Shares in Motorola Mobility Holdings were down more than 2 percent, to $22.36, in morning trading after the company yesterday gave third-quarter guidance below what analysts were expecting.
Still, Chairman and CEO Sanjay Jha expressed confidence in what Motorola can deliver in the ever-important fourth quarter, when it will have at least three additional LTE devices – one smartphone and two tablets. “We have very good traction with carriers,” he said.
The company shipped a total of 11 million mobile devices, including 4.4 million smartphones and 440,000 Motorola Xoom tablets, in the most recent quarter. In the second quarter of 2010, the company shipped 8.3 million mobile devices, including 2.7 million smartphones.
Second-quarter net revenues of $3.3 billion were up 28 percent from the year-ago quarter, but its GAAP net loss grew to $56 million compared to net earnings of $80 million in the second quarter of 2010.
On a non-GAAP basis, net earnings in the second quarter were $26 million compared with a loss of $87 million in the year-ago quarter. Revenues for the mobile device unit specifically were up 41 percent from the second quarter of 2010.
In prepared remarks during a conference call with analysts, Jha made a point to say that on the topic of intellectual property rights (IPR), Motorola owns one of the strongest and most respected portfolios – more than 17,000 patents granted and more than 7,000 pending, in 2G and 3G essentials and non-essentials. Motorola regularly reviews its IPR strategies with the goal of enhancing value, and he later added “for all our stockholders,” presumably a response to shareholder Carl Icahn’s recent 13D filing suggesting the company explore alternatives regarding its patent portfolio.
Jha said that when he first came to Motorola, he knew the brand and the IP portfolio were strong, but since then, he’s come to believe the IP is stronger than he anticipated and there are some areas where it is particularly strong. Probably one of the most underestimated areas is the company’s strength in LTE.
During the call, executives fielded some questions about the pricing of its tablets. Motorola launched the Xoom on the Verizon Wireless network in February at a price tag of $599.99 with a new two-year contract and $799.99 without a contract. The 32 GB device is now priced at $499 with a contract and $599 without one. Apple’s iPad 16 GB is $499 for the Wi-Fi only version and $599 for the 32 GB model.
Questioned about tablet pricing and lessons learned, Jha suggested the company understands what it needs to do and will be pricing tablets more aggressively the second half of this year.
Altogether, the company expects to have at least five devices in the market with LTE by the end of the year. Jha said it’s his expectation that LTE will be a strong focus for carriers in the fourth quarter. “I would say that we believe that we have a very good position with some of the devices that we are offering in the fourth quarter,” he said.
The lateness of the Droid Bionic, which is now expected to hit stores in September, was an exception and not the rule when it comes to timely testing and delivery of devices, he said. The same goes for the LTE upgrade for the Xoom, which was originally expected in the second quarter.
With another new iPhone expected in the fall, Jha was asked if the company is factoring that into its guidance. Without mentioning any specific competitors, he said the company has a reasonable expectation of what the competitive dynamic will be and has taken that into account.
In response to a question about Verizon Wireless and marketing for the Droid Bionic, he deferred to Verizon to provide details, but said there are strong expectations for the performance of the device.
Jha also reiterated the company’s strategy around differentiating on Android and said it offers enterprise features not found on standard Android. Motorola has spent a lot of time with CIOs at Fortune 500 companies on what they believe should be part of the package. Motorola has mobile device management (MDM) software that enables a CIO to provision any Android device – including those from other manufacturers with the exception of Samsung – so they can remotely wipe devices and turn off certain features, like Bluetooth or the camera.
Technology Business Research (TBR) senior analyst Scott Dennehy said despite losing money during the quarter, TBR believes Motorola is executing well on its strategy to expand its mobile device presence outside of North America, particularly in high-growth markets like China and Latin America.
But in terms of LTE, even though Motorola expects to have five LTE devices on the market by the end of the year, delays in the Bionic and LTE-enabled Xoom equate to missing a golden opportunity to capture mindshare before LTE gains momentum in the second half of the year. Both devices are likely to hit the market at the same time as the iPhone 5 and devices from a host of other manufacturers looking to take advantage of the LTE momentum and back-to-school and holiday season buying frenzy.
As for the home segment, which includes set-top boxes, Motorola expects some seasonality in the third quarter that may have an impact on revenue. The third quarter historically is when people move and college students return to school, so there’s churn, but executives said that’s not indicative of the overall pattern for the business.