Motorola posts $28M loss in 2Q

Motorola Inc. reported a second straight loss Thursday after another quarter of subpar sales, a $28 million deficit that raises pressure on the handset maker and CEO Ed Zander in what he acknowledged has been "a very difficult year."

The company promised financial improvement in its cell-phone division in the second half but steered clear of estimates after weak international sales contributed to back-to-back losses for the first time in five years.

Its hopes for recovery, on hold until next year, hinge on the reception of new phones like the Razr 2 and the Z8 that are just being shipped.

Some investors also are clamoring for the board of directors to replace Zander, whose 3 1/2-year run as chief executive has been tarnished by the company's botched sales strategy following two years of notable success linked to runaway sales of the Razr phone.

Tom Meredith, a Motorola board member as well as chief financial officer since March, said Zander still has directors' backing.

"The board is of the opinion that we have the right strategy and we have the right leadership team," he told The Associated Press.

Zander, who also is chairman, said he found "amazing" the recent speculation about the board looking for his successor and potentially considering the sale of some businesses. He said the board reviews succession planning regularly.

"Speculation has been going on on a lot of different things, and there are some things that just people aren't getting right out there," he said in a telephone interview, declining to comment on specifics. "I don't know where all these things get started."

The source of investors' concern is not hard to understand, with Motorola in the midst of its worst stretch since a string of six straight quarters in the red from 2000-02 and thought by analysts to have slipped beneath Samsung Electronics Co. to third place behind Nokia Corp. in the global handset market.

Mark Sue, an analyst for RBC Capital Markets, said the Schaumburg, Ill.-based company is "staring up a big mountain" before it gets back to where it needs to be.

"Motorola still has much work to do to fix mobile devices," he said in a note to investors. The company, he said, "will be in rebuilding-mode for the remainder of 2007."

Second-quarter results brought a handful of bright spots but mostly a slew of bad numbers for Motorola, which had warned last week that its results would fall short of expectations,

Few were as indicative of its deterioration and cutbacks as the total of 35.5 million handsets it shipped during the quarter — down a whopping 46 percent from the fourth quarter when the cell-phone business was still near its peak.

The net loss amounted to a penny per share, down from a profit of $1.38 billion, or 55 cents per share, in the same period a year ago. Net loss from continuing operations totaled $38 million, or 2 cents per share, and included charges of 4 cents per share from job cuts and insurance litigation.

Revenue fell 19 percent to $8.73 billion from $10.82 billion. Its mobile phone business led the way in the decline, accounting for less than half of sales at $4.27 billion, down 40 percent from a year ago.

The company's other two segments saw an increase in revenue.

Zander acknowledged that "there weren't many really new 'wow' products" in Motorola's portfolio in the first half of 2007.

"This has certainly been a very difficult year," he told analysts on a conference call.

He said several areas of improvement in the quarter provide the basis for a second-half financial pickup: a decline in inventory channels and gross margins, higher average selling price, a lower cost structure and the recent flurry of new products.

Greg Brown, the company's president and chief operating officer, said Motorola is "not hoping for the one-hit wonder" as it seeks to follow up on the Razr's phenomenal success. "We want a more balanced, predictable portfolio," he said in an interview.

Banc of America Securities analyst Tim Long said the company's profit margins are at their lowest level in recent history but appear to be bottoming out, along with market share. "It will take a few quarters for fundamentals to rebound," he said in a note to investors.

The company's other two segments besides cell phones saw an increase in revenue. But Philip Cusick of Bear Stearns said the better-than-expected $1.9 billion in sales from the enterprise mobility segment, which sells communications equipment to businesses, wasn't nearly enough to offset the problems in the handset business.

"We believe management is taking appropriate steps, but the problems are far steeper than many imagined," he wrote.

For the first six months of the year, the company lost $207 million, or 9 cents a share, compared with a profit of $2.07 billion, or 84 cents a share, in the first half of 2006. Revenue fell 11 percent to $18.2 billion from $20.5 billion.

Motorola shares rose 22 cents to $18.22 on Thursday. They are down 30 percent from last October.