NEW YORK - Already hemorrhaging money, Motorola Inc. had more bad news for investors Tuesday, causing analysts to wonder: Where does it end?
North America's largest maker of telecommunications equipment posted a massive fourth-quarter loss as it recorded charges to reflect the shrinking value of its cellphone business. It also suspended its dividend, said its chief financial officer had left and gave a disappointing forecast for the current quarter.
Its stock tumbled as much as 15 per cent.
Motorola made the first commercial cellphones in the U.S., and a few years ago had a huge hit with the Razr phone. But as fickle buyers have moved on, Motorola's fortunes have dwindled dramatically, with its cellphone revenue dropping 70 per cent in two years. The company has been unable to cut costs to keep pace.
Last year, the company hatched a plan to spin off Mobile Devices, its cellphone business, and recruited a "co-chief executive" to run the business until then. But the persistent losses caused it to postpone the spinoff.
Citigroup analyst Jim Suva voiced investors' frustration on a conference call Tuesday, asking Motorola's co-CEOs whether they would consider simply shutting down Mobile Devices. Motorola's two other main divisions are making money.
"There's a tremendous amount of work left to do there," said Sanjay Jha, who recently was brought in from Qualcomm Inc. to head the unit. "But we are absolutely committed to turning that business around because we believe that's a very good place to put money to create shareholder value."
Motorola lost $3.6 billion, or $1.57 per share, in the fourth quarter.
Excluding charges it took for goodwill impairment and an increase in its deferred tax reserves, the Schaumburg, Ill.-based company lost one cent per share. Analysts polled by Thomson Reuters expected Motorola to break even on that basis.
In the same quarter of 2007, Motorola earned $100 million, or five cents per share.
Motorola's sales in the fourth quarter were $7.14 billion, down 26 per cent from the year-ago period.
Motorola gave no specific reason for the departure of CFO Paul Liska, who was appointed last February, but co-CEO Greg Brown implied that it was connected to the delay of the phone spin-off. He praised Liska for the work he did to prepare for it, but said changes in the "business environment" made a change at the CFO post appropriate as well.
Edward Fitzpatrick, senior vice-president and corporate controller, will be acting CFO while the company searches for a permanent replacement.
Liska could not be reached for comment; his phone number at Motorola was not in service Tuesday and Motorola representatives said he was unavailable.
Motorola is on a mission to cut costs by $1.5 billion this year, mainly from the cellphone division. It announced 4,000 job cuts in January, in addition to 3,000 in October.
Even with those efforts, Motorola forecasts a loss of 10 to 12 cents per share for the current quarter, excluding charges. Analysts had been expecting a loss of six cents per share.
"Something is going on -- the guidance is much worse than expected, which seems to imply that actions they're taking are not enough in the short term," said analyst Pablo Perez-Fernandez at Global Crown Capital.
The elimination of the dividend is a sign of the company's need to conserve cash. Motorola most recently paid a five cent quarterly dividend, for an annual yield of about 4.4 per cent. It paid out $453 million in dividends last year.
"Dwindling cash reserves ... are going to tie the company's hands down in its ability to restructure effectively," Perez-Fernandez said. "We need clear indications from Motorola what it is going to do to turn around the company."
Motorola shares fell 47 cents, or 10 per cent, to $4.07 in Tuesday afternoon trading, after going as low as $3.87.
Moody's Investor Service downgraded Motorola's debt by one step to Baa3 on Tuesday. That puts it at the lowest investment-grade rung. Moody's analyst Matthew Jones cited "the enormous cash drain from the mobile phone business and the uncertainty over when and if the cash drain can be stemmed."
Motorola sold 19.2 million cellphones worth $2.35 billion in the quarter. Motorola is now the No. 5 cellphone maker worldwide, with a 6.5 per cent share.
Jha said Motorola will aim to produce hit smartphones, taking up the challenge of matching Apple Inc.'s iPhone and Research in Motion Ltd.'s BlackBerrys. It will focus on using Google Inc.'s Android software, letting Microsoft Corp.'s Windows Mobile take a back seat, at least until the new version of Windows arrives next year.
Motorola's non-cellphone divisions, which now comprise two-thirds of sales, posted earnings increases.
Home and Networks Mobility, which makes cable-TV set-top boxes, modems and related gear, saw its operating earnings increase 34 per cent to $257 million, on $2.6 billion in sales.
Enterprise Mobility, which makes police radios and other communications equipment for organizations, posted operating earnings of $466 million, up three per cent, on sales of $2.2 billion.
For all of 2008, Motorola lost $4.16 billion, or $1.84 per share. In the previous year it had lost $49 million, or five cents per share.
Sales in 2008 were $30.1 billion, down 18 per cent from the year before.
