Motorola's Razr Thick Profits

How does CEO Ed Zander plan for top the success of a blowout quarter fueled by surging sales of the slim handset? His answer: More of the same

Motorola's Razr mobile phone seems to be everywhere. That helps explain why Motorola (MOT), the world's second-biggest handset maker, reported such strong third-quarter earnings.

The company reported profit of $1.75 billion on sales of $9.42 billion. Excluding one-time items, per-share earnings were 30 cents -- beating 28 cents on sales of $9.21 billion expected by analysts.

In all, Motorola sold more than 6.5 million of the iconic clamshell wireless phones in the period, leaving the total at 12 million since its launch. For many, the success of the half-inch thick device raised a single question: What's next? Motorola's CEO Ed Zander answered on an earnings conference call: "More Razr."


  The phone will be around "for years to come," he said. A pink version is set for release in time for the yearend holidays. The phone is now one of the most popular for the networks run by Cingular Wireless and T-Mobile. Zander says a version of the phone for the networks operated by Verizon Wireless and Sprint Nextel is coming soon.

Motorola is reaping the benefits of a surge in demand for all sorts of electronics devices (see BW Online, 10/19/05, "The Tech Party Isn't Over Yet"). Motorola's results, combined with reports from other major handset vendors including Sony-Ericsson, the joint venture of Sony (SNE) and Ericsson (ERICY), as well as reports from Samsung and LG all point to a strong handset market. They also may augur an upbeat report from Finnish mobile phone concern Nokia (NOK), which reports earnings on Oct. 20.

Still, Motorola's success also lies with what analysts say is a lengthening lineup of higher priced, must-have handsets. The Rokr -- a new music-capable phone designed in partnership with Apple Computer (AAPL) -- also surpassed expectations.


  Motorola has shipped 250,000 units of the phone to wireless carriers in the first 30 days on the market. He also said sales of the phone were strongest in Europe. That's comparable to the early uptake of the Razr, which sold some 750,000 units in its first quarter on the market. "It's a surprisingly large number," said Moors & Cabot analyst Matthew Hoffman.

Not bad for a handset that ran the risk of being overshadowed by another handheld music-playing device. The Rokr was unveiled the same day as Apple's iPod nano (see BW Online, 9/9/05, "Steve Jobs's Tiny but Sure Bet"), which has met with rave reviews and -- with more than a million units sold -- has been flying off store shelves. Critics said Apple may have tried to distance itself from the Rokr by not putting its name on the phone (see BW, 9/8/05, "Apple's Phone Isn't Ringing Any Chimes").

Two other phones, the Pebl -- pronounced "pebble" -- and Slvr -- or "sliver" -- which looks like a version of the RAZR except that it doesn't fold, started shipping during the quarter, the company said.


  Overall Motorola said it sold 38.7 million handsets around the world in the quarter, and that mobile handsets accounted for 59% of total sales. The company said it grew its share of the global handset market to 19%, an improvement of more than 5 percentage points from the year-ago period and one percentage point from the prior quarter. Overall cell phone sales accounted for $5.6 billion in revenue for the quarter, 41% improvement from the year-ago period.

The networks unit reported sales of $1.56 billion, or more than 16% of total revenue, and a profit of $268 million. The Government & Enterprise Mobility Solutions unit reported sales of $1.6 billion, or 17% of sales, with a profit of $180 million.

Motorola said it expects fourth-quarter revenue to come in between $10.3 billion and $10.5 billion, and for earnings per share of between 32 cents and 34 cents. This is in line with analysts expectations.


  "No doubt this is a company that lives and dies by cell phones," says analyst Ed Snyder of Charter Equity Research in San Francisco. "Motorola has a strong suite of phones and a strong end market."

As long as Zander keeps cranking out phones like the Razr, Motorola's got a lot of living left to do.

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