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Motorola's Dim Forecast Raises Pressure on CEO
By Li Yuan, Christopher Rhoads and Joann S. Lublin
The Wall Street Journal
Thursday, July 12, 2007


Motorola Inc. warned of weaker-than-expected cellphone shipments and said its mobile-devices unit will post a loss for the full year, as the telecommunications-equipment maker continues to struggle to revive its handset business.

The developments heighten pressure on Chairman and Chief Executive Ed Zander, who has struggled to put the world's No. 2 handset maker by market share behind Nokia Corp. back on course. The company in recent months has been hit by worsening handset margins, a proxy fight, high-level defections and a declining stock price.

Motorola shares rose 1.87% yesterday to $17.95 amid speculation that Mr. Zander might soon step down. When the company released the profit warning after markets had closed, Motorola's stock price fell by 1.67% to $17.65 in after-hours trading.

"His strategy is clearly not working," Edward Snyder, an analyst at Charter Equity Research, said of Mr. Zander. Mr. Snyder added he believes Motorola's board is taking a more active role in execution and recruiting new management.

A Motorola spokeswoman said the company doesn't comment on speculation.

Motorola has rolled out some new cellphones lately, but they, like those of competitors, have been overshadowed by the hype surrounding the launch of Apple Inc.'s iPhone late last month.  

"You need good new products, and Motorola still relies on its old family of products," said Mark Sue, an analyst at RBC Capital Markets. Motorola lacks a strong portfolio of multimedia cellphones that operate on broadband wireless networks in Europe and a broad family of products in Asia, where people change their phones frequently, he added.

Motorola said second-quarter sales would fall well short of its prior forecasts, citing lower cellphone shipments in Asia and Europe. The company expects handset shipments in the period to be about 35 million to 36 million, down from 45.4 million in the March quarter and 51.9 million in the year-ago quarter.

Motorola has faltered in recent quarters because of the lack of a successor to its hit Razr cellphone and declining margins in its handset division, which accounts for more than half of the company's sales. The problems forced the company to report a first-quarter loss and to announce plans to slash jobs. The head of the handset division resigned, among other management changes in recent months.

The Schaumburg, Ill., company now expects to report sales for the quarter ended June 30 were between $8.6 billion and $8.7 billion; it had forecast about $9.4 billion. Motorola said it expects a loss from continuing operations between two cents and four cents a share, including charges for previously announced layoffs.

Motorola said its mobile-devices unit will have a larger operating loss in the second quarter, and it no longer expects the business to be profitable for the full year. The company also announced that Stu Reed, executive vice president of its integrated supply chain, will become head of the handset division.

Speculation has mounted in recent days about possible successors to Mr. Zander, if the board should run out of patience. One possible candidate is Dick Notebaert, who is leaving Qwest Communications International Inc.

Write to Li Yuan at li.yuan@wsj.com, Christopher Rhoads at christopher.rhoads@wsj.com and Joann S. Lublin at joann.lublin@wsj.com

http://online.wsj.com/article/SB118418827352763762-search.html?KEYWORDS=Qwest&COLLECTION=wsjie/6month