Motorola Posts Loss of US$3.6 bil. in Q4

Given the continued fall in handset sales reported earlier in 2009, Motorola has not surprised with its latest batch of results for fourth-quarter and full-year 2008 (see World: 15 January 2009: Motorola Cuts Another 4,000 Jobs as Handset Sales Continue to Drop). Overall net sales of US$7.1 billion were down 26.0% year-on-year (y/y) with operating losses growing from US$19 million a year earlier to US$1.7 billion. Net cash from operations was up on the prior quarter from US$180 million to US$201 million, although down from US$470 million a year earlier. Net losses were US$3.58 billion as a raft of non-cash charges including a deferred tax asset valuation allowance (US$2.25 billion) and non-cash charges of US$1.82 billion, including goodwill impairment, investment, and re-organisation, were laid on top of the poor performance.

For the full year, net sales of US$30.15 billion were down by 17.7%, with operating losses growing from US$533 million to US$2.39 billion and net losses growing from US$49 million to US$4.16 billion.

Unit Performance

On an annual basis, sales from the handset division were down by 36.3% y/y to US$12.10 billion while the Home and Networks Mobility unit grew by 1% to US$10.09 billion and the Enterprise Mobility unit grew by 5% to US$8.09 billion. The Mobile Devices unit had an operating loss of US$2.20 billion, up from US$120 billion a year earlier; the Home and Networks Mobility unit had operating profits of US$918 million, up 29.48% y/y; while the Enterprise Mobility unit posted annual operating profits of US$1.50 billion.

On a segmented basis, the handset division has continued to be the main drag on operational performance with the fall to 19.2 million units sold—less than half the level of a year earlier—pushing Motorola into fifth place and cutting revenues for the division by more than half. Such a fall is particularly notable in the in the traditionally strong fourth quarter, although most vendors have been hit as the global economy has gone into a rapid tailspin and consumer confidence and spending have dried up. Operating losses, however, have been trimmed from the third quarter, presumably as numerous cost-cutting initiatives have come on stream including the cutting of several operating systems and silicon platforms from the handset portfolio (see World: 31 October 2008: Motorola Posts Losses as Revenues Drop in All Segments, Handset Spin-off Postponed and World: 29 October 2008: Motorola to Focus on Google's Android Software; Mulling Job Cuts). Total cost savings in 2009 are expected to aggregate to US$1.5 billion (see United States: 18 December 2008: Motorola Announces Further Cost Reductions for 2009).

Outlook and Implications

Motorola noted that it launched 15 handsets over the quarter, and the breakdown given shows some of the strategic errors in the portfolio. Motorola is heavily exposed to the shrinking—mainly U.S.—CDMA market with five handsets launched in the quarter. It is similarly exposed to the iDEN business—a business largely driven by Sprint, which has seen subscribers fleeing the ageing network (see United States: 10 November 2008: Sprint Loses 1.3 mil. Customers, Continues Swing to Loss and United States: 31 October 2008: Sprint to Retain and Rejuvenate Nextel iDEN Network). Six devices are described as GSM and only one as 3G. The "Aura" handset targets the same luxury segment as the Nokia Vertu range but is underpowered and obviously out of place in the economic atmosphere of a new austerity. When coupled with the competition from the high functionality and aesthetic appeal of the iPhone, the failure is particularly stark.

Next-generation devices are noted to be launched in the fourth quarter of 2009 with some signs that Motorola is focusing on the North and South American markets where it has a stronger legacy through CDMA. Motorola is also cutting back on lower end devices with a move towards Windows Mobile- and Android-based smartphones—likely the next-generation devices mentioned. These plans are still a long way from fruition and market share will likely continue to fall if they are followed.:Motorola's core mobile devices business has fundamentally changed.

The Home and Networks Mobility business has grown well over the year, selling 4.7 million digital entertainment devices—up from 3.4 million a year earlier—although possibly helped by the forthcoming digital transition in the United States (see United States: 30 January 2009: DTV Delay Bill Blocked in U.S. House of Representatives But Passed Back by Senate). It was noted that initial sales had been made in WiMAX and progress made in completing data sessions over long-term evolution (LTE). These are set to begin deploying towards the end of 2009—at least from Verizon—with other network operators less aggressive in their deployment schedules.