Motorola Issues Profit Warning Amid Product Delays

Motorola has issued a profit warning after its boss admitted that the much delayed arrival of a new smartphone, coupled with tablet price cuts, will impact performance for the third quarter.

Meanwhile chief executive Sanjay Jha revealed that the company’s second quarter results were above expectations.

For the second quarter Motorola reported a net loss of $56 million (£34m), compared with a profit of $80 million (£49m) in the year ago quarter. Sales however rose 28 percent to $3.3 billion (£2bn), beating the average analyst estimate of $3.12 billion (£1.9bn).

Rival Shipments

But the results also revealed that Motorola’s smartphone shipments grew only 7 percent from the first quarter, compared to about 50 percent for Samsung Electronics, which also utilises Google’s Android operating system.

Motorola said that it had shipped a total of 11 million mobile devices in the second quarter. Of that total 4.4 million were smartphones and 440,000 were its tablet device, the Xoom.

In comparison Apple sold 9.25 million iPads over the last quarter and 20-plus million iPhones. And Samsung recently said that it has sold 5 million Samsung Galaxy S2 smartphones (and that is before that handset is launched in the United States).

Gloomy Q3

However it is was Jha’s gloomy outlook for the third quarter that depressed investors in the company. He warned that its third-quarter profit would miss expectations due to an ongoing delay for the launch of a crucial smartphone, as well as a tablet computer price cut.

Shares in Motorola Holdings fell 5 percent to $22.91 (£14.02) on the New York Stock Exchange, as of 2.30pm BST on Friday.

Jha explained that Motorola’s 4G Bionic phone, a Long Term Evolution (LTE) smartphone for Verizon Wireless, would now be delayed until September. It had been expected to launch during the second quarter, after facing earlier delays.

This Bionic delay was also coupled with the news that a high-speed version of Motorola’s Xoom tablet will also be delayed until September. Again Motorola had slated the speedy Xoom tablet for a product launch in the second quarter.

Embarrassing Climbdown

On top of this, Motorola’s performance was also impacted by an embarrassing price cut of its Xoom tablet, when it was revealed on 25 July that the price of the Xoom tablet in the United States had been cut from a hefty $799 (£489) from Verizon Wireless to just $499 (£305).

The price cut is especially humiliating for Jha. He had confirmed the “premium” pricing of the Xoom back in February. This was despite a chorus of market and analyst warnings that the price of the device was too high. Jha took the unusual approach of blaming the Apple iPad for being too good, to explain the high cost.

However it is clear now that this premium pricing for the Xoom has backfired, and consumers are unwilling to pay a premium price for the Motorola tablet, compared to cheaper alternatives from Samsung, as well as of course Apple with its iPad.

Motorola had already cut the price of the Xoom in April in the UK ahead of its launch.

Jha admitted he had misjudged pricing in the highly competitive tablet market. However he also vowed that Motorola’s profit would be back on track in the fourth quarter, when Motorola would be able to introduce more competitive products.

“We now recognise where the price points are,” Jha told Reuters. “For the fourth quarter we’ll launch very good, new tablets and we’ll have a good quarter.”

Jha reportedly promised that Motorola would have five devices based on LTE by the end of the year.

Motorola also said that it expects smartphone and tablet shipments to total 21 million to 23 million for the year, compared with its previous projection for 20 million to 23 million. Tablet wise, it only expects to ship 1.3 million to 1.5 million tablets in 2011, down from its prior view for 1.5 million to 2 million.