Motorola quarterly profit falls, margins disappoint

NEW YORK (Reuters) - Motorola Inc. (MOT.N), the world's second-biggest cell phone maker, said on Friday fourth- quarter profit halved, hurt by a sharp fall in phone prices as it tried to hold on to market share amid stiff competition.

The poor performance was anticipated by the market after Motorola issued a profit warning earlier this month, though results came in slightly better than it had forecast. Shares rose 2 percent to $19.11 on the New York Stock Exchange.

Despite the stock rise, analysts focused on Motorola's steep fall in profit margin, saying its phone prices had dropped more than they had expected in the December quarter.

"Operating margin fell from 12 percent in the last quarter to under 5 percent this quarter, and that's a very steep decline. It's stunning they can drop so much in one quarter," said Edward Snyder, an analyst at Charter Equity Research.

Motorola said profit from continuing operations fell to $528 million, or 21 cents a share, from $1.177 billion, or 46 cents a share, in the year-ago quarter, when Motorola reported a large gain from the collection of debt from Turkish phone company Telsim.

That was higher than its January 4 estimate of 13 cents to 16 cents a share because of items such a tax gain, Motorola said.

Revenue rose 17 percent to $11.8 billion, in line with its lowered forecast of $11.6 billion to $11.8 billion. The average forecast from Wall Street analysts was for revenue of $11.7 billion, according to Reuters Estimates.

Motorola executives said on a conference call with analysts that the earnings shortfall was due to discounts on the Razr, and price declines on the most expensive phones with high-speed wireless connections, and on cheaper phones sold in emerging markets, where competition was brutal.

Chief Executive Ed Zander also cited weakness in the U.S. market for phones based on iDen, a technology developed by Motorola that includes walkie-talkie style capabilities. Sprint Nextel Corp. (S.N), the No. 3 U.S. operator, is Motorola's biggest iDen customer.

LOW PHONE PRICES

Motorola said it shipped 65.7 million handsets in the quarter, up 47 percent from a year earlier, and its share of the global market rose to 23.3 percent, up almost one percentage point from the third quarter.

But analysts said Motorola's handset prices seemed to be even lower than they had expected after the warning.