Motorola Is Expected to Meet Forecasts

Motorola Inc., the first of the Big Three mobile phone makers to post third-quarter earnings, is expected to meet Wall Street profit estimates this week. But the true measure of its performance will be the profitability of its mobile phones.

The world’s No. 1 mobile phone maker, Finland’s Nokia, already has warned it expects lower margins this quarter compared with the second quarter, and Sweden’s Ericsson, is expected to post a significant loss in its handset business.

Motorola, a maker of communications systems and semiconductors as well as the world’s second-largest mobile phone maker, posts its results Tuesday. Ericsson, the No. 3 cell phone maker and biggest producer of mobile networks, unveils its results Oct. 20 and Nokia on Oct. 26.

Schaumburg, Ill.-based Motorola posted a rise in phone profit margins in the second quarter, after a 41% tumble in first-quarter mobile phone earnings.

“They delivered well in the second-quarter, and I think people hope to see the same thing in the third and fourth quarters,” said analyst Lawrence Borgman of Josephthal & Co.

Analysts’ consensus forecast for Motorola sees a profit of 26 cents a share, up from 23 cents in the second quarter and 12 cents from ongoing operations in the year-ago third period, adjusted for a 3-for-1 stock split, according to First Call/Thomson Financial.

Analysts expect about $10 billion in total revenue compared with $7.7 billion last year.

Motorola’s handset unit orders are expected to be down year-over-year, due to last year’s unusually high growth rate, driven by service providers who built big phone inventories amid fears of component shortages.

Earlier this month, Motorola said it has not changed its own forecast--also 26 cents--for the quarter. The company has not missed its estimates for two years.

Nevertheless, Motorola stock has been hit by a jittery market. After rising to $61.50 earlier in the year, Motorola on Friday closed at $27.75 on the New York Stock Exchange, below where it was trading a year ago.

Nokia and Ericsson also have seen recent sharp falls.

“I think the whole world is focusing on handset margins, unit volumes and revenue. Margins are where the story is being told for Motorola right now,” Ed Snyder, analyst with Chase H&Q; said. “If they do well in margins and they have decent revenues, their stock is going to rock,” he said.

Analysts said they were looking for Motorola’s third-quarter handset margins to increase to a range of 5.5% to 6.5% from 4% in the second quarter. Motorola expects operating margins for the handset business to reach 10% by the end of the year.

In comparison, Nokia’s quarterly handset margins--the highest in the industry--are expected to fall below 20% from 25% in the quarter, and Ericsson is seen continuing with a negative margin.

Analysts, concerned about the short-term state of the mobile phone market, are also hungry for comments from Motorola about the fourth quarter and next year.

The fourth quarter has become increasingly crucial for leading cellular phone makers as many consumers choose the holiday season to buy new phones.

There were some signs that mobile phone growth, especially in Europe, was slowing, analysts said, and there was a risk that subscriber-growth-driven mobile phone sales were slowing down.

“Generally in the mobile phone market, the visibility of growth may not be as high as first expected,” said London-based HSBC Securities analyst Stuart Jeffrey. “People don’t know what will happen in the fourth quarter or even next year.”

Jeffrey said large components makers had cut the number of handsets they expect to be sold this year. The Big Three mobile phone makers expect to sell between 400 million and 450 million cellular phones this year.

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