Signs of hope in Motorola's Q3, but Samsung really shines

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Signs of hope in Motorola's Q3, but Samsung really shines

By CAROLINE GABRIEL

Published: 30 October, 2009

Motorola and Sprint Nextel used to be inseparable allies, but now CDMA rival Verizon Wireless is the phonemaker's best chance of regaining its US crown, while Sprint has put its faith in other partners for its flagship smartphones - Palm and soon Android (HTC and Samsung). The current round of third quarter results offer hints that the fortunes of the former best friends may diverge in 2010. Motorola suffered further loss of share, but a small surprise profit and high hopes for its new phones suggest it may, indeed, start to turn around in 2010. Conversely, Sprint's figures were less bad than many expected, but the company is still not addressing the endemic weaknesses that could broaden the gulf with Verizon next year. Meanwhile, Samsung was the real star of the day's results calls.

Motorola posted a small Q3 profit of $12m, or one cent per share, and forecast a bigger than expected profit for the current fourth quarter. A year ago, its Q3 loss was $397m. But revenue fell 27% to $5.45bn on a huge slide in handset shipments, which almost halved year-on-year from 25.4m to 13.6m.

This was to be expected, given that Motorola was in a well publicized transition phase in the high end and midrange - virtually launch-free this year, as it waited to debut the first models in its new Android-centered strategy. These duly turned up in time for Q4, with the Cliq/Dext at T-Mobile USA and some international carriers like Orange, and now the Droid at Verizon (and possibly the lower spec'd Calgary to follow in time for Christmas). They have received operator commitment and high profile launches, so it is essential they also demonstrate strong sales in Q4 - if they do, belief in the long promised Motorola turnaround will be much strengthened for 2010.

However, there are still causes for concern - not just the risk that consumers will not take to the new phones, but also the decline at the low end. Here, the Android platform will not be relevant for another year or so because of costs, and while an over-enthusiastic rush into ultra-low cost handsets in 2007 was one of the seeds of Motorola's decline, it cannot afford to be sidelined in major growth markets like China and India, especially as Nokia and Samsung are both aggressively leveraging their superior economics.

But the sentiment around Motorola is certainly improving. By contrast, confidence in a turnaround in similarly beleaguered Sprint remains low, despite some respectable aspects of the Q3 figures. But its key problem - massive loss of subscribers in the higher value postpaid sector - remains, despite major efforts, including smartphone launches like the Pre, enhanced customer service drives, and new prepaid and all-inclusive plans like new Simply Everything options and the Any Time Any Mobile tariff.

The carrier saw a 9% drop in revenues year-on-year, to $8.04bn, while it lost 500,000 further net subscribers during the quarter, for a total base of 48.3m. Its net loss was wider than last year too, up from $326m to $478m. Worryingly, the shift to a prepaid model continues, depressing margins - Sprint lost 801,000 postpaid customers in the quarter, indicating the limited impact of the Palm Pre launch on which it had placed such hopes. By contrast, AT&T and Verizon Wireless added over 3m net customers between them in the quarter. CEO Dan Hesse said the rate of postpaid losses has slowed (better than losing 991,000 in the second quarter and 1.25m in Q1, and Sprint added 666,000 prepaid users, far better than anticipated). Hesse said the company expects to see sequential quarterly improvements in both postpaid and total net subscriber losses.

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