Motorola's 'Cylinder' Story Slows

It's all about the M in the telecom biz -- who is gaining momentum and who is losing it. Investors scour the quarterly results for possible inflection points, and Motorola (MOT - commentary - Cramer's Take) had three negative ones in its report Thursday night.

Much of Motorola's appeal in 2004 was built on the "firing on all four cylinders" angle, when the company's four major divisions showed good revenue and profit growth. But during the fourth quarter of 2005, the cylinder story cracked. Motorola's Connected Home Solutions Segment revenue growth dropped to 1% in the quarter, from 28% in the third quarter, which in turn had seen a drop from 35% in the second quarter.

This in itself is something of a snore. The division has only $675 million of sales -- just a tenth of the massive phone unit revenue. But the problem is that the Networks Segment sales declined by 4%, after posting 7% growth in the third quarter and 3% growth in the second quarter.

So two of Motorola's four divisions lost their growth groove in the quarter. Mobile networks created $1.5 billion in revenue during the fourth quarter -- still much less than the phone unit, but no longer chump change when combined with the CHS division.

The Government and Enterprise Mobility Solutions Segment put in the expected 8% revenue hike. This unit is not going to be a growth driver, but it remains a stable performer.

So that's three of Motorola's four divisions that did not post double-digit revenue growth -- and the network unit actually showed declining sales and profits.

This is still not too alarming, but it does mean that the phone division, with its $6.5 billion fourth-quarter revenue and 30% growth, is becoming more important with each quarter. The other three legs of Motorola are a drag for the company's growth, and the network division may turn into a profit drag as well if it doesn't snap out of its winter funk.

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Tero Kuittinen is a senior product specialist for Nordic Partners, Inc., a pan-Nordic brokerage firm. Although Kuittinen is an employee of Nordic Partners, Inc., the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Nordic Partners, Inc., nor attributable to the company. At the time of publication, Kuittinen had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback; click here to send an email.