Motorola profit booms on handsets sales

Ben Klayman

CHICAGO: Motorola Inc. said first-quarter profit tripled on growing share of the handset market, sending its shares skyrocketing 23 percent as it blew past Wall Street's expectations.

The world's second largest cell-phone maker also forecast second-quarter results that dwarfed analysts' estimates, and its results gave a broad boost to shares of wireless technology and equipment companies.

Motorola, based in the Chicago suburb of Schaumburg, Illinois, reported a first-quarter net profit of $609 million, or 25 cents a share, compared with $169 million, or 7 cents a share, in the year-ago quarter.

Excluding one-time items, it earned about 18 cents a share, topping analysts' expectations of 7 cents a share, according to Reuters Research, a unit of Reuters Group Plc.

Sales in the quarter rose to $8.56 billion, far above the $6.76 billion analysts were expecting according to Reuters Research. Motorola's sales were 42 percent above last year and almost 7 percent above the preceding quarter.

"It looks like Motorola to some degree benefited at Nokia's expense during the quarter," said Shawn Campbell of Campbell Asset Management in Chicago, who owns Motorola shares.

Nokia, the world's biggest mobile phone maker, disappointed investors, when it admitted that cheaper, funkier phones from rivals were eating into its market lead. It also said second-quarter earnings would fall and sales could also drop.

Motorola and its rivals have suffered a slowdown in demand for mobile telephones and wireless equipment over the past couple of years, but demand has picked up thanks to demand for phones with such features as color screens and integrated digital cameras.

The company's cell-phone unit saw sales surge 67 percent from last year to $4.1 billion, while earnings more than tripled due to the success of those new products. It shipped 25.3 million handsets in the quarter, up 51 percent from last year, and improved its market share, particularly in Europe.

Judging by the results, the diversified maker of electronics used to run everything from phones to cars to cable TVs seems to have corrected some of the problems that plagued it recently, analysts said. Last fall, it missed the critical holiday selling season with some wireless operators as parts shortages delayed deliveries of some of its camera phones.

Chairman and Chief Executive Edward Zander has emphasized improving the company's execution in that area, and said in February it was poised to gain global market share if it could speed delivery of its phones.

"Sales and earnings exceeded our start-of-the-quarter guidance, the result of strengthening customer demand, improved execution in delivering new products, and growing market share in some areas," said Zander, who assumed leadership of Motorola in early January, in a statement.

Motorola said in January it expected to earn 5 cents to 7 cents a share on sales of $6.4 billion to $6.8 billion.

"It was pretty clear they were taking market share from Nokia," said Schwab SoundView Capital Markets analyst Matt Hoffman, who nonetheless said "the number was really quite shocking."

Motorola also forecast second-quarter sales of $8.2 billion to $8.6 billion and earnings excluding the impact of the planned initial public offering of its semiconductor unit of 14 cents to 18 cents a share.

Analysts were expecting second-quarter sales of $6.92 billion and earnings before one-time items of 9 cents, according to Reuters Research.

The company ended the quarter with a net cash position of almost $1 billion, the first time it had done so in more than 35 years.

Motorola shares surged to $20 in after-market trading on INET from the Tuesday closing price of $16.22 on the New York Stock Exchange. The last time Motorola topped $20 a share was in February 2001.

Among the other wireless stocks rising on the news were Qualcomm Inc., up to $66.93 on INET from a $64.43 Nasdaq close; RF Micro Devices Inc., at $8.45 on INET from an $8 close; Texas Instruments Inc., at $27.78 from a $27.35 NYSE close; and Ericsson, at $31.15 on INET from a $30.38 Nasdaq close.

(Additional reporting by Ben Berkowitz in Los Angeles)

© Reuters