Motorola at the Starting Gate?

For Faulkner's preview heading into the Motorola conference call, please click here.

Motorola (MOT - commentary - Trade Now) reported third-quarter 2009 results before the open today that were essentially in line with Street consensus. More importantly, EPS guidance for the December quarter is above current expectations.

Revenue in the quarter was $5.45 billion (down 27% year over year and 1% quarter over quarter), with pro forma EPS of 2 cents and GAAP EPS of 1 cents. The gross margin in the period was 33.2%, up 910 basis points from last year and 210 basis points sequentially, largely due to mix and supply chain efficiencies. The operating margin was 2.3%, an increase from a loss last year and up 210 basis points from the second quarter as the company continues to squeeze expenses lower.

Operations generated about $615 million, a 3 times increase over last year and a 4 times improvement from the prior quarter, largely from improved use of working capital. This led to a $700 million improvement in the cash balance increased, to about $6.1 billion. Accounts receivable was down about $290 million, reducing days sales outstanding by four days, to 56 days. Inventory was down about $140 million, cutting one day from days of inventory, to 38 days.

Mobile Devices (MD) revenue continues to be weak at $1.69 billion, down 46% from last year and 8% sequentially. This was below the expectation of a "flat" quarter. Units fell 8% from the prior quarter, to 13.6 million, with estimated market share down to 4.7%. Despite the decline, ASPs remained unchanged at about $124. MD's operating loss improved vs. last year and the prior quarter, but it has been 11 quarters since this unit was profitable.

Home & Networks (HN) revenue was $2.01 billion, down 15% from the year-ago period but unchanged vs. the second quarter. Digital entertainment devices were below expectations, somewhat offset by better wireless infrastructure demand in the quarter. The operating margin was 9.9%, down 120 basis points from last year but up 230 basis points from the prior quarter on better opex control. The Enterprise Mobility (EM) revenue was $1.77 billion, down 13% year over year but up 5% quarter over quarter. The operating margin of 17.3% declined 260 basis points year over year but jumped up 380 basis points quarter over quarter. The Government & Public Safety segment was solid once again, but the corporate market saw some signs of life in the period.

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At the time of publication, Faulkner had no positions in the stocks mentioned.

Bob Faulkner has been in the investment business for 18 years with an exclusive focus on technology stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Faulkner appreciates your feedback; click here to send him an email.