Motorola Continues Free Fall

The company posts a $194 million Q1 loss as handset sales plummet. 

Troubles continue at struggling Motorola as the company posted a $194 million loss in the first quarter.

Hamstrung by plummeting handset sales, officials with the iconic U.S. technology company predicted April 24 that second-quarter losses would be wider than originally projected.

Motorola said it shipped 27.4 million handsets in the first quarter, a 40 percent decline from fourth-quarter sales of 40.9 million handsets. Motorola hit its historic high in handset sales in late 2006 with 65.7 million units sold. Most of those sales came from the then widely popular RAZR line of phones.

Overall, the handset division, which Motorola is trying to spin off, put up a quarterly loss of $418 million, accounting for just 44 percent of sales for Motorola. Two years ago, handset sales accounted for two-thirds of Motorola's revenue.

Adding to the company's woes, Motorola's revenue from its home and networks mobility division in the first quarter shrunk 8 percent, to $153 million. The only division reporting good news at Motorola was its enterprise mobility solutions unit, which saw profits grow 9 percent.

In a conference call, Motorola CEO Ed Brown predicted that the company's expected spin-off of the handheld division is not likely to happen until next year. Chief Financial Officer Paul Liska said Motorola will continue to cut costs this year, with expenses expected to fall by $540 million over last year.

Brown first mentioned spinning off the handset unit shortly after taking over for former CEO Ed Zander in January. Billionaire investor Carl Icahn, who unsuccessfully tried to gain a seat on the Motorola board in 2007, has been pressuring the company to dump its handset division for more than a year.

In March, Brown said Motorola was launching a process to create two independent, publicly traded companies. To avoid a proxy fight with Icahn, Motorola's single largest shareholder, the company agreed to seat two Icahn associates on the board and to seek input from Icahn about the future of Motorola's mobile phone division. The agreement also dismisses all litigation between Icahn and Motorola.

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After introducing the successful RAZR model in 2004, Motorola has struggled to launch another hit cell phone, driving it from the No. 2 spot among dominant handset makers. Nokia and Samsung are now the top two handset manufacturers.

"During the first quarter, we made an important strategic decision to separate the company, creating two independent, publicly traded entities," Brown said. "Improving the product portfolio in mobile devices and positioning both businesses for future success remains a top priority."