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Little joy for Google in Motorola's results

Motorola Mobility shows only modest smartphone growth while Apple soars, and merger costs cause Q4 loss

By CAROLINE GABRIEL

Published: 30 January, 2012

READ MORE: Financial | Motorola | Handset | Android

Even before Google's acquisition of Motorola Mobility clears antitrust regulators, the search giant's would-be handset unit is delivering the patent gains that underpin the deal (two recent favorable rulings at the US ITC, one each against Apple and Microsoft). But it is also raising investor concerns over current profitability and the way a hardware business, and one struggling against two ascendant players, Apple and Samsung, will rebalance Google's finances.

The point was emphasized when Motorola Mobility announced its fourth quarter results, in which it fell into a net loss of $80m or 27 cents a share, reversing similar figures on the profit side in the year-ago quarter. However, core earnings were better than expected, and the losses were mainly down to the costs associated with the planned acquisition by Google. The contrast with Q410 was also increased because that quarter included a hefty intellectual property payment which boosted figures. Excluding special items, Q411 net income was $61m, or 20 cents a share, down from $108m or 37 cents per share, a year earlier.


Revenue in Q411 was up just 0.3% year-on-year to $3.44bn, just ahead of the company's cautious forecast, but the figure was stronger in the mobile devices business, which was up 4.9%, though it made an operating loss. The smaller set-top box operation reported a sales drop of 11% but raised its profitability. Gross margin slimmed from 26.7% to 24.9%.

Smartphone shipments were up from 4.9m a year earlier to 5.3m but only 100,000 Xoom tablets were included in that figure, and about one million for the year. This modest improvement was overshadowed by the strong growth of Apple and Samsung in the quarter, as these two giants increasingly consolidated their lead in high end devices. For instance, Apple shipped 37m iPhones and over 15m iPads.

This is the key contrast that concerns Google shareholders, which are worried that the firm - if it does not offload the hardware business, as it may still do, hanging on to the patents - will suffer the impact on its overall margins, while gaining none of the market share scale it will need to achieve a controlled hardware/software platform like Apple's, and antagonizing other Android partners in the process.

"In the fourth quarter, we received very positive consumer response to Motorola RAZR, which combined an iconic brand with ultrathin in an innovative smartphone," said Motorola Mobility CEO Sanjay Jha in a statement.

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