Shares in Motorola, the second largest mobile phone maker after Finland’s Nokia, fell by as much as 12 per cent in early trading on Friday after the US company warned that “an unfavourable geographical and product-tier mix of sales” meant sales and earnings in the fourth quarter would be lower than expected.

The shares fell by $2.20, or 10.7 per cent, to $18.35 in morning trading on the New York Stock Exchange after sinking as low as $18 earlier in the session – their lowest level since July 2004.

Motorola’s disappointing outlook dragged down Nokia and chipmakers such as Texas Instruments and Qualcomm.

The warning, issued on Thursday after the US markets had closed, triggered downgrades for Motorola from analysts who said that while unit sales remained strong, fierce price competition in the fourth quarter had driven down average selling prices.

Motorola said it sold about 66m handsets during the quarter, up 23 per cent from the third quarter of 2006 and 48 per cent from the fourth quarter of 2005.

However, analysts said that Motorola had cut prices of many of its most popular handsets in the run-up to the holiday season to maintain market share.

Motorola’s popular but ageing Razr phone and the Q smartphone were among the handsets hardest hit, analysts said. Demand for the KRZR K1, the successor to the Razr, had been lower than expected.

Motorola now expected to earn 13-16 cents per share on sales of $11.6bn-$11.8bn (£6bn-£6.1bn), down from estimates of $11.8bn-$12.1bn. The figure includes about 10 cents in charges.

“We are very disappointed with our fourth-quarter financial performance,” said Ed Zander, chief executive.

Motorola gave few details of the causes of the shortfall, other than saying the problems were in its mobile devices segment. Fourth-quarter results for both the networks, enterprise and connected home segments are expected to meet or exceed internal expectations at the start of the quarter.

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