Motorola cuts Q1 estimate, shakes up management

Motorola replaced a top executive and warned that sales would be lower than expected for the quarter and the year.

The number-two cell phone maker said that sales for the first quarter of 2007 would be in the range of $9.2 billion to $9.3 billion with earnings to be a loss in the range of $0.07 to $0.09 per share. Motorola had expected sales between $10.4 billion and $10.6 billion.

Greg Brown will immediately take on the role of president and COO. He was president of the networks and enterprise business.

In addition, Thomas J. Meredith will become acting CFO starting April 1, and David Devonshire, previously CFO, will retire.

In a statement, Ed Zander, chairman and CEO of Motorola, called the performance of the company's mobile devices business "unacceptable." Returning the business to better performance will take more time and a greater effort than previously thought, he said.

In mid-January, the company laid out a plan to improve profitability. But that won't play out exactly as Motorola had hoped. "The recovery will be gradual and substantially less than we said in January," Brown said, speaking during a conference call to discuss the earnings revision.

Motorola blamed the revised guidance on lower sales in the device sector caused by a difficult pricing environment, particularly in low-end products. Volume sales dropped because Motorola decided not to match low competitor prices in emerging markets where low-priced phones are selling well, the company said. "We're not going to chase market share for the sake of market share," Brown said.

"I'm not backing away from market share, but we have to do it in a deliberate and organized fashion to keep generating profits," said Zander, also speaking during the conference call.

In order to better compete on the low end, Motorola will have to improve cost structures internally, which will allow it to better compete on price while still earning profits, Zander said.

In addition, Motorola hopes to improve its top-end products. "We need to get way better at the high end," Zander said. "We need that because it's a great margin pull."

A limited 3G product portfolio was also to blame, Motorola said. The mobile devices business is expected to report a loss for the first quarter, Motorola said.

Zander recently abruptly cancelled his scheduled appearance at the upcoming CTIA Wireless show, one of the biggest mobile phone conferences of the year. The change was due to a personal family issue, and had nothing to do with the company's performance or potential future announcements, Zander said.

This story was updated on March 21, 2007