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Motorola posts loss, handset sales rise

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CIOL Bureau
New Update

Ben Klayman



CHICAGO: Motorola Inc. posted a quarterly net loss due to the partial spin off of its chip unit, but sales surged and it won share from its rivals in the growing global cell phone market.



Motorola, whose shares rose 5.6 percent in after-hours trading on INET, also forecast stronger-than-expected sales in the current third quarter.



Motorola reported a second-quarter net loss of $203 million, or 9 cents a share, compared with a profit of $119 million, or 5 cents a share, in the year-earlier period.



Sales in the quarter at the Schaumburg, Illinois-based company rose 41 percent from last year to $8.7 billion. Analysts were expecting $8.44 billion, according to Reuters Estimates.



However, executives said they cannot relax in the cutthroat market for cell phones, where the company competes with Nokia and Samsung Electronics. Demand in the global cell phone market has risen due to the popularity of color screens and integrated digital cameras.



"We're taking it one quarter at a time," said Motorola Chief Executive Edward Zander. "We know what we've got to do over the next two years ... and the competition is fierce."



In April, the world's second-largest cell-phone maker said first-quarter profit tripled, blowing past Wall Street's expectations. Excluding the costs associated with last week's initial public offering of stock in the chip business -- Freescale Semiconductor Inc. -- Motorola again topped Wall Street's expectations in the second quarter.



It has benefited at the expense of larger rival Nokia, which has struggled with a product lineup lacking models consumers want.



"Nokia's losses are Motorola's gains," said Charter Equity Research analyst Edward Snyder, who has a "buy" rating on Motorola's shares. "They're continuing the momentum they had last quarter."



Nokia saw its stock plunge to near six-year lows after it warned last week for the third time in as many months that earnings would fall further as it cuts handset prices to protect market share.



Excluding one-time items, Motorola earned 21 cents a share. Analysts were expecting 18 cents, according to Reuters Estimates.



The first-quarter results showed the diversified maker of electronics used to run everything from phones to cars to cable TVs is seeing strong demand in its businesses, something it expects to continue in the current quarter.



Motorola forecast third-quarter sales of $8.4 billion to $8.8 billion and earnings according to generally accepted accounting principles of 15 cents to 19 cents a share. Analysts were expecting third-quarter sales of $8.41 billion, according to Reuters Estimates. The forecast excludes a portion of the chip business.



Motorola also revealed that cell-phone chief Tom Lynch would leave at the end of the summer for personal reasons. No replacement was named, but Zander said he wants a replacement in place before the fourth quarter starts.



The handset business saw sales rise 67 percent to $3.9 billion and its gross profit margin, at 10.2 percent, broke double figures for the first time since the mid-1990s. Operating earnings in the unit more than quadrupled.



Although Motorola's cell phone shipments slipped from the previous quarter -- suggesting to analysts the company's market share may have slipped -- they surged 52 percent from last year thanks to 17 new models. Motorola said it picked up share versus last year, especially in Europe and Latin America.



Motorola also said its handsets' average selling prices remained flat in the quarter, compared with declines at Nokia and Samsung. While most analysts had expected Motorola to forecast a decline in handset prices in the third quarter, it said they should remain flat.



(Additional reporting by Sinead Carew)

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