from a shipment perspective".