Saturday July 7 -- Signs of Recovery Unlikely with Motorola Results --->
By Ben Klayman
CHICAGO (Reuters) - Investors badly want to see the glimmer of a
future recovery in the battered technology sector when Motorola Inc.
(NYSE:MOT - news), the world's No. 2 wireless-telephone maker,
reports second-quarter results next week, but they aren't banking on it.
While the Chicago-based wireless technology giant already has said it expects a loss in the second
quarter, analysts and investors want to hear that business will improve in the second half of the year.
``I will be pleasantly surprised if Ericsson (news - web sites), Nokia (news - web sites), Motorola --
the large cap market leaders in the sector -- don't take September down,'' First Union Securities
analyst Mark Robert said of the third quarter. ``On a macro basis, we are not seeing any signs of a
recovery.''
Finland's Nokia (NOK1V.HE)(NYSE:NOK - news) is the world's largest mobile-telephone maker and
Sweden's Ericsson (LMEb.ST)(NasdaqNM:ERICY - news) ranks fourth. Nokia and Ericsson report
their second-quarter results later this month.
Motorola, the first major technology firm to report for the latest period, said in April its second-quarter
loss would be a ''few cents larger'' than its first-quarter loss of $206 million, or 9 cents a share. It will
report results on July 11.
Motorola's shares closed off 4 percent, or 64 cents, at $15.37 on Friday on the New York Stock
Exchange (news - web sites). Over the past year, they have underperformed the Standard & Poor's
500 index by about 37 percent.
Rival Nokia, viewed as immune to an economic slowdown, shocked investors last month by saying
slower-than-expected market growth would push second-quarter earnings 15 percent to 20 percent
below forecasts. It said sales growth in the quarter would be below 10 percent, less than half an earlier
estimate of 20 percent.
SLUMPING SALES, RISING INVENTORIES
The handset industry has struggled with slumping sales and rising inventories, while newer technologies
that could drive growth has been delayed, analysts said.
Mobile telephones also have lost some allure for consumers in Europe as carriers cut generous
subsidies, analysts said. Throw in the U.S. economic malaise spreading overseas, and that spells
trouble.
British telecom equipment firm Marconi Plc (MONI.L)(NasdaqNM:MONI - news) saw its stock lose
half its value after it warned on Wednesday its operating profits would halve this year and it would shed
4,000 more jobs. Last month, Canada's Nortel Networks Corp. (NYSE:NT - news)(NT.TO), the
world's largest telecom equipment maker, said it expected to lose a staggering $19.2 billion in the
second quarter and cut another 10,000 jobs.
Nokia's warning raised fears Motorola, which has struggled to bolster its mobile-telephone operations
with cost cutting and new products, could disappoint in the second quarter lower expectations, analysts
and portfolio managers said.
``The most important thing is that they don't revise their (financial) guidance down,'' Jane Snorek,
co-manager of Firstar Large Cap Core Fund, said of the third quarter.
``2001 is going to be a little more difficult than their current guidance,'' said Snorek, who sold the last
of her Motorola shares in March.
MOTOROLA A TECH BAROMETER
Motorola is a bellwether stock for the technology industry because of its broad array of products.
``It touches on the cable industry, semiconductors, handsets, mobile infrastructure, even the auto
market,'' Wit Soundview analyst Matt Hoffman said. ``They're a market leader in a number of areas. It
tells us a lot about what we're going to see in tech.''
Analysts expect Motorola to report a loss of 12 cents in the second quarter, with a range of a 10-cent
loss to a 15-cent loss, according to Thomson Financial/First Call. The wireless technology giant is
expected to break even in the third quarter, although Snorek believes it could report a loss of as much
as 15 cents a share for that period.
Investors must be patient, especially with Motorola's all-important wireless telephone and
semiconductor units, analysts and portfolio managers said.
``Our belief is that it's a several-year turnaround for the handset business that will be required to
restore this stock to the kinds of prices it used to trade at,'' said Bill Nygren, portfolio manager of the
Oakmark Fund, which owned 2.4 million Motorola shares at the end of March.
He wants company executives to talk about restoring profitability at that unit, something Motorola
expects will occur in the third quarter. Motorola has said the mobile telephone and semiconductor units
will report operating losses and lower sales in the second quarter.
Nygren also wants to hear about the company's progress making new wireless phones with fewer and
more common parts, as Nokia has done so successfully, and about Motorola's ability to regain market
share in wireless telephones.
Some investors wonder when the industry will stop revising its expected 2001 global mobile telephone
sales downward. From an expected 600 million units, many manufacturers have cut forecasts to the
point where little or no growth is expected from last year's level of about 405 million units.
INDUSTRY LOSING BODY PARTS
``It's like a Monty Python movie, where the knight keeps getting parts of his body chopped off,'' said
Henry Asher, president of North Star Group, a New York investment advisor with a small number of
Motorola shares. ``We'd like to know when exactly the industry stops losing body parts.''
Another worry is Motorola's semiconductor unit, in a sector where other firms are cutting forecasts,
analysts said.
Justin McNichols, portfolio manager with San Francisco asset management firm Osborne Partners
Capital Management, expects business at Motorola's wireless unit to pick up by the end of the year, at
the earliest, and at its semiconductor unit by early next year .
Analysts also will be monitoring Motorola's financial position -- the company's cash, debt, inventories
and receivables for progress.
Another question on many investors' minds, but not often voiced, is the state of Motorola Chief
Executive Christopher Galvin's job security given the company's disappointing results and declining
stock price.
``How long is Chris Galvin going to survive? Well over 50 percent of the investors I talk to, that's a
very common theme,'' said one analyst, who asked not to be identified.
Several board members voiced their support for Galvin, the grandson of Motorola's founder, at the
company's annual meeting in May. |
