Motorola Inc. (NYSE: MOT) delivered yet another underwhelming quarter for its investors, and at this point they should really be asking themselves if this isn’t simply the beginning of the end.
Revenue in the quarter was $7.14 billion (down 26 percent annually; down 5 percent quarterly) with GAAP EPS of $1.57. While it was easy to blame the Mobile Devices operations for the decline, Home & Network Mobility revenue was down 5 percent year-on-year, and Enterprise Mobility was not exactly setting performance records with 3 percent year-on-year growth. In fact, when you look at the two divisions that are to be split from Mobile Devices, the growth rate throughout 2008 has been anemic at best. Granted, demand has weakened for everyone in the second half, but neither of these operations has demonstrated that it’s little more than a mid-single-digit grower, as you can see below. And while Enterprise Mobility posts some nice high-teens/low-20s operating margins, Home & Network Mobility is in the mid-to-high single digits.
Motorola Y/Y Revenue Growth
The Mobile Devices segment has been in the tank for two straight years with few signs of a recovery. Motorola exited 2006 with handset units at a 263 million annual run-rate. Now it exits 2008 with units at a 77 million annual run-rate and eight straight quarters of operating losses. Responding to a question about Mobile Devices viability on the conference call, handset head Dr. Sanjay Jha indicated that we should remember that this is the team that brought us the Razr. True, but it’s also the team that brought us the last two years as well. And that brings me to the real question, can Mobile Devices survive?
Dr. Jha indicated that both he and co-CEO Greg Brown believe it can and that long-term separation is still in the company’s plans. From my perspective, Mobile Devices is simply playing out the string and will not survive.
2009 is going to be a year of treading water for Mobile Devices. Restructuring initiatives for the unit should further reduce headcount and cut operating expenses by about $1.2 billion in the year. However, after launching approximately 50 new handsets in 2008, fewer new devices will launch in 2009 as they focus their development on the mid-tier and high-end. Particular emphasis will be paid to smartphones on the Android platform, and therein lies the problem.
First, let’s be clear about the current state of the market. Motorola, whether it agree with it or not, is essentially nowhere in what most observers consider the smartphone market. It missed the window dreadfully as the company struggled under the prior management regime.
It has been a tough two years for Moto and I hope that they are not blaming it on markets alone. India added 9 million customers in Jan2009 which is more than what it has done in any period till date. The yearly additions are running at 100 million a year. China and many other countries have similar additions amking over 500 million mobiles being added and an equal number coming from replacements.
We need another Razr from motorola or better still a new device working with WiMAX, 3G or just wireless to break new ground. There is no dearth of money chasing good phones ven today, but no one is willing to buy a phone which has been around even for six months.
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