Friday, January 20, 2006

Motorola earnings and revenue up - but their stock collapses?!

Motorola, the world’s 2nd largest mobile phone maker, reported an 87% increase in 4th quarter profits boosted by record handset sales.

Net income rose to $1.2bn, from $647m, a year earlier on sales that gained 18% to $10.4bn. A $40bn revenue company grew 18%. Now that's not bad. And it looks like their new thin line of phones, led by the Razr, had a lot to do with it. And Motorola's share of the mobile handset market duly bounced up 3% to 19%.

But, Motorola's share price slumped 6% this morning. Go figure. We have been writing all week about how tech stocks are getting corrected downwards because the tech bull market has got ahead of itself. Not necessarily due to fundamentals at tech companies.

Motorola is in a strong position in handset sales. Their approach to fashionable, feauture driven internet capable phones is the way forwards and nice on margins. And the global handset market is due to grow 20% in 2006. This may be down on 2005 growth of 23% but is still strong. Motorola should do even better.

The issue seems to be their networking business, as it is for many (just look at Lucent and Nortel). This is the part of the Motorola business that provides wireless and broadband infrastructure to mobile phone operators worldwide. And it's revenues fell by 18% from the quarter a year before.

The big question for Motorola CEO Ed Zander is whether he should sell the networking division off and focus on the handset market exclusively. This focus seems to work well for Sony-Ericsson. And as mobile devices extend to become tablets and camera's and music players and more, the segment may just extend.

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