Motorola CEO: Q1 mobile devices business “unacceptable”

By Colleen Taylor, Contributing Editor -- Electronic News, 4/18/2007

With CEO Ed Zander notably unhappy with the results, Motorola Inc. today reported weak Q1 financial results, posting sales of $9.43 billion, down 5.7 percent year-over-year from Q1 2006 sales of $10.01 billion and down 20.3 percent from Q4 2006 sales of $11.8 billion.

The company also posted a Q1 operating loss of $366 million, down from Q1 2006's operating earnings of $894 million and down from Q4's operating earnings of $753 million. Motorola reported a gross margin of $2.45 billion, down from Q1 2006's $3.02 billion gross margin and Q4's $3.07 billion gross margin.

Motorola chalked much of its Q1 failings to weaknesses in its mobile devices segment. The segment's sales were $5.4 billion, down 15 percent year-over-year and down 30.7 percent from Q4. The mobile devices segment incurred an operating loss of $231 million, compared with operating earnings of $701 million in the year-ago quarter and earnings of $341 in Q4 2006.

"The performance in our mobile devices business in the first quarter is unacceptable and we are committed to restoring it to an appropriate level of profitability," Ed Zander, Motorola's chairman and CEO, said in a statement.

The quarter's financial struggles are not exactly news for the company. Last month, Motorola warned that it was expecting dismal Q1 results despite the implementation earlier this year of some 3,500 job cuts and other cost-reduction measures. Also last month, Motorola announced a slew of major changes in leadership, naming Greg Brown the company's new president and COO and naming Thomas J. Meredith the company's acting CFO.

Even with the recent changes, Motorola said it does not expect its revenues to bounce back in the near future. The company is expecting sales in Q2 to be flat with its Q1 sales. However, Motorola said it expects to see "gradual quarterly improvements" in both sales and operating margin in the second half of the year.

Motorola's pecuniary problems 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, began campaigning for a position in Motorola's board of directors. Earlier this month, Motorola disclosed in a regulatory filing that Icahn and his entities had upped their stake in the company to a total of nearly 3 percent. The shareholder vote on Icahn's nomination is slated for May 7. Motorola has reportedly urged shareholders not to vote for Icahn.