RAZR-edged success story? Takeover target? Bumbling discount cell-phone seller? However you want to characterize Motorola (NYSE:MOT), do it quick, before the company reports its first-quarter 2007 results. The resulting news may force you to abandon one or two of those theories in favor of whichever remains viable.

What analysts say:

  • Buy, sell, or waffle? Three dozen analysts follow Motorola, with eight of them keeping the faith and rating the company a buy, two dozen fence sitters mumbling "hold," and four pessimists shouting "sell, sell, sell!"
  • Revenues. On average, these analysts expect to see 9% sales growth to $10.47 billion.
  • Earnings. Profits, however, are predicted to plunge 35% to $0.17 per share.

What management says:
The big news at Motorola this quarter came in two flavors. First, word came that famed takeover artiste Carl Icahn is buying up shares hand over fist, and asking his brother and sister shareholders to put him on the board of the company. The second item, and a catalyst for the first: The company has issued yet another earnings warning. Thanks to weak sales and profits at its flagship mobile devices (read "cell phones") division, the company doesn't expect to book more than $9.3 billion in Q1 revenue -- far below what analysts were expecting (as shown above). Worse yet, $0.09 worth of charges have the company expecting to record a $0.07 to $0.09 loss for the quarter.

Calling the Mobile Devices division's performance "unacceptable," CEO Edward Zander came to the startling realization that businesses are supposed to earn profits, and announced a series of moves to begin doing just that. Specifically, it will expand its share-buyback authorization to $7.5 billion, including accelerating $2 billion worth of share repurchases.

What management does:
Wait. Hold on a sec. Buying back shares improves the performance of cell phone sales how, exactly? It does what to reverse the trends we see below?





























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
I'm curious, Motorola. When's the last time you saw Apple (NASDAQ:AAPL) and Nokia (NYSE:NOK) fighting for sales at sub-30% gross margins? Sony (NYSE:SNE) and Ericsson (NASDAQ:ERIC)? (Well, Sony may be a bad example.)

Owning up to what we've been saying for months, Motorola acknowledged last month that its relentless pursuit of market share in the Third World has been a mistake. OK, those are my words, not theirs. Management actually said that it's expecting "lower than anticipated sales and operating earnings in the Mobile Devices business due to lower overall unit volumes, a difficult pricing environment, particularly for low-tier products and a limited 3G product portfolio ... The lower volume is due largely to a shift in the Mobile Devices business to focus on long-term gross margin improvement rather than focusing primarily on market share growth ... [in] emerging markets, particularly India, Africa and South Asia ... Given the renewed focus on gross margin improvement, the company is no longer going to match price cuts among its competitors for third world market share."

But I think you'll agree that while management's explanation is the more verbose, its assessment and my own mean pretty much the same thing: By moving handsets at any price, Motorola let its margins erode, and take its profits with them. To rectify matters, the company must return to demanding a fair profit on its product.

What did we expect out of Motorola last quarter, and what did we get? Find out in:

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Fool contributor Rich Smith does not own shares of any company named above.