Motorola may face Razr 2 flop as iPhone sales surge
Motorola Inc.'s Greg Brown, in his first earnings report as chief executive officer, may post disappointing sales of the Razr 2 phone after holiday shoppers flocked to Apple Inc.'s iPhone.
Motorola probably sold 2 million Razr 2s, the slimmer camera phones Brown is relying on to revive revenue, in the fourth quarter, said Lawrence Harris, a former Oppenheimer & Co. analyst in New York. Steve Jobs's Apple may have sold 2.4 million iPhones.
Harris estimated Motorola sold half as many Razr 2s over a similar period compared with the original model, whose 2004 debut started a craze for ever-thinner phones. Motorola, which fell to third place among global phone makers last year, may drop to fourth in 2008.
"The Razr 2 didn't set the world on fire and it won't be a phenomenon like the original one," Harris said.
Motorola, based in Schaumburg, may say Wednesday that net income fell 59 percent to $257.9 million in the fourth quarter, according to the average of nine estimates compiled by Bloomberg. Sales probably slid 18 percent to $9.65 billion, the survey showed.
Jennifer Erickson, a spokeswoman for Motorola, declined to comment on sales or earnings before the report.
Motorola shares dropped 22 percent last year on the New York Stock Exchange, while Apple more than doubled. Motorola fell $1.48, or 11 percent, to $11.85 at 9:34 a.m. New York time, the lowest in more than four years. The Standard & Poor's 500 Information Technology Index dropped 4.3 percent.
The fading popularity of the original Razr probably cost Motorola its position as the top-selling handset at AT&T Inc., the biggest U.S. phone-service company, for the first time since 2004, sa id Piper Jaffray & Co. analyst Michael Walkley. Motorola probably ceded that spot to Samsung Electronics Co.'s Sync video and camera phone last quarter, he said.
The 47-year-old Brown, who took over as CEO after Ed Zander's Nov. 30 resignation, has to improve marketing to show consumers the new phone is a step up, Walkley said. The $300 Razr 2 is too similar to the first, which is available for free with a contract, said Minneapolis-based Walkley, who called Razr 2 holiday sales "disappointing."
Motorola probably sold about 3 million Razr 2s since the debut in the second quarter, Harris said. The original sold almost 6 million over a similar span after its release, and 12 million in th e first year, he said.
The Razr 2 is thinner, has a better camera and can store more songs than the original. Consumers haven't bought the phones as quickly as Motorola shipped them, building inventories at carriers and retailers, Walkley said.
"The Razr 2 doesn't stand out the way the original did," said Brad Williams, who helps manage $11 billion as an analyst at MTB Investment Advisors in Baltimore. His firm sold its Motorola sha res last year. "You go to a store and there are less-expensive products that look strikingly similar to the Razr 2."
The $399 iPhone, which blends Apple's best-selling iPod music player with an e-mail-equipped handset, is stealing sales from Motorola. The iPhone broke AT&T's opening-weekend records and sold m ore in three days after its June 29 debut than the original Razr did in its first month.
Last week, Jobs, 52, said Apple has sold more than 4 million of the phones. Analysts including UBS AG's Benjamin Reitzes in New York said Apple probably sold 2.4 million last quarter.
Nokia Oyj, Samsung and Sony Ericsson Mobile Communications Ltd. also introduced phones superior to the Razr 2 in features, according to a Jan. 4 analysis by Cowen & Co. That may help Sony Erics son overtake Motorola as the No. 3 handset maker in the world this year, according to Cowen analysts including Matthew Hoffman in Boston.
Sony Ericsson, the London-based joint venture of Sony Corp. and Ericsson AB, increased its market share to 8.8 percent in the third quarter, behind Motorola's 13.1 percent, said Stamford, Conne cticut-based researcher Gartner Inc. Samsung had 14.5 percent, while Nokia dominates with 38.1 percent.
Motorola probably sold 41 million phones last quarter, missing the 42 million average estimate of analysts, Citigroup's Jim Suva in San Francisco said in a report this month. A year earlier, Mo torola sold 65.7 million phones.
Brown is working on video and music phones to win customers back. Motorola plans to start selling the Moto Z10 for shooting and editing video and the Rokr E8, which holds about 5,000 songs and includes a camera, this quarter.
"They don't have any phones that would spark a burning desire in people to buy them," said Raimundo Archibold, a Kaufman Brothers LP analyst in New York. "I'm not expecting any meaningful re covery in the handset business until middle of 2008." He recommends buying the shares and owns them himself.