WASHINGTON (AFX) -- Motorola Inc. on Tuesday said first-quarter profit fell slightly because of stock-option expenses, but the world's No. 2 maker of wireless phones shipped a record 46.1 million handsets.
The lower earnings appeared to disappoint Wall Street, as Motorola stock fell nearly 5% in after hours trading to as low as $22.90.
Motorola said stock-option expenses reduced net income to $686 million, or 27 cents a share, from $692 million, or 28 cents, a year earlier. Stock-option expenses totaled 2 cents a share.
Revenue leaped 23% to $10.1 billion from $8.16 billion, as Motorola bucked the typical trend of slower sales following the year-end holiday season. Other handset makers are expected to follow suit, but Motorola is likely to outpace the performance of its rivals.
Excluding the stock-option expense and other one-time items, Motorola earned 28 cents a share. The company was expected to earn 29 cents a share on revenue of $9.56 billion, according to the consensus of analysts surveyed by Thomson First Call.
Some analysts say the company's drive to expand into developing markets and to sell more of its wildly popular Razrs, the top-selling handset in the world, could lead to lower prices and profit margins. Caris & Co. analyst Susan Kalla calculates that the average selling price of Motorola phones fell to $139 in the first quarter from the mid-$140s level.
'They've got price competition with an older model phone,' said Kalla, referring to the popular Razr phone that was introduced in 2004. Samsung recently unveiled its own ultra-thin phone to compete with the Razr series.
Still, the sleekly designed Razrs helped to fuel brisk demand and kept the pressure on market leader Nokia Corp. of Finland. Motorola said it boosted its global share by 4.8 percentage points to 21% from the year-ago period. Chief Executive Ed Zander said the company will ship its 50 millionth Razr phone sometime in the second quarter.
The company's second-quarter forecast indicates that Motorola expects to maintain its sales momentum. The technology giant predicted it would earn 30 cents to 32 cents a share on revenue of $10.3 billion to $10.5 billion, excluding onetime items. By comparison, analysts were expecting profit of 31 cents a share on revenue of $10 billion.
In a conference call, Zander said orders for the second quarter were on a record pace.
Shares of Motorola rose 50 cents Tuesday to close at $24.08, up 2.1%.
Division breakdown
The company's Mobile Devices unit posted a 45% increase in revenue to $6.4 billion. Operating profit totaled $702 million, up from $440 million a year earlier.
Wall Street had expected Motorola to ship 41 million phones in the typically seasonally weak first quarter, though some analysts were predicting as many as 44 million in a best-case scenario. Instead, the company topped its prior record set in the fourth quarter.
'This quarter was just terrific,' Chief Executive Ed Zander said in a conference call.
Several factors appeared to contribute more consistency to sales between the fourth and first quarters. For one thing, Motorola had trouble meeting demand at the end of 2005 owing to supply constraints, a frequent bugaboo in the past. That problem appears to have eased.
At the same time, sales of handsets are growing faster in developing regions of Asia, where wireless penetration is much lower than in European and North American markets. Most of those nations do not celebrate Christmas or experience the resulting rush of pre-holiday sales.
Motorola's pricy, ultra-thin Razrs, meanwhile, have been captivated customers around the globe. Razr models were the top sellers in the U.S. and Europe, according to several market research firms.
The networking-equipment division, however, continued to struggle as sales fell 14% to $1.43 billion from a year earlier. Operating income dropped to $132 million from $234 million.
Last week, a German newspaper reported that Motorola was eyeing the possibility of acquiring Siemens' equipment business. Some Wall Street analysts also say Motorola's networking division could be attractive to Nortel Networks if the company were willing to sell.
Elsewhere, the company's government and enterprise division registered a 2% gain in revenue to $1.54 billion, with operating income rising to $171 million from $167 million. Motorola recently agreed to sell a portion of that division, specifically its auto-electronics business, to Germany's Continental AG for $1 billion in cash.
The auto-electronics business probably accounted for $1.6 billion in sales last year, analysts estimate. The sale of that business should conclude within a few months.
The broadband, or Connected Homes, division showed solid growth as the company shipped a record 2 million settop boxes for high-tech TV systems. Revenue rose 7% to $710 million, though operating income fell to $15 million from $19 million. This story was supplied by MarketWatch. For further information see www.marketwatch.com.