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Despite being well-diversified, Motorola will for now on be viewed by investors as a mobile phone company. For it’s part in the overall handset game, Motorola has a declining share of a market whose growth is rapidly deflating. They have missed several of the seachange technical leaps that have occurred in the wireless industry and have failed to capitalize on their own research leadership in many segments. Strategically, they just don’t get it and they’re being clobbered by Ericsson, Nokia, and the Qualcomm OEMs.



Tuesday July 10 02:00 PM EDT

For Motorola, no news may not be good By Tiffany Kary CNET

Motorola hasn’t issued a profit warning about its second quarter, but that doesn’t mean it’s in the clear, analysts said.

They are skittish about the wireless handset maker’s quarterly results, which it’s set to announce Wednesday. One analyst predicts the company will miss Wall Street’s estimates, and others believe it will lower projections for the full year.

Most major handset manufacturers and component suppliers have issued profit warnings since April, when news that the inventory glut for wireless handsets had spread from Europe to Asia. Finnish handset maker Nokia, and parts makers Powerwave Technologies, DMC Stratex Networks and Tekelec have all preannounced.

Motorola is among a select few in the sector, including Qualcomm and Ericsson, that haven’t issued profit warnings.

But analysts don’t see that as good news. In fact, some say Motorola might not make its numbers after all.

“We do not feel comfortable that the company will meet the Street consensus,” wrote Deutsche Banc Alex Brown analyst Brian Modoff in a research note Tuesday. First Call’s consensus of 25 analysts’ estimates puts the company at a loss of 12 cents a share.

“In particular, the excess handset inventory problem still remains, telecommunications spending remains weak, and the semiconductor industry is not improving,” wrote the analyst, who held his “market perform” rating on the stock. Modoff also said that handset manufacturers are dumping excess handsets in China, Motorola’s largest market. That excess supply is likely to lower prices and puts Motorola in danger.

Other analysts were more optimistic that the company would make second-quarter projections, but said it was inevitable the company would lower its projections for the year.

“If they were going to miss, they would have preannounced the quarter already,” said Adams Harkness & Hill analyst Blaine Carroll. “The concern is what the outlook will be.”

Carroll said he expects the company to lower its projections of a break-even amount per share for the year. But that shouldn’t do much to the stock or analysts’ ratings.

“The stock is so beaten up; the downside risk is limited,” Carroll said.

Shares were up 9 cents to $15.46 Tuesday, but still far below their 52-week high of $39.75.

“I don’t think a lot of analysts have been going by the company’s expectations,” Carroll added, noting that First Call’s consensus estimate is for a loss of 10 cents a share for the year.

He predicts the loss could be even steeper, at 12 cents a share. For the third quarter, Carroll expects a break-even amount per share, followed by a profit of 8 cents a share in the fourth quarter. He rates the stock a “market perform” and doesn’t plan to change his rating even if the company does lower its projections.

“Given the weakness in the semiconductor sector, it will be tough to achieve breakeven for the year,” said Dain Rauscher Wessels analyst Michael Walkley.

Walkley said he’ll be looking closely for indications that the handset market could be picking up and for comments about global inventory levels. Mobile handsets make up the majority of Motorola’s business, at around 34 percent of revenue.

Lowered outlooks across sector? Motorola may not be the only wireless handset company to lower its projections, some analysts cautioned.

“Ericsson is in a similar situation to Motorola,” Walkley said. The company hasn’t preannounced, and it probably won’t, considering its earnings are coming up soon, Walkley said. But analysts are “somewhat negative on the stock,” he said.

Walkley thinks Ericsson’s “plans for profitability could be pushed out a quarter or two,” with a profit in the fourth quarter at the earliest, “given the slowness in Europe.”

First Call is expecting a loss of 6 cents a share in Ericsson’s second quarter, and a loss of 11 cents a share for the year.

Qualcomm, like Motorola, could also miss its second-quarter numbers.

“Qualcomm could fall short of the Street’s 21-cents-a-share earnings forecast, and the company may not maintain its current guidance for quarter-over-quarter growth in the September quarter,” according to Modoff.

Analysts weren’t optimistic about a turnaround for the sector, either.

“We currently see no indications that things will get better for the next couple quarters,” Modoff wrote.