Motorola (MOT-NYSE) shares were halted for trading after the close.  Its stock had closed down 0.4% at $18.74 on 36 million shares (10% above average volume) and the speculation was rampant that it was the defacto buyer of Palm (PALM).

Well, here is why Motorola was halted: The company is revising guidance and names GREG BROWN as president & COO; Thomas Meredith has been appointed as Acting CFO.  The company is accelerating share buybacks of $2.0 Billion and increased the total share buyback plan to $7.5 Billion.   

Ed Zander, CEO & Chairman (consolidated quotes): "Performance in our Mobile Devices business continues to be unacceptable, and we are committed to restoring its profitability.  After a further review following the leadership change in our Mobile Devices business, we now recognize that returning the business to acceptable performance will take more time and greater effort.  The steps we are announcing today will enable Motorola to perform better for our shareholders, customers, partners and employees. I am confident Motorola has the right assets, brand and intellectual property, as well as a strong heritage of innovation and a strong balance sheet — all of which we will draw upon in the coming months."

REVISED GUIDANCE: Motorola now expects sales for the first quarter of 2007 to be in the range of $9.2 to $9.3 billion (compared to estimates of $10.4 to $10.5 Billion). First quarter GAAP results are expected to be a loss in the range of $0.07 to $0.09 per share, including charges of approximately $0.09 from the items highlighted below.  The estimated loss on a GAAP basis includes acquisition-related charges and in-process R&D expenses associated with the acquisitions of Symbol Technologies, Good Technology and Netopia, totaling approximately $0.06 per share. Also included are business reorganization charges of approximately $0.03 per share related to the previously announced workforce reduction of approximately 3,500. Additional charges for this reduction in force will be recorded in subsequent quarters.  The revised guidance is attributable to lower than anticipated sales and operating earnings in the Mobile Devices business due to lower overall unit volumes, a difficult pricing environment, particularly for low-tier products and a limited 3G product portfolio. The Mobile Devices business expects to report an operating loss for the first quarter of 2007.  The lower volume is due largely to a shift in the Mobile Devices business to focus on long-term gross margin improvement rather than focusing primarily on market share growth. In emerging markets, particularly India, Africa and South Asia, competitors lowered prices at a faster rate than anticipated. Given the renewed focus on gross margin improvement, the company chose not to match prices in all instances. The company noted that the business continues to show strength in the Americas and North Asia.

FULL YEAR LOWERED AS WELL: For the full year 2007, Motorola currently expects overall sales, profitability and operating cash flow to be substantially below prior guidance. The company expects to be profitable for the full year and also to generate positive operating cash flow. The company expects the Mobile Devices business to incur an operating loss in the first quarter, and to experience a gradual recovery in the second half and be profitable for the full year.  The company reaffirmed its previously stated guidance for the Networks & Enterprise and Connected Home Solutions businesses. For the Networks & Enterprise business, Motorola expects mid-teen annual revenue growth and double-digit operating margins. For the Connected Home Solutions business, Motorola expects sales growth to exceed market growth and operating earnings to increase as compared to full year 2006.  The company will continue to make necessary adjustments to its cost structure in line with its revised revenue expectations without compromising key future growth areas such as WiMAX, enterprise mobility and IPTV.

CONJECTURE: It looks like Carl Icahn is getting his way, yet again.  But at what price?  This signal’s "severe margin compressions at Motorola" at this point.  Palm (PALM) shares are now down 2.3% at $18.99 after closing up 3.6% at $19.45 on the day.  Will they still try to acquire Palm (PALM)?  Maybe, but they will have to make a cash offer now if they want to be listened to.  So far there has been very little spill-over into Nokia (NOK) and Ericsson (ERIC).  Broadcom (BRCM) is down 0.8% at $33.14 after-hours and that is after closing down 0.5% at $33.40 on the day.  Marvell (MRVL) is actually up 0.3% at $18.13 in after-hours and that is after a 0.8% rise to $18.07 in regular trading.  Qualcomm (QCOM) shares are down 0.5% at $43.48 in after-hours trading after closing up 1.6% at $43.73 on the day.

Jon C. Ogg
March 21, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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