Motorola Falls on a Sword

Stock Tickers: MOT, CSCO, NOK, ERIC, QCOM, MRVL, BRCM

Motorola (MOT) sure managed to cast a cloud over itself with an earnings and revenue warning right ahead of the Consumer Electronics Show in Vegas.  Ed Zander is scheduled to be a keynote speaker as well, so the company had to come clean.

Guidance is now $0.13 to $0.16 after a $0.10 special charges allocation, so $0.23 and $0.26 in Wall Street jive; estimates were about $0.38.  Revenues were dropped from a prior $11.8 to $12.1 Billion down to a new $11.6 to $11.8 Billion.  That is one substantial EPS hickey for a 2% to 3% expected revenue miss.

Here is what the company said: The shortfall in both sales and earnings occurred in the Mobile Devices segment and is attributed to an unfavorable geographical and product-tier mix of sales as compared to the company’s internal forecast. In the fourth quarter, Mobile Devices unit sales were approximately 66 million units, up 23 percent from the third quarter of 2006 and up 48 percent from the fourth quarter of 2005.  OUR EXPLANATION: Cell Phones Are Slowing This Year.

Motorola also said networking & enterprise and connected home units are exceeding previous targets; OUR EXPLANATION: meaning the areas that Cisco (CSCO) has been winning in are still strong.

The company waited until just after 8:00 PM EST to release this earnings and revenue warning to avoid an after-hours trading fiasco, so it looks like the British and Germans will get to determine the fair and appropriate trading indications for MOT holders.

Watch out for other wireless player weakness on this news, even though some weakness has already been seen there from RBAK/ERIC, and QCOM.  Obvious plays in this are Nokia (NOK), Ericsson (ERIC), Qualcomm (QCOM), Marvell (MRVL), and Broadcom (BRCM).

Jon C. Ogg
January 5, 2007