Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Cuts Like a Razr

Pity Motorola (NYSE: MOT  ) .

The boys from Schaumburg just can't catch a break these days. No sooner had the firm's shares stabilized after last week's earnings warning (which sparked an 8% slide in share price on Friday) than out comes Steve Jobs of Apple (Nasdaq: AAPL  ) with the introduction of his firm's much-heralded iPhone. Though Motorola shares barely budged, Research in Motion (Nasdaq: RIMM  ) took a 6% haircut, Palm (Nasdaq: PALM  ) dove 3%, and Nokia (NYSE: NOK  ) and Ericcson (Nasdaq: ERIC  ) lost about 1% each.

The iPhone will certainly generate its share of press, though, and I understand that my Foolish colleague Tim Beyers will be giving us the lowdown on the latest Mac attack tomorrow. So today I'll limit this column to reviewing the import of Motorola's earnings warning, which came out late Thursday evening last week.

Briefly, what Motorola said was this:

  • Sales will fall about $200 million to $300 million short of previous guidance, coming in most likely in the range of $11.6 billion to $11.8 billion.
  • Profits per share will likewise miss the internal forecast, approximating $0.13 to $0.16 per share, net. Detracting from those earnings, and most likely ignored by most analysts, will be the usual slew of non-cash "one-time items" such as stock-option expensing, charges for reorganizations and "investment-related losses," and "unusual" taxes.
  • Margins will suffer badly. According to management, it actually beat its own predictions for cell phone sales, moving 66 million units' worth of product, a 48% volume improvement over last year's Q4. Unfortunately, it has had trouble selling its higher-priced phones, and a good portion of the sales it did make appear to have been low-end phones, many of which were likely sold in the developing world. Those kinds of sales look great when factored into the market share numbers -- but I dread seeing what they'll do to margins when Motorola reports its Q4 numbers a couple weeks hence.

And the good news? Basically, the only good news included in the release was that the company expects to generate positive cash from operations. Well, I certainly hope so! After all, the firm generated well over $2 billion in cash flow in last year's fourth quarter. A reversal to negative cash flow in this month's news would be an unwelcome development, indeed.

By my calculations, the firm's cash-generating prowess now has it trading at less than 11 times free cash flow (FCF). Net out the $10.5 billion (net cash) war chest, and the business proper trades at a downright cheap eight times FCF. If the numbers we see later this month even remotely resemble these, I'll almost certainly be adding Motorola to my own Foolish portfolio -- earnings warnings and iPhones be, er, darned.

For mo' Moto, mosey on over to:

Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 519661, ~/Articles/ArticleHandler.aspx, 10/25/2016 1:32:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:02 PM
MSI $74.49 Up +0.87 +1.18%
Motorola Solutions CAPS Rating: ***
AAPL $117.65 Up +1.05 +0.90%
Apple CAPS Rating: ****
BBRY $7.35 Down -0.02 -0.27%
BlackBerry CAPS Rating: *
NOK $4.97 Up +0.05 +1.02%
Nokia CAPS Rating: **
PALM.DL2 $5.69 Down +0.00 +0.00%
Palm CAPS Rating: *