Motorola Fans on Edge

The Razr phone impresses, but the outlook suggests momentum may be fleeting.
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Updated from Jan. 18

The Razr's edge didn't last long at

Motorola

(MOT)

.

The wireless giant posted a strong fourth quarter Tuesday, boosted by stronger-than-expected sales of its new high-priced handset, the Razr. But shares sagged as first-quarter guidance failed to impress a jaded Wall Street, which has seen Motorola's up-and-down act before.

Early Wednesday, the stock fell $1, or 6%, to $16.43.

For its fourth quarter ended Dec. 31, the Schaumburg, Ill., tech giant posted earnings from continuing operations of $687 million, or 28 cents a share. That's up from the year-ago $441 million, or 18 cents a share, and 4 cents ahead of the Wall Street analyst consensus estimate.

Revenue jumped 27% from a year ago to $8.84 billion, easily besting the $8.46 billion Thomson First Call consensus. Motorola cited a strong performance in its Personal Communications Segment, where sales surged 51% from a year earlier.

Sales of the company's high-end Razr handset "greatly exceeded sales expectations," Motorola said, adding that it shipped 31.8 million handsets and gained 3 points of cellphone market share.

"They blew the doors off on handsets," says Charter Equity analyst Ed Snyder, who rates Motorola buy and was looking for fourth-quarter sales of about 27.5 million units. "I think the Razr phone did better than many people expected."

Motorola says the robust quarter will let it retake the No. 2 position in handset sales that it briefly lost to Samsung last quarter. The numbers, which are Motorola's alone and haven't been confirmed by any third-party researcher, would leave it behind only leader

Nokia

(NOK) - Get Report

.

Some investors had expected Motorola to produce strong numbers, but they thought that Samsung's middling numbers in the latest quarter suggested that

growing competition could take a chunk out of Motorola's handset market share.

Motorola seems to have put those fears to rest with Tuesday's numbers, which suggested the pricey Razr phone is doing just what Motorola wants -- pushing the market upscale.

Still, not everyone was sold. "With Motorola, there is always a little suspicion that they put a little too much product into the channel during the quarter," says Sanford Bernstein analyst Paul Sagawa, who rates the stock neutral. "Relatively soft first-quarter guidance fans the flames of Motorola bears with more than a year's memory."

Sagawa worries that Motorola's surge in handset shipments may result in extra inventory sitting in stores. "I have concerns as to whether

the cell phone business can keep up this momentum against a resurgent Nokia in 2005," Sagawa says. "But Samsung's product pipeline looks pretty lame."

Motorola also guided toward stronger-than-expected first-quarter sales, though it said earnings for the current period would be at the low end of expectations. Motorola targeted earnings of 17 to 20 cents a share on sales of $7.7 billion. Analysts had expected earnings of 20 cents a share on sales of $7.58 billion.

Analysts say Motorola had a strong fourth quarter, but some saw the outlook for the current quarter ending in March as soft -- or at least not reflective of the some of the momentum the company had last year.

"They did really well, but I thought the guidance for next quarter was a little less than we expected," says Snyder. "My hunch is that they are seeing orders for iDEN infrastructure and phones lightening up." Snyder is referring to big customer

Nextel

(NXTL)

, which may be trimming its network expansion in anticipation of its merger with

Sprint

(FON)

.

"It's a recurring theme with Motorola, they have so many moving parts," says Snyder. "Some parts of the business are on, and some are off. I think last year was freakish because you saw everything lined up at one time."