Motorola Sends Strong Signal

Fans expect a big quarter and more plans from CEO Ed Zander.
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Wall Street anticipates more good news from the comeback trail for Motorola (MOT) , but the going doesn't seem to be getting any easier.

The No. 3 mobile phone maker is set to report earnings after the market closes Tuesday, and investors are expecting an update on the big holiday sales season as well as a progress report on CEO Ed Zander's business makeover efforts. Early reports show that Motorola didn't have any big misfires on cell phone deliveries as in years past, though that performance may not have been enough to help Motorola regain its No. 2 status.

With the

departure of COO Mike Zafirovski due at the end of the month, Zander is also expected to announce a realignment at the top of the company's management organizational chart.

As to the handset market, some clues came Thursday from rival

Samsung

, which reported that cell phone sales and margins slipped as price pressure intensified in the fourth quarter. Samsung's biggest weakness came from Korea, where sales have dropped off as carriers stopped subsidizing phone purchases for subscribers.

Analysts say there were some important shifts at the end of what has been a blockbuster year for cell-phone sales.

"High-margin players like

Nokia

(NOK) - Get Report

and Samsung will see erosion due to complexity in the global market," says John Jackson, an analyst with Yankee Group.

Jackson says this will come from increased competition as Asian handset makers -- especially Japan's Sharp and

NEC

(NIPNY)

-- expand in Europe. He also points out that more and more, telcos are using leverage by asking phone makers to customize handsets, thereby adding more costs to the manufacturing process.

Notably, Motorola may be a beneficiary of some of the market conditions that contributed to Samsung's slump. Internally, the Schaumburg, Ill., wireless giant has been streamlining its business and has spun off its money-losing chip unit,

Freescale

(FSL)

. Observers expect some improvements on the cost side that will translate to wider margins.

Additionally, a strong new handset lineup may help the tech giant regain some traction in the fashion fickle phone market.

But with top player Nokia attempting a resurgence and Samsung and

LG

riding the popularity of color-screen camera phones, Motorola could find itself in fourth place despite a strong final push in 2004.

"I'd say it's pretty close, a coin toss," says Jackson, referring to whether Motorola will gain or fall in the ranking.

More important, say analysts, is Motorola's ability to command higher prices for phones while lowering the costs of production.

Johnson says all the attention Motorola has attracted with its metal-clad Razr phone won't necessarily translate to higher sales. But the glitter could help push the company's portfolio upmarket, where the bigger margins are.

Analysts expect Motorola to report earnings of 24 cents a share on $8.5 billion in sales for the quarter ended last month. That compares to earnings of 19 cents a share on revenue of $8.6 billion in the previous quarter.

Motorola shares closed up 8 cents at $17.03 Friday.