Back to the 70's! And bulls are buying like crazy? What am I missing?: -->
Motorola CEO warns of 1970s flashback
By Margaret Kane
Special to CNET News.com
April 11, 2001, 8:40 a.m. PT
As if the bell-bottoms and disco revivals weren't scary enough, Motorola executives
today predicted an even more alarming retro trend: a return to the 1970s economy.
Motorola CEO Chris Galvin said in a conference call today that the technology sector is in a
recession and "reflects the boom and bust of the high-tech cycles of (19)84-85 or perhaps even
the (19)74-75 time frame."
Motorola on Tuesday reported its first operating loss in 15 years, falling short of analysts'
expectations despite twice lowering estimates during the quarter.
The comparison to the '70s--a
period that many of today's
tech investors may not even
remember--is considered to
be a stretch by many
analysts and economists. In
the early '70s, the stock
market and economy fell on
high inflation and interest
rates, an energy crisis and
the demise of the Nifty Fifty
stocks--50 bellwether stocks
that soared only to tank later.
Although some analysts
acknowledge there are
similarities to the '70s, many
disagree. In a recent research
note, Tobias Levkovich at
Salomon Smith Barney
pointed out that inflation is "quite muted" and interest rates are much lower.
"The real issue of the past few years was the unrealistic expectations of the (tech, Internet and
telecommunications) names, which have now come home to roost," he said.
Motorola on Tuesday said it lost $206 million, or 9 cents per share, on sales of $7.8 billion.
Analysts were expecting the firm to come in at around 7 cents for the loss, and were looking
for revenues of around $7.96 billion, according to First Call.
Looking ahead, Motorola officials tried to rebuild investor confidence. The company said it
expects sales to increase somewhat in the second quarter of 2001 vs. the first quarter.
Motorola said it would report a loss in the second quarter, which would likely be a few cents
higher than the 9 cents loss it reported in the first quarter.
Motorola said it expects sales to increase gradually, with a return to profitability in the second
half of the year. Annual sales are expected to be lower than last year, when Motorola posted
revenues of $37.6 billion. Annual earnings per share should be "modestly" higher than 2000,
when it earned 84 cents per share.
Hit hard
Analysts were expecting the company to report sales of about $36.5 billion for the year, with
earnings coming in at 13 cents per share. For the second quarter, analysts were looking for a
loss of 2 cents on sales of $8.7 billion, according to First Call.
Motorola makes wireless handsets and semiconductors. It has been hit hard by the economic
slowdown, as have its competitors Nokia and Ericsson. Sluggish sales have prompted the
company to lay off 12,000 workers since December.
That sort of news prompted analysts to raise flags about the company's long-term health.
Motorola's shares plunged last week after reports that Moody's and Standard & Poor's were
reviewing the company's credit rating.
The company said Tuesday that it has "expanded financing relationships" and "undertaken
aggressive cost-cutting measures" to offset any balance-sheet worries. At the end of the
quarter, Motorola had slightly more than $4 billion in cash on hand, up from $3.3 billion on Dec.
31.
Motorola CEO Galvin said the company has begun working with JP Morgan, Citicorp, and
Goldman Sachs "on this balance-sheet issue. If the orders are not coming in given what's
going on...you take costs out," he said.
Executives said they would consider selling nonessential businesses in an effort to trim costs.
Motorola Chief Operating Officer Robert Growney said Wednesday that the company was
continuing to lower its levels of commercial paper, or short-term debt issued by banks and
other lenders. He said the company's total short-term debt was around $4.9 billion, and that it
had total domestic and nondomestic credit facilities of $3.9 billion.
Growney also said the company plans to lower its level of investments this year. Motorola sold
about $1 billion of investments in the quarter, although it had acquisitions of around $750
million.
But that may not be enough to assuage analysts' concerns.
Bernstein analyst Paul Sagawa said that while he didn't see any likelihood of insolvency in the
near term, "we have little faith that management is making sufficient progress in dealing with
key issues across the business segments." |
