Motorola Stalls

So far this month, we've seen Research In Motion (Nasdaq: RIMM) more than double its earnings and Nokia (NYSE: NOK) report growing profits of 70%, while Apple (Nasdaq: AAPL) blossomed 33%. Why, even Sony is earning profits again (even if its cell-phone-making partner, Ericsson (Nasdaq: ERIC), is heading the other way). What lesson can we draw from this?

Memo to Motorola (NYSE: MOT): The idea is not just to sell stuff. It's to earn profits on the stuff you're selling.

Perpetual corporate problem child Motorola got itself spanked by investors yesterday, and the wailing continued today, with shares down a total of 5% as of this writing. Motorola's offense: Selling $7.45 billion worth of cell phones, cable boxes, radios, and similar electronic doodads ... and losing its investors $0.09 per share from continuing operations in the process.

And that's the good news.

The bad news is that while $0.09 per share works out to a total loss of $194 million, those were just the "accounting losses" under GAAP. Turn with me to Motorola's cash flow statement, and you'll see that the actual cash losses were much, much worse. Free cash flow for the first quarter of 2008 came to negative $454 million, a sickening drop from the mere $84 million that Motorola burnt in Q1 of last year. In the process, Motorola burnt up the whole pile of cash it had amassed last quarter, and then some.

The worst part, though, is that it's just one division of Motorola that is responsible for all this mess: "mobile devices," or, to you and me, "cell phones." Despite reducing its revenue 39% from loss-inducing cell phones, Motorola did a yeoman's job of cramming more losses into each cell phone sold. The division lost $418 million on an operating basis during the quarter, nearly 80% worse than last year. And I've got a hunch we can also blame mobile devices for next quarter's anticipated loss of $0.02 to $0.04.

Speaking of which, memo No. 2 to Motorola: Carl Icahn's been advising you to unload this division for over a year now. If you'd listened a lot sooner, your report yesterday would have looked a lot better. Perhaps, if he calls again between now and your next report, you'll pick up the phone and listen to his advice.

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