Motorola tries to find the bottom
Investors hoping for a sign that the No. 3 phone maker is on the comeback are likely to be disappointed.
NEW YORK (Fortune) -- Expect another glimpse of the ongoing collapse of Motorola's phone business when the company reports first-quarter earnings Thursday.
Motorola, the No. 3 handset maker, has already outlined in recent weeks some of the more dreary details of its steady slide: 2,600 jobs cuts, a plan to jettison the money-losing mobile phone unit in a spin off to shareholders, and a search for a handset chief to help stabilize if not rebuild the business.
Investors are bracing for more bad news Thursday morning. Motorola is expected to post a loss of seven cents a share on $7.75 billion in sales for the quarter ended March 31, according to analyst estimates. That compares to earnings of two cents a share on $9.43 billion in sales in the year-ago quarter.
Some investors are banking on the assumption that, once a giant like Motorola has fallen, it's only a matter time before it gets up again. While the Wall Street consensus calls for Motorola to lose a mere penny a share in the second-quarter, that improvement is likely to come from the company's cost-cutting campaign and not from a turnaround in its core businesses.
Motorola has some deep-seated problems, among them a stale lineup of phone and the lack of any potential blockbusters in the pipeline. Until it can come up with a hit, Motorola's downward spiral will likely accelerate, says Ed Snyder of Charter Equity Research.
"Expect higher losses on deteriorating performance in phones leading to lower guidance," Snyder writes in a Motorola preview Wednesday. If Motorola warns that business is even softer than its previous guidance, the risk grows that Motorola's handset business can't generate enough money to operate as a standalone business.
If so, it would deal a blow to Motorola and activist investor Carl Icahn, who successfully pressured the company to announced last month that it will split in two in a bid to unlock the value of its non-handset business. The move followed a lack on interest from other phone makers after Motorola put the phone business on the block.
Last year, Motorola's handset unit booked an accumulated loss of $1.2 billion as its Razr phones stopped selling at the breakneck pace reached in 2006, when it was the must-have handset.
Heavy competition from No.1 phone maker Nokia (NOK) and more nimble manufacturers like Samsung, LG and Sony Ericsson (a joint venture between Sony (SNE) and Ericsson (ERIC)) has hurt Motorola's market share. Last year Korea's Samsung edged aside Motorola to become the world's second-largest mobile phone maker.
Motorola shares are down 41% so far this year. They were trading up modestly, to $9.41, on Wednesday after hitting a four-year low of $8.85 last week.
Motorola has taken steps to pull its mobile phone division out of its nosedive. Last month the company closed a phone plant in Singapore and extended its total layoff tally to 10,000 workers.
These measures could slow the flow of red ink - but not by much. In a best-case scenario, Motorola could announce a new phone platform that would deliver exciting new models in time for the big Christmas buying season.