Motorola (MOT) Q1 Conference Call Notes
4-19-07: In listening to Motorola conference call, one thing was evident; management is feeling the pressure to return to profitability. Every single executive stressed the common goal of once again delivering the kind of quarter investors had come to expect. There are many different products on the horizon and MOT is expecting business will turn for the better this year. After listening to this call, our impression is management appears to understand what needs to be done. The forward strategy is to cut cost, deliver better/relevant products, grow by acquisition and continue its stock buyback program. In our opinion, the recovery could take longer than what is being promised, thus investors should exercise caution with MOT stocks. Here are the main points from the Q1 conference call:
Summary:
- Motorola stressed the importance of delivering more products that are java enabled. This appears to be the main focus in respect to product strategy. A phone will no longer just be a phone; it needs to do more in order to compete. To the end, we are still expecting MOT to make a huge acquisition; Palm is a likely candidate.
- The company mentioned Razor G3 will ship this quarter worldwide.
- Recognizing that mobile device unit is lagging, MOT plans to aggressively grow this business, stressing this goal as the top priority in the coming quarters.
- Connected Home business unit had a great quarter. The business unit shipped its 1 million products in Q1.
- In Q1, the company purchases over $2 billion worth of shares.
Quarterly Results:
- In Q1 of 2007, MOT reported 9.4 billion in revenue.
- MOT lost $181 million, or 8 cents per share. Same time last year, MOT reported a profit of $686 million, or 27 cents per share. This is a huge contrast, but inline with Wall St. expectation.
- Operating cash flow was $4.6 billion at end of Q1.
- MOT increased its buyback to $7.5 billion. This was previously reported.
- To return to profitability, MOT plan to reduce more cost by June. We suspect there will be more layoff on the way. This could push the stock up a bit when it is announced.
Guidance:
- Management expecting the second quarter will be flat; similar to the first quarter.
- Expecting Q2 to be another tough quarter. Revenue expected to be up slightly from Q1, but do not expect much improvement.
- Q2 earnings are expected to be 2-3 cents per share. For the full year, MOT expects to see gradual increase in revenue in the second half of the year.
Operations:
- Expressed huge challenge in Q1 for their mobile devices unit.
- In an effort to reverse the situation, MOT has changed the management team within this unit.
- MOT seeing strong results in N. America and S. America in respect to mobile devices.
- Expressed management will not chase market share for the sake for market share, will concentrate on margin. They mentioned pricing appears to be stabilizing.
- Expecting to ship more mobile devices in coming quarter.
- MOT outlined some key factors that will drive mobile devices, this includes shipping more Microsoft enabled smart phones, java enabled products, new features with rich design, identify and eliminate redundancy.
- MOT expects mobile devices to be profitable in the next quarters.
