Image: Motorola Razr2
Motorola via Newswire
Motorola is banking on its sleek new Razr2 cell phone to boost the company's financial outlook, but so far sales seem to be lackluster.
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updated 10/24/2007 2:49:59 PM ET 2007-10-24T18:49:59

With a sleek design and an even sleeker advertising campaign, Motorola is banking on its new Razr2 cell phone to pump up anemic sales and provide a rosier future after a yearlong slump punctuated by back-to-back losses.

After a first half that may have put CEO Ed Zander's future employment into question, the end of Motorola's rough patch may be in sight.

"We indeed believe the worst is over," Citigroup analyst Jim Suva wrote in a research note last week.

But analysts say the cell phone maker needs a steady string of follow-ups to stay alive in an industry now dominated by products crammed with cutting edge features and software.

Consumers seem to agree: One group on the social networking site Facebook snarkily calls itself "My Motorola makes a better coaster than a phone."

Motorola drops to No. 3
Rival Samsung Electronics overtook Motorola this summer to secure the No. 2 spot among cell phone manufacturers worldwide. Finland's Nokia remains the far-and-away leader. Some analysts say Motorola's market share has continued to erode and dropped back to 11 percent in the third quarter, from 22 percent last year.

Motorola hasn't had much luck on Wall Street either, where its stock has plunged 20 percent since last fall.

"If they have another miss this quarter, the pressure is going to be huge on the board to do something," said Eric Jackson, a Naples, Fla., shareholder who launched the grass roots initiative called "Plan B" that calls for Zander's resignation, among other changes. "You only get to say 'mea culpa' so many times."

Wall Street analysts expect earnings to hit 4 cents per share on revenue of $8.8 billion when the Schaumburg, Ill.-based company reports third-quarter earnings Thursday.

Any third-quarter profit would be driven by Motorola's hand-held business devices and high-tech home entertainment gadgets: The company has said its cell phone unit will remain unprofitable until at least 2008.

This is the same company whose original Razr was the cell phone of choice just two years ago, nearly doubling the company's market share in 18 months. But the company's decision to dramatically slash prices in order to maintain market share sent the company's profits into a free fall in the absence of another slam-dunk phone in its portfolio.

Analysts surveyed by Thomson Financial expect annual revenue to fall 14 percent this year to $36.7 billion and earnings per share to drop 84 percent to 19 cents.

"Our primary criticism of Motorola's execution over the past three years has been this lack of steady stream of follow-on products," Bill Choi, an analyst at Jeffries & Co., wrote in a research note.

Razr2 off to a slow start
The Razr2's prospects to succeed where phones like the Rizr and Rokr have fallen flat remain uncertain. Sales figures aren't available, but Oppenheimer & Co. analyst Lawrence Harris told investors this week that Razr2 seems to be off to a slow start, lagging older Razr and Krazr models in the U.S. after two months on the market.

Experts say the company didn't seem to learn from past mistakes in its cell phone unit. A decade ago, when Motorola didn't plan a follow-up to its successful StarTac phone — one of the country's first popular flip phones — it found itself trailing competitors.

Motorola's struggles come as its rivals in the cell phone market are mostly thriving.

Nokia, buoyed by strong sales in India and China, nearly doubled its third-quarter earnings compared to last year. Apple has sold nearly 1.4 million iPhones since late June and predicts it will sell 10 million next year. And smart-phone rival Research in Motion, which makes the ubiquitous BlackBerry, has seen its stock price more than double this year.

Motorola executives say the cell phone unit is back on track after what Stu Reed, who replaced Ron Garriques this summer as its leader, called a "harsh lesson."

"The portfolio from now on you'll hear about is a wave, a drumbeat," Reed said during the annual meeting with analysts in September. "And it won't be a one-hit wonder, it'll be a multitude of products."

Motorola announced nine new handsets this month, including a holiday edition of the Razr2 with gold-plated accents and the Moto U9, a lightweight phone and music player that includes a camera and multiple messaging capabilities. Moto U9 is pegged for Asia, Latin America and Europe. Analysts expect more high-end products next year.

Motorola spokeswoman Julie Burda declined to comment.

The company also is beefing up other units and investing heavily in WiMax, a wireless technology that allows carriers to blanket large areas with service.

"Historically, they've proven that when they have down times, they've been able to come back," said Neil Strother, a wireless analyst for Jupiter Research. "I think they'll be back. I think they'll clean up what they can and still stay competitive."

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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