Motorola Inc. swung to a net profit of 8.5 percent in the first quarter, helped by better-than-expected sales of its newest and most profitable smartphones like Droid, they have bounced back from a year-ago loss.
The company predicted second-quarter earnings, excluding some costs, of as much as 9 cents a share, would beat the analysts' projections. Motorola’s ambitious turnaround strategy is due to the sales of the touch-screen Droid, a smartphone running Google Inc.’s Android software, were “very strong” last quarter, co-Chief Executive Officer Sanjay Jha commented. The challenge for Motorola is to follow up with other attractive handsets to win users from Apple Inc.’s iPhone and Research In Motion Ltd.’s BlackBerry, said Tavis McCourt, an analyst at Morgan Keegan & Co. in Nashville, Tennessee.
Motorola, based in Illinois, rose 22 cents, or 3.1 percent, to $7.14 at 12:46 p.m. in New York Stock Exchange composite trading, and climbed as high as $7.51 earlier. This was the maximum gain in more than two months. This dramatic change came after it shipped 2.3 million smartphones, up from 2 million in the previous three months. Total handset shipments were 8.5 million.
“The success of the Droid has got them back in the game and given them great marketing support from Verizon,” said McCourt, referring to Verizon Wireless, the largest U.S. wireless carrier. McCourt has an “outperform” rating on the stock. “They need more than one hit to get the scale to be profitable.”
Motorola, based in Schaumburg, Illinois, rose 22 cents, or 3.1 percent, to $7.14 at 12:46 p.m. in New York Stock Exchange composite trading, and climbed as high as $7.51 earlier. The gain was the largest in more than two months.
Motorola said it shipped 2.3 million smartphones, up from 2 million in the previous three months. Total handset shipments were 8.5 million. McCourt estimated 1.7 million smartphones and 10.3 million devices in total.
Still, Motorola is also facing intensifying rivalry. Yesterday, Hewlett-Packard Co. said it would buy Palm Inc., maker of the Pre and Pixi smartphones, in a $1.2 billion deal.
Motorola is counting on a sales recovery as it prepares to split off its handset business. The company said in February the wireless unit will be merged with its unit that makes cable TV set-top boxes and be headed by co-Chief Executive Officer Sanjay Jha. Co-CEO Greg Brown will oversee the remaining units that make two-way radios, bar-code scanners and wireless networks.
Motorola is making “excellent progress” toward the split, which is on track for the first quarter of next year, Brown said on the call. Motorola will file a report this summer with more details, he said, declining to be more specific.
Second-quarter earnings will be 7 cents to 9 cents a share, Motorola said. Analysts projected 4 cents, according to the average of estimates compiled by Bloomberg.
Motorola said its forecast excludes expenses of 4 cents a share for stock compensation and amortization. Including those costs, the forecast was in line with estimates, Thornton said.
First-quarter net income was $69 million, or 3 cents a share, compared with a loss of $231 million, or 10 cents, a year earlier. Profit, excluding some items, was 2 cents a share. Analysts had predicted a loss of 1 cent on average.
Sales fell 6.1 percent to $5.04 billion. Analysts projected sales of $5.12 billion.
The loss at the mobile-phone unit narrowed to $192 million from $545 million a year earlier, while revenue dropped 8.9 percent to $1.64 billion.
The division’s loss should narrow in the third quarter and the unit should be profitable in the fourth, Jha said. Motorola is open to developing its own operating system provided it made strategic sense, Jha said.
“Owning your OS is important, but it’s not just the OS -- you have to have the ecosystem, the apps, a huge range of services,” he said. Right now, Android is “delivering very good results for us,” he said.
Sales at the set-top-box unit fell 18 percent to $838 million. The division making scanners and two-way radios boosted revenue 5.9 percent to $1.69 billion, and sales at the network unit fell 7.2 percent to $896 million.
