Motorola's Outlook Solid Despite Loss


Despite a costly sendoff for its semiconductor unit, things are looking up for Motorola.

Even though the world's No. 2 cell-phone maker reported its first quarterly loss since 2002, a $203 million deficit for April through June, Wall Street was cheered by another quarter of impressive sales and the company's forecast of more of the same ahead.

Motorola's bottom line for the second quarter was hurt by a non-cash charge of $898 million associated with last week's spinoff of the chip operations -- now operating independently as Freescale Semiconductor. It was required to set aside the money for deferred tax assets.

Investors were more focused on the latest evidence of strong growth from a company that until recently had struggled to get its core cell-phone business rolling. Operating earnings increased nearly five-fold from a year earlier and sales also topped expectations for a second straight quarter under new CEO Ed Zander.

After a 4.2 percent increase before the report was released, Motorola shares jumped another 5 percent in extended-hours trading.

Analyst Brian Modoff of Deutsche Banc Securities said the charge Motorola took for Freescale was "not really that big a deal." He viewed the overall results as "decent."

"They're doing better," Modoff said. "The handset business continues to improve. They've made some improvements in many areas."

The challenge for Motorola in the second half, he said, is "how well they can compete against an aggressive and somewhat desperate Nokia."

Finland-based Nokia still holds a commanding lead in the world handset market, but both its market share and profit outlook have been slipping amid increased competition, lower prices and a lack of popular new models.

Motorola said it expects third-quarter sales of between $8.4 and $8.8 billion, an increase of 25 percent to 30 percent over a year earlier, and at least a tripling of net earnings as it moves back into the black.

The net loss for the second quarter amounted to 9 cents per share, compared with a profit of $119 million, or 5 cents per share, for the same period of 2003. Excluding charges and one-time items totaling 30 cents a share, operating earnings were 21 cents a share -- 3 cents better than the consensus estimate of analysts surveyed by Thomson First Call.

Revenue was $8.7 billion, up 41 percent from $6.16 billion a year earlier and better than the $8.5 billion analysts had estimated.

Zander said new products helped the Schaumburg, Ill.-based company improve market share in several areas.

"Our strong results were accomplished despite an extremely competitive environment, especially, as we all know, in the personal communications or handset sector," chairman and CEO Ed Zander told analysts on a conference call.

"Our earnings would also have reflected very strong growth" except for the required non-cash charge taken for last week's Freescale spinoff, he said.

The company said operating earnings were $845 million, up from $171 million a year earlier.

The chip unit was spun off at a time when tech stocks were on the downswing, eroding Motorola's take from the sale.

Motorola also announced that Tom Lynch, head of its resurgent cell-phone unit, will leave the company for personal reasons at the end of the summer. No successor was announced.

Chief operating officer Mike Zafirovski said Lynch has helped drive significant improvement in the business, citing strong results in the last two quarters.

Boosted by the introduction of new phones, the cell-phone business posted operating earnings for the quarter of $394 million and sales of $3.9 billion, a 67 percent jump from a year earlier. It shipped 24.1 million phones, or 52 percent more than in the second quarter of 2003.

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