Novice Investing - Getting Razed at Motorola

Date: Tuesday 13th 2008f May 2008 07:08:24 AM

Getting Razed at Motorola - 01/23/2008

By: Hari Wibowo

New CEO, same old result. Early last year, we talked about how things got so bad at Motorola Inc. (MOT) when it announced a $ 1 Billion shortfall within several weeks of reducing guidance. We sensed that things will get worse before it gets better. At the time, the shares was trading at $ 17.82 per share and has stubbornly held above $ 15 for most of 2007. This morning, Motorola announced its 4th quarter 2007 result and it ain't pretty. Motorola posted adjusted net profit of 14 cents per share with revenue of $ 9.65 Billion which is above analysts' estimate. However, the company offered less stellar guidance going forward with 1st quarter net earning of 6 cents per share versus 10 cents per share expectation.

Meanwhile, Motorola shares has fallen to $ 12 per share prior to the earning announcement, which is a 32.7% hair cut over the past twelve months. As Motorola delivered bad news after another, has its shares fallen far enough to justify a purchase? Certainly, Motorola is a better deal now after its 33% hair cut. Further, it did not miss revenue by $ 1 Billion after several weeks of earning reduction. However, the pictures hasn't improved for the company. Motorola had not been able to emulate its success with its Razr phone introduced back in 2004. This past holiday season, it unveiled Razr2, which was not doing so well by judging at the performance of its mobile phone division. Phone sales were down 38% year over year to $ 4.8 Billion last quarter. This division incurred operating loss of $ 388 Million. Management, led by new CEO Greg Brown is not resting on its laurel. Mr. Brown announced a cost cutting initiative targeted to save $ 500 Million annually. This of course assumed that the mobile phone division does not get any worse. However, at the very least, Mr. Brown is addressing the need to plug a hole in the $ 388 Million of operating loss that the mobile phone division incurred.

Back in 2003, Motorola shares hit a single digit. With its shares down 15% from previous day, it is time to ponder whether Motorola will come out of its slump eventually and rise above $ 20s within the next several years. As

we have elaborated, back in 2004, Motorola has a positive net cash of $ 1 Billion while latest quarterly balance sheet shows Motorola having a positive net cash of $ 6.5 Billion. Depreciation ran at a rate of $ 944 Million, therefore if Motorola post a loss of $ 0.40 per share, cash flow from operation should be at break even. Currently, earning estimate for the year 2008 as compiled by Yahoo! Finance is net profit of $ 0.68 per share. We think that this will be reduced further as Motorola's competitive position deteriorated further.

For now, Motorola shares remain on our watch list. However, it is closer to our buy point compared to when we first talked about it in March 2007. It may repeat the run up of 2003 since Motorola is in a stronger position now than it was then.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Motorola Inc. (MOT) or any other securities.

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