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2HRS2GO: Motorola will rebound

Why be temperate? Go nuts.

That was the attitude of Motorola (NYSE: MOT) shareholders at the market open. It's their loss. Literally.

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Shares of Motorola dropped like a meteor today after the company warned of lower-than-expected profits in the near term. Motorola sees falling margins in its wireless phone business because of parts shortages combined with lower handset prices.

Some folks blamed Motorola for sparking another decline among technology stocks today. I'm a bit hesitant to lay it all at Motorola's feet, because this market was shaky well before the company released first quarter results. Or haven't you been paying attention the last few weeks?

In any case, the Nasdaq Composite Index actually has climbed for most of today -- all of its losses came in the first hour of trading.

(Update: So of course, it's going down again in the afternoon. But it's still a larger trend.)

So the market at least is smart enough to isolate Motorola's problems. Perhaps they're heeding the words of analysts, who generally believe rivals such as Nokia (NYSE: NOK) and LM Ericsson (Nasdaq: ERICY) aren't seeing margin problems at this point.

"This is strictly a Motorola phenomenon right now," says Charles A. Disanza, analyst with Gerard Klauer Mattison. "They're caught in a margin squeeze."

Older, higher margin phones made up a larger portion of Motorola revenue for a longer period of time than was the case with the company's Scandinavian peers. Now the company is adjusting in a particularly difficult time because of global shortages of LCD screens and flash memory.

I suspect part of the problem lies with geography. Being a U.S. company, Motorola relies more heavily on the United States than the Finnish Nokia or the Swedish Ericsson. The U.S. is behind in adapting new wireless technology, so older phones hung around Motorola's product line longer.

Not that anyone expects Motorola to be as efficient as Nokia, whose operating margins are the best in the business. But there's no reason why Motorola can't at least outdo one of its competitors.

Ericsson took about 15 months to work through its own margin problems as it sold more and cheaper digital handsets, Disanza notes. He believes Motorola can get out of it faster.

"Motorola will be back in two quarters," Disanza says. "I think today is a gross overreaction."

The company's other businesses are doing great. Cable modems keep flying out the door, set-top boxes continue ramping, chips see healthy demand and network communications equipment remains hot.

At least Motorola doesn't seem to have any inclination to go below today's drop. A day-long decline would be worrisome, but MOT has basically flatlined since the first half hour of activity, which seems to indicate all the doubters fled right at the open.

Too bad for them.

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  • Momentum traders
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    There's no use in assigning "good" or "bad" to broad market movements -- they are what they are. You just have to deal with them. 22GO>