Motorola's losses mount

Company reports more losses for the second quarter of 2007, but management hopes that a recovery is still on the horizon.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read

Motorola reported a second-quarter loss when it announced earnings Thursday, as sales of wireless handsets dropped by about 40 percent.

The company has some new products in the pipeline that should boost sales in the next two quarters, but executives still don't think the company's handset business will turn a profit in 2007.

Motorola reported it had lost $28 million, or 1 cent a share, compared with net income of $1.38 million, or 55 cents a share, in the same quarter a year earlier. Revenue was down 19 percent to $8.73 billion from $10.82 billion a year earlier.

The news of Motorola's earnings shortfall had been expected. The company issued a profit warning last week. But now the big question is how quickly can Motorola get its mojo back?

The past several quarters have been huge disappointments as the company's product offering has stagnated. And in an effort to reach profitability, the company has resisted price cuts, which has caused it to lose market share, especially in important markets like Asia and Europe.

Motorola has held the No. 2 spot in terms of worldwide market share for mobile devices behind Nokia, but after this quarter, it's likely the company has slipped to third place behind Samsung Electronics.

Ed Zander, Motorola's CEO, is hoping that Motorola's repurposed handset portfolio, which includes 3G versions of the Razr and Motorola Q, will help boost sales. These phones went on sale this summer. But he also indicated on the call with analysts and investors that the company needs something new to "wow" consumers. And in an iPhone-crazy market, the company has its work cut out for it.

"It's all about the products," said Zander. "If you look at Q1 and Q2, we really didn't have many "wow" products. We really need to get new products out there."

He said he's encouraged by early sales of the new Q and Rockr phones in Asia, but he didn't want to overstate the impact.

Aside from the lack of any really cool, killer phones, Motorola appears to have two main problems in its handset division. For one, Motorola was late to the 3G market, which has hurt sales in Europe and Asia where 3G is thriving. But even though Motorola now has 3G devices to sell, the company is still vulnerable because it's at least a year behind its competitors in terms of design. This means that Motorola is going to have to scramble to reduce its cost structure in order to stay competitive with Nokia and Samsung.

The second problem is that Motorola has struggled to compete in the low end of the market, because it hasn't been able to keep costs down. This is a huge problem since many analysts predict that emerging markets like India and sub-Saharan Africa are likely to fuel much of the growth in handsets over the next several years.

Motorola's poor financial performance has put a lot of pressure on Zander. Many industry pundits wonder if the CEO's days are numbered. When asked during the conference call if the board of directors is still behind Motorola's management team, Zander would only say, "I think we are doing the right things. It's certainly been a difficult year for us. And the management team has been working really hard. That's all I can say."