Moto Profits Jump, But Lead on Samsung Dwindles
By Carlo Longino, Tue Oct 19 23:00:00 GMT 2004

Motorola saw a surge in third-quarter earnings, but concern grows about its lead over Samsung in handset sales.

Motorola quadrupled its third-quarter profits over last year, earning $479 million on a 26% increase in sales to $8.62 billion, thanks to some new handset models. But what's worrying analysts is that the company sold 23.3 million handsets in the quarter -- 900,000 less than in the second quarter, but more importantly, just 600,000 more than Samsung. Moto CEO Ed Zander called the performance "noise," saying the company will gain share in the current fourth quarter, but some analysts are speculating the company protected profitability at the expense of share, since margins edged higher from 34 to 36.2 percent.

While Motorola has been able to build momentum this year, both because of Nokia's missteps and through the introduction of a number of successful new models, investors wonder if the company can keep things going, particularly since the low end of Motorola's revenue guidance for the current quarter is lower than analyst estimates. Fueling these concerns is slowing growth at the company's phone unit, where third-quarter revenue grew at half the pace of the first and second quarters.

LG Electronics, South Korea's number-two electronics manufacturer (behind Samsung) also reported rising profits on record handset sales. LG sold 11.8 million handsets in the third quarter, apparently taking back its spot as the world's fifth-biggest handset vendor from Sony Ericsson, which said earlier it sold 10.7 million handsets last quarter.

In other earnings reports Tuesday, US carrier AT&T Wireless continued to post lackluster results in the runup to the close of its buyout by Cingular, earning $117 million in its fiscal second quarter, down from $156 million a year ago, on a 4% drop in revenues. AT&T did, however, add 170,000 net subscribers in the quarter, a far better performance than in its first quarter, where it added only 15,000 users. Churn is now up to 3.7 percent from 3.4 percent in the previous quarter and 2.7 percent a year ago, and the company is spending money to try and hang on to users. The company says in its earnings release that ARPU fell 6% to $57.40 because of those promotional incentives and lower monthly charges, but says that was partially offset by increased data usage and, strangely, higher "regulatory program fees".

Sprint PCS, on the other hand, added 429,000 new users, and that number swells to 952,000 when it includes affiliates and MVNOs using Sprint's network. Those virtual operators -- Virgin Mobile and Qwest -- added 422,000 subscribers, and now represent about 12% of all Sprint users. Revenues increased almost 13% from last year to $3.8 billion, and operating income was up by a half to $451 million. Capex grew in the quarter as the operator builds out its EV-DO network, and churn and ARPU held basically steady at 2.7 percent and $63, respectively. More than 7.3 million Sprint subscribers use data, and it contributed about $5 to total ARPU.