Motorola Mobility Holdings Inc is already feeling pressure from the next Apple Inc iPhone and forecast a steeper than usual drop in sales this quarter as a result, sending its shares down 6.8 percent.
In the roughly two weeks since Motorola's biggest customer Verizon Wireless unveiled plans to start selling an iPhone in February, Motorola has already noticed a decline in smartphone sales, Chief Executive Sanjay Jha said on Wednesday.
Motorola first-quarter phone sales typically fall 7 percent to 10 percent from the fourth quarter shopping season.
"I would anticipate it would be larger than 7 percent to 10 percent," this time Jha told analysts on the company's first earnings call since it became an independent entity.
Verizon has been marketing Motorola smartphones heavily for more than a year to help it compete against AT&T Inc, which was the exclusive U.S. iPhone provider for three years.
Now that Verizon likely has another champion in iPhone, Motorola has to work hard to lessen its dependence on the No. 1 U.S. mobile provider. It has already unveiled plans for a new high-powered phone including one destined for AT&T, but this won't appear until later in the quarter.
"The issue is timing," Jha told Reuters, adding that the handset business would improve sequentially in the second quarter. He sees Motorola shipping up to 23 million devices this year including smartphones and tablets.
The phone maker had already told investors in December that the first quarter would be difficult. But the company disappointed again on Wednesday when it announced that it had sold fewer than expected phones in the fourth quarter.
Motorola shipped 4.9 million smartphones in the quarter compared with expectations for 5.2 million from six analysts contacted by Reuters.
"The quarter as a whole was a solid quarter but smartphone shipments were disappointing," said Evercore analyst Alkesh Shah, who said Motorola is still a good company to invest in as it is the only phone maker to focus solely on Google Inc's popular Android phone software.
The lower than expected sales were due to slower than expected demand for cheaper smartphones, according to Jha who said that U.S. consumers prefer to buy higher-end phones.
The company said its phone unit would post operating profit margins in the mid-single digit range for 2011, a significant improvement from losses reported in 2010.
TOUGH FIRST QUARTER
Motorola Mobility, which sells television set-top boxes, as well as handsets, forecast a first-quarter net loss per share of between 9 cents and 21 cents, but excluding nonoperating unusual items it expects to break even.
Avian Securities analyst Matthew Thornton said the report and outlook was not good enough to reassure investors who had pushed the shares up 5 percent since trading started January 4.
"The stock has had a good run so people are going to take it out back and beat it up a little unless they say something good on the call about full year guidance," Thornton said.
Motorola Mobility turned profit of $80 million, or 27 cents per share for the fourth quarter after a loss of $204 million, or 69 cents per share in the year-ago quarter.
Before unusual items, Motorola said earnings would have been 37 cents per share, slightly ahead of analyst expectations of 36 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose to $3.4 billion from $2.8 billion in the year ago quarter, in line with analyst expectations. About $2.4 billion revenue came from the handsets, Motorola said.
Including smartphones and less advanced phones, Motorola shipped 11.3 million phones in the quarter, which compared well with analyst expectations for 10.7 million.
But investors are more anxious about its success with smartphones because they bring in more profits than regular phones and have been key to the company's resurgence last year after years of losing ground to rivals like Apple.
The company's shares fell to $32.45 in late trading after closing at $34.83 on the New York Stock Exchange.
Motorola Inc split in two in January to form Motorola Mobility and Motorola Solutions Inc. Verizon Wireless is a venture of Verizon Communications Inc and Vodafone Group Plc.