With earnings, it's every company for itself
April 13, 2001 12:00 AM ET
by Rex Crum
When Motorola (MOT) reported its
first-quarter 2001 figures earlier this week,
it signaled the unofficial start of another
earnings season for technology companies.
Little good news was expected from
Motorola, and for the most part the
company lived up to the negative
expectations, especially regarding its
prospects for the coming months.
Not a clear indicator
As the first big technology company to report its financials each
quarter, Motorola is often seen as a bellwether for the rest of
technology companies, particularly in the telecom and
semiconductor spaces.
Because Motorola is involved in so many areas -- including
mobile-phone and semiconductor production -- its performance and
outlook can have an impact on how investors prepare themselves
for what the other tech giants have to say.
However, as nearly every company in Motorola's business spaces
has already given guidance about this quarter's earnings, many
believe that this time around the telecom sector won't necessarily
follow Motorola's lead.
Look to guidance
Telecom companies' performance is turning out to be a crapshoot.
The best gauge this quarter is to look at what the individual
companies have to say for themselves.
"It's all relative to the [company's] experience," said Jeffrey
Schlesinger, a wireless equipment analyst with UBS Warburg. "The
guys that were less than fit going into this quarter are getting hit
hard now and that will continue for a while."
Motorola certainly looked less than fit in the most recent quarter.
The company showed its first loss since 1985, reporting a deficit of
9 cents a share, or $206 million. Revenue came in at $7.8 billion,
down from $8.8 billion in the same quarter last year. Two of its
major business areas, handsets and semiconductors, experienced
large drop-offs in sales and orders.
Motorola pointed out that mobile phone handset sales have fallen
worldwide, a condition that could impact earnings of mobile
phone-making competitors Nokia (NOK) and Ericsson (ERICY) as
well.
Slowdown apparent
But given that Nokia and Ericsson have already updated guidance
for the quarter, this should come as no surprise to investors.
Ericsson and Nokia have already admitted that they're feeling the
slowdown. In late March, Ericsson officials cut the company's 2001
worldwide mobile-phone shipment estimates by up to 50 million
units, down from earlier forecasts of between 500 million and 540
million units.
On March 15, Nokia reduced its worldwide shipment estimates to
between 450 million and 500 million units, down from 500 million to
550 million. Motorola also cut its total market figures for the year to
between 425 million and 475 million phones after earlier this year
predicting 550 million units would be shipped.
When looking at what to expect from mobile phone companies,
there's also overall weakness in the telecom sector to consider.
"The industry in general is seeing slumping demand and it's still
slowing," said Brian Modoff of Deutsche Banc Alex. Brown.
No surprises
While Motorola cut its sales expectations when it reported less
than stellar quarterly results on Tuesday, analysts say they don't
suspect any big major revisions from its competitors.
Wall Street is looking for Ericsson to lose 5 cents a share when it
reports on April 24. The company has warned it will probably lose
between $410 million and $510 million for the quarter.
In mid-March, Nokia reaffirmed its guidance and expects to
announce earnings of 17 cents a share for its first quarter when it
reports on April 20.
"As far as Nokia and Ericsson are concerned, they have different
business models [from Motorola]," said J.P. Mark of Wells Fargo
Van Kasper. "Everybody has pre-announced one way or the other
and much of the bad news has already been factored into the stock
prices."
Service providers apart
What about wireless service providers, who sell or give away mobile
phones when customers sign up for service?
Analysts say that even though handset makers have lowered
shipment estimates, those figures do not necessarily reflect on the
health of wireless service providers.
Earlier this month, Sprint PCS (PCS) announced that during the
first quarter, it added 800,000 new subscribers, topping Wall
Street's expectations of 750,000. Meanwhile, Verizon Wireless,
which is owned by Verizon Communcations (VZ) and Vodafone
(VOD), acquired 518,000 new subscribers, while analysts were
estimating it would add between 550,000 and 750,000 new
customers.
"[The downturn in handset sales] doesn't mean service providers are
heading for bad results," said Peter Friedland of WR Hambrecht.
"What's bad for Motorola and those companies is when customers
are not replacing their handsets. The service providers are going to
have definite revenue from their subscribers even if the (handset)
sellers are down."
Rex Crum is a reporter at Upside.com covering telecom,
broadband and wireless. If you would like to submit a letter to
the editor regarding this story, email online@upside.com. |
