Motorola Muddles Forward

Shares slide after Zander's latest black eye on the profit front.
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Updated from March 21

Motorola

(MOT)

sank 4% early Thursday after the latest earnings debacle shook the company to its core.

Motorola warned late Wednesday that it will miss first-quarter sales targets by more than a billion dollars and post an unexpected loss. The Schaumburg, Ill., company, blaming the continued struggles of its handset unit, shook up management and set plans for a big share repurchase.

Motorola said it expects to lose 7 to 9 cents a share for the first quarter, on revenue of $9.2 billion to $9.3 billion. Analysts surveyed by Thomson Financial were looking for a 17-cent profit on sales of $10.46 billion.

Motorola once again blamed lower than anticipated sales and operating earnings at its mobile devices business. For the year, the company said it expects "overall sales, profitability and operating cash flow to be substantially below prior guidance."

Even those who doubted the company's direction were surprised by the depths of its despair.

"This is a bit of a disaster," says one hedge fund manager who was short the stock. "They had operating losses for the first time; the handset guidance was atrocious. I think this was a worse miss than people expected."

The news comes as CEO Ed Zander comes under fire from activist investor Carl Icahn over the company's stumbles since its once-hot Razr phone lost its fashion edge.

"Performance in our Mobile Devices business continues to be unacceptable, and we are committed to restoring its profitability," said Zander. "After a further review following the leadership change in our Mobile Devices business, we now recognize that returning the business to acceptable performance will take more time and greater effort."

Motorola said Wednesday that Greg Brown, president of its networks and enterprise business, has been named president and operating chief. Thomas Meredith will take over as acting financial chief for David Devonshire, who will retire.

"I know a lot of value guys will think it's cheap and they have a lot of cash, but it's all about the handset business, and they don't have any decent phones," the short says.

"They had a great product cycle, and they were Wall Street's darlings. It's Motorola, so you can't count them out," says the short, "but it will be a while before they are back on their feet again."

The company boosted its share buyback to $7.5 billion and said it would repurchase $2 billion worth immediately.

Shares were halted for news pending late Wednesday. Investors had been

speculating that the wireless titan could be preparing to unveil an acquisition of struggling smartphone maker

Palm

(PALM)

, but Motorola signaled Wednesday that that's not in the cards.

Execs said earlier this winter that turning around the company's struggles in the handset business won't be easy or quick.

"There will be a lot of people saying they are lowering bar and doing the right things," says another hedge fund manager also short the stock. "But this is a one-product company, and that one product is at the end of its life."

"People thought with Icahn it would be OK, but Icahn doesn't bat 1.000," says the money manager. "Motorola is in disarray."