Motorola has long been a company to slap Wall Street with surprises. In recent quarters, they haven't been pleasant ones, with the Schaumburg (Ill.) electronics giant often dousing investors' enthusiasm with the cold water of earnings disappointments. Not this time. On Apr. 20, at the end of the business day and after its stock had slipped 50 cents, to $16.20, Motorola (MOT) released first-quarter results so impressive that they sparked a party. In after-hours action, the stock jumped 24%, to around $20. "The performance is staggering," noted Schwab Soundview analyst Matt Hoffman.
Motorola reported a first-quarter net profit of $609 million, or 25 cents a share, vs. $169 million, or 7 cents a share, in the year-ago quarter. Excluding one-time items, it earned about 18 cents a share, soaring above and beyond Wall Street's consensus estimate of 7 cents. Sales in the quarter rose to $8.56 billion, again dwarfing the $6.76 billion analysts were expecting. Even more remarkable, Motorola's sales not only beat the year-ago period by 42% but they also outdid sales for the seasonally strong fourth quarter by almost 7%.
While growth at each of Motorola's six main businesses was in the double digits, the overall numbers were powered by a 67% surge in bread-and-butter cell-phone unit. "If we execute and get great products out on time...we can put up the numbers," CEO Ed Zander told analysts in a conference call.
"PLEASING CUSTOMERS." But numbers this good? Motorola didn't do it with a wand and a top hat. When analysts asked what had changed to produce such blowout performance, Zander joked that getting a new CEO had something to do with it. In part, he's right. The former Sun Microsystems (SUNW) star has pushed relentlessly to improve Motorola's shabby record in meeting deadlines for new products. "The company has to get back to pleasing customers," he told BusinessWeek in a recent interview. In the quarter, Motorola announced 25 new handsets -- 24 featuring color displays and 16 featuring integrated cameras.
Zander doesn't get all of the credit. Motorola's stellar performance is the result of many months of behind-the-scenes restructuring, a carefully planned strategy, and timely execution as market demand is peaking. While former CEO Chris Galvin was at the helm, Motorola reorganized, installing new leaders to head the phone and wireless-infrastructure businesses, the semiconductor unit, and others. An aggressive cost-cutting process was instituted.
And Galvin oversaw a plan to lift revenues by carrying out a strategy that promoted the interconnectedness of Motorola's broadband, phone, and auto technologies. Even Zander acknowledges that a winning process was under way before his arrival. "The company dug in last year to get execution better," Zander said, adding: "You're seeing a payoff."
SPIKING SHARE. Motorola also gained because of miscues at chief rival Nokia (NOK). The industry leader chalked up a poor quarter when it failed to deliver the right mix and price of phones, particularly in Europe. "Nokia dropped the ball, and Motorola stepped up big-time," says Greg Gorbatenko of Marquis Investment Research. The world's wireless customer base is growing -- and as it expands, consumers want new, slick phones.
Motorola, whose highly anticipated camera phones were delayed during last year's holiday season, finally found its market this year. During the quarter, Motorola shipped 25.3 million handsets, up 51% from the year-ago quarter. And its market share spiked from 14% in the fourth quarter to 17%, while Nokia slipped from 35% to 31%, Schwab Soundview's Hoffman estimates. "They created a set of products that are highly desirable and well priced," Hoffman says. Right now, he adds, "they have the most fully featured phones on the market at the lowest price point."
A single quarter does not make a complete turnaround, and Nokia has all but declared a price war to regain its market share. But during the conference call, Motorola executives reminded investors that better than two out of every three of the phones it sold in the quarter were color-camera models -- a pricier category and one in which Nokia's sales reflect a definite softness. That's one reason why Motorola's average selling price rose sequentially in the first quarter by about $13, while Nokia's declined by about the same amount.
Motorola predicts next quarter's sales will be between $8.2 billion and $8.6 billion, well above the Street's consensus of $6.9 billion. Still, Zander knows Motorola can't rest. "We still have more work to do," he says. If the execution continues, more surprises could be in store. By Roger O. Crockett in Chicago