Motorola downgrades outlook, names new president

By Colleen Taylor -- Electronic News, 3/22/2007

Times are tough at Motorola Inc., which downgraded its Q1 and full-year outlooks this week despite some 3,500 job cuts and other cost reduction measures implemented earlier this year.

The mobile phone maker on Wednesday downgraded its financial outlook due to what it said were lower than anticipated sales and operating earnings in its mobile devices business. Motorola said it now expects sales for Q1, which will be announced on April 18, to be in the range of $9.2 billion to $9.3 billion. That's down as much as 13 percent from the outlook given in January, when Motorola had predicted Q1 sales of between $10.4 billion and $10.6 billion.

And things are not likely to get much better in the following quarters. For full year 2007, Motorola said it currently expects overall sales, profitability and operating cash flow to be "substantially below" prior guidance of sales of $46 billion to $49 billion.

The Schaumburg, Ill.-based company's recent struggles have not gone unnoticed to Wall Street's major players. In January, notorious corporate raider Carl Icahn, who gained his reputation as a major shareholder activist in 1985 with his hostile takeover of airline TWA, launched a campaign for a position in Motorola's board of directors. And earlier this month, Icahn, who already owns some 1.39 percent of the company, filed to gain even more control by acquiring as much as $2 billion in additional shares of Motorola common stock.

The company is currently struggling to regain profitability on its own, however, announcing this week plans to reenergize its stressed mobile devices business, major managerial changes and an amped-up share buyback program.

Motorola minced no words in blasting the sub-par performance of the business that it claimed is in large part responsible for the sales slump. "Performance in our mobile devices business continues to be unacceptable, and we are committed to restoring its profitability," Edward J. Zander, chairman and CEO of Motorola, said in a statement. "After a further review following the leadership change in our mobile devices business, we now recognize that returning the business to acceptable performance will take more time and greater effort."

Motorola’s major changes in leadership include a new president and CFO. Greg Brown, who had been president of the company's networks and enterprise business, has been named president and COO of Motorola, effective as of Wednesday. Motorola has also named Thomas J. Meredith as acting CFO, effective April 1. David Devonshire, executive VP and CFO will retire as CFO, effective April 1.

Motorola said that, although it expects the mobile devices business to incur an operating loss in Q1, the business is expected to experience a gradual recovery in the second half and be profitable for the full year.  Zander added that part of those recovery efforts include an acceleration of $2 billion in share repurchases and an increase of the size of its ongoing share repurchase program to $7.5 billion.