Motorola CEO Says Handset Division Gaining
Momentum
Dow Jones Newswires
By Johnathan Burns
Of DOW JONES NEWSWIRES
NEW YORK -- Mobile handset and telecommunications equipment maker
Motorola Inc. (MOT) expects to report a loss of several cents a share in the
third quarter while reaching profitability in the fourth quarter - well below
Wall Street's expectations, the company said Thursday.
In a conference call following the Wednesday afternoon release of its
second-quarter results, Motorola officials said its beleaguered handset
division is showing signs of momentum, with a positive book-to-bill ratio in
the second quarter. The unit is expected to see improved sequential sales in
the third quarter and fourth quarter, returning to profitability at the end of the
year.
Still, the recession in high-tech spending will mean the company's second
half will not be as good as analysts had projected. According to a Thomson
Financial/First Call survey, analysts had expected the company to reach
break-even in the third quarter and earn 11 cents a share in the fourth
quarter.
Motorola believes global handset shipments will be between 400 million and
425 million this year, or basically flat with last year.
In the second quarter, company officials said Motorola gained handset
market share, eclipsing the 15% mark for the first time since the beginning of
2000. That is an important milestone, as the company used to be the market
leader before Nokia Corp. (NOK) began to dominate the industry.
Chipset sales, however, are not as bright. The company expects global
demand for semiconductors will be 15% to 20% lower this year than last.
Motorola is more optimistic about 2002, when it projects global chipset
sales will rise 15% to 20%. The company expects a recovery in chipset
demand to begin taking place in the second half of the year, with a slim
chance Motorola's semiconductor unit might reach profitability in the fourth
quarter.
In the broadband business, Motorola expects orders to grow sequentially in
the third and fourth quarters.
Overall, sales are expected to climb 5% sequentially in the third quarter and
again in the fourth quarter.
Meanwhile, the company will continue to whittle down its debt throughout
the year.
In the second quarter, Motorola recorded a net loss of $759 million, or 35
cents a share, as revenue dropped 19% to $7.5 billion from $9.3 billion a
year ago. Including pro forma adjustments, the company lost 11 cents a
share, or $253 million, as demand for mobile handsets and chipsets were
markedly down from a year ago. Analysts had expected the company to
post a loss of 12 cents per share, but anticipated revenue would be more
than $8 billion.
Much of the company's savings have come via workforce reductions. So
far, Motorola has cut 24,000 employees and has targeted 6,000 more.
Chief Executive Christopher Galvin, whose remarks were brief, said the
company's five-point strategy to return to profitability was going as planned.
He also said the company had very strong cash flow from operations and
has substantially reduced its long-term debt, inventories and receivables in
an effort to shore up its balance sheet.
Like the remainder of the industry, Motorola has been hurt by extending
credit in the form of vendor financing. One such customer, Turkish
telecommunications concern Telsim, missed $728 million in payments this
spring.
Chief Operating Officer Robert Growney said discussions with the company
continue and Motorola has several alternatives, including taking a 66%
equity stake in the company.
"The conversations are active, but it would be inappropriate to go into
details," he said.
Ed Breen, head of Motorola's Networks Sector, said vendor financing
activity in the industry is nowhere near the level that it was last year.
"I think the landscape has changed dramatically," he said. "There is some
vendor financing going on, but it is very minimal."
He said he does not anticipate the company will offer any vendor financing
packages to customers that would be significant.
Meanwhile, Motorola officials said pricing on handsets and wireless
infrastructure has been following normal pricing trends. Handset demand
appears to be stabilizing as carriers have worked through most of their
existing inventory.
And new handset models, especially mobile phones that work on advanced
wireless networks, will improve Motorola's sales, analysts say.
Mike Zafirovski, president of the Personal Communications Sector, said that
well over 60% of handset sales in the second half of the year will come from
models introduced this year.
Shares of Motorola recently were up 13%, or $2.03, to $17.70 on volume
of 10 million, compared with average daily volume of 11.8 million.
-By Johnathan Burns, Dow Jones Newswires; 201-938-2020;
johnathan.burns@dowjones.com
Briefing Book for: MOT | NOK | Y.NOK | FI0009000681 |
