Motorola Sucks Itself Into the Financial Crisis

Last Updated Nov 4, 2008 2:49 PM EST

Motorola RazrMotorola reported an operating loss of 397 million dollars, or $0.18 a share, for the third-quarter ended September 30, as revenues fell 15 percent to 7.48 billion dollars. The mobile phone maker, still stumbling from its failure to design smartphones to compete against the likes of Apple's iPhone and Blackberry models from Research in Motion, now has a new misstep to deal with -- poor returns on its in-house fund, called the SigmaFund:

  • During the three months ended September 27, 2008, the Company recorded investment impairment charges of $150 million, of which $141 million of charges were attributed to other-than-temporary declines in certain Sigma Fund investments, resulting from our positions in Lehman Brothers Holdings Inc., Washington Mutual, Inc. and Sigma Finance Corporation ("SFC"), a special investment vehicle managed by United Kingdom based Gordian Knot Limited. During the nine months ended September 27, 2008, the Company recorded investment impairment charges of $288 million, of which $145 million of charges were attributed to other-than-temporary declines in certain Sigma Fund investments and $83 million of charges attributed to an equity security held by the Company as a strategic investment.
This fund, which centralizes Motorola's investment activities, was designed to perform similar to an institutional money market fund. Like its decision to churn out updated models of its Razr -- instead of investing in new, wireless smartphone technology -- the SigmaFund is proving to be a less-than desirable investment vehicle. The 18-cent loss declared in the third-quarter included five cents from SigmaFund investment losses, according to the third-quarter 10-Q regulatory filing.

Chief Financial Officer Paul Liska warned analysts on the company's third-quarter earnings call that an additional impairment of up to $43 million would be recorded in the fourth-quarter, a result of a soured stake in Sigma Finance Limited (managed by hedge fund Gordian Knot) -- not to be confused with the in-house fund of similar name -- which went into receivership.

Looking ahead to the holiday selling season, the outlook is grim, too, with management expecting lower unit sales in the handset market, a result of a continued dearth of new offerings available in the smartphone category.

This post first appeared in BNET's 10-Q Detective blog.

  • David Phillips

    David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.