Razr Glitch Cuts Motorola Stock Prices

Cingular Wireless and T-Mobile last week stopped selling the Motorola model because of a defect in some handsets that causes calls to disconnect when the flip phones are opened. The glitch is due to a faulty component from one supplier, Motorola said.

Twenty-five million consumers around the world are using the Razr model, according to Motorola. However, the issue affects a "very limited number" of Razr handsets designed for GSM networks, company spokesperson Jennifer Weyrauch stressed.

"Affected handsets would have shipped in the last four weeks. We are working with our customers to ensure quick and easy resolution for consumers. Again, the issue affects only a very limited number of handsets and there is no recall," Weyrauch told TechNewsWorld. "Additionally, Motorola does not expect any impact on financial results."

Downgraded Stocks

Motorola shares fell 40 cents, or 1.9 percent, to close at US$20.88 Friday on the New York Stock Exchange. The stocks are down more than 16 percent since hitting a five-year high of $24.98 in November. This morning the stock is hovering around $20.22.

Susan Kalla, an analyst with Caris & Company, downgraded Motorola stock to "average" from its "above average" status based on news of the technical glitch.

Though Motorola would not comment on the number of Razrs impacted by the defect, Caris & Company calculated that T-Mobile and Cingular, the two carriers that have halted Razr sales, buy about 500,000 of these handsets each week. The glitch could impact slightly more than one week's supply of Razr phones, Kalla predicted.

Sketchy Outlook

"We are concerned that MOT is highly dependent on sales of the Razr phone, which have driven the stock appreciation over the last two years. Though MOT has new phones, the production has not been as smooth as anticipated. MOT has reported delays with three new phones, the Pebl, the Slvr and the Q, the first two due to supply-constraints," Kalla said.

The Razrs are high growth, high-margin phones. The Street expected Motorola to sell about 16 million Razrs in the first quarter of 2006, which represents an average of about 4 million per week.

Motorola sold 45 million phones in the fourth quarter of 2005, about 13 million of which were Razr phones. The glitch could cause Motorola to lose about 1 million unit sales, according to analyst estimates.

The delays in China's 3G build and pricing pressure from Chinese suppliers Huawei and ZTE give Kalla further concern about Motorola's outlook.

Motorola has not commented on its intentions of replacing the faulty component makers.