Pricing, portfolio hurt Motorola

NEW YORK (Reuters) -- Motorola Inc., the world's second-biggest mobile phone maker, Wednesday posted a quarterly loss on weak handset sales and gave new forecasts that raised doubts over when the company would be profitable.

While first quarter earnings narrowly beat Wall Street expectations and shares rose, analysts were disappointed with Motorola's view on second quarter earnings despite company assurances it would post a profit for the full year.

Besides challenges such as stiff competition in emerging markets and criticism for a stale phone line-up, Motorola also faces a proxy battle with activist investor Carl Icahn, who has a 2.9 percent stake in the company and is seeking a board seat.

Motorola (up $0.34 to $18.29, Charts) shares, which had lost about a third of their value since mid-October, rose 1.5 percent on the New York Stock Exchange as some investors were relieved average phone prices hadn't dipped further, one analyst said.

"Profitability in phones wasn't quite as bad as expected but there's not a recovery in sight," said Charter Equity Analyst Ed Snyder. "Next quarter is quite a bit of a disappointment against consensus. Wall Street was expecting them to see some recovery next quarter."

Motorola, which slashed its guidance last month, posted a first-quarter loss of $181 million, or 8 cents a share, compared with a year-ago profit of $686 million, or 27 cents a share. Revenue fell nearly 2 percent to $9.43 billion from $9.61 billion.

Excluding one-time items such as acquisition costs and a legal settlement, the company posted a profit per share of 2 cents, just above analysts' forecasts of 1 cent per share on revenue of $9.25 billion, according to Reuters Estimates.

"Probably people are looking at these things in a positive way," said Jefferies analyst Bill Choi, who believes the stock is expensive at this price because of the company's disappointing second quarter outlook.

Motorola forecast a second-quarter profit of 2 cents to 3 cents a share, excluding reorganization charges and other items, with sales "essentially flat" with the first quarter.

Analysts on average had expected revenue of $9.97 billion on earnings of 8 cents per share for the second quarter, excluding unusual items, according to Reuters Estimates.

Charter's Snyder estimated that Motorola's market share fell to about 17 percent from 23.3 percent in the previous quarter.

It likely lost share to rivals such as market leader Nokia (down $0.18 to $23.74, Charts), set to report later this week, and smaller rivals Samsung Electronics and , a venture of Ericsson (down $0.05 to $39.00, Charts) and Sony Corp (down $0.08 to $55.12, Charts), he said.

Motorola Chief Executive Ed Zander said on a conference call that the results were unacceptable. He did not repeat the company's plan to return to double digit operating margins in the second half of the year, but said it would happen in time.

"Over time there is no reason why we cannot return to double digit operating earnings," Zander said.

Motorola said on the conference call that it would give details of additional cost cutting by June. It had already said it would cut 3,500 jobs to cut costs.

Motorola repeated its expectation that it would be profitable for the full year as it sees sales and operating margins gradually improving in the second half. But analysts said it would be tough for them to recover.

"I think it's going to be very difficult," said James Faucette, analyst at Pacific Crest Securities. And Snyder noted that the company's rivals would not sit still in the interim.

"Nokia, Samsung and Sony Ericsson will have plans for Motorola in the second half of the year," he said. "The environment Motorola's selling into is going to get tougher, not easier."

The company shipped 45.4 million handsets in the quarter, down from 65.7 million in the fourth quarter.

Revenue for its mobile devices business was down 15 percent from the year-ago quarter at $5.4 billion and the unit posted an operating loss of $231 million, compared with a profit of $701 million in the year-ago quarter.