Mot, Q Mentioned>
Friday October 8, 4:40 pm Eastern Time
Motorola profits seen up, Iridium charge possible
By Emily Kaiser
CHICAGO, Oct 8 (Reuters) - Armed with a potent lineup of new wireless phones and an
upswing in semiconductor demand, telecommunications and technology company Motorola Inc.
(NYSE:MOT - news) will likely post third quarter profits on Tuesday that easily surpass last
year's earnings, analysts said on Friday.
However, Iridium LLC (NasdaqNM:IRIQ - news), the financially troubled global satellite
phone company that Motorola bankrolled, may continue to weigh on investor sentiment. Several analysts said they expected
Motorola to take a charge against earnings to cover its exposure to Iridium, which filed for Chapter 11 bankruptcy protection in
August.
Motorola ''will likely meet or slightly exceed our expectation of $0.52 (per share), against consensus estimates of $0.51,'' Lehman
Brothers analyst Tim Luke said in a research note. ''We believe Motorola continues to see improved trends across all product
lines, except the paging unit, which should continue to experience weakness.''
A spokesman for Schaumburg, Ill.-based Motorola declined to comment on the earnings forecast, citing company policy.
Last year, Motorola earned $0.07 a share in the third quarter as it recovered from a massive restructuring in the midst of a
downturn in chip demand and some internal missteps in wireless phones.
''They may announce that they are taking a big charge for Iridium,'' said Wojtek Uzdelewicz, telecommunications analyst with SG
Cowen & Co.
Motorola, which owns 18 percent of Iridium and has guaranteed a portion of the company's debt, last quarter raised the possibility
of a third quarter charge tied to Iridium. Iridium has struggled to sign up subscribers to its service, which allows customers to make
phone calls from anywhere in the world via a network of 66 low-earth orbiting satellites.
Analysts have said Iridium underestimated the rapid expansion of wireless phones. In the time it took to get the satellites in the air,
cellular towers were popping up around the world, so some potential customers had no need for the more expensive satellite
service.
''It's possible that some kind of charge for Iridium will occur,'' said Larry Borgman, an analyst with Josephthal & Co. ''That's been
a problem area for them for a long time.''
Still, Borgman and others said Motorola's core businesses were strong, aided by strong sales of its newest phone handsets and a
cyclical upturn in semiconductor demand. Motorola's paging unit, however, has suffered from the success or wireless phones,
which have cannibalized demand for pagers.
''They've got a lot of strength in semiconductors and their hand-held phones are doing well,'' Borgman said. ''They've got a good
lineup of new products that are helping them a lot.''
At the top of that list of new offerings is Motorola's line of StarTac phones. The small, lightweight handsets have been hot sellers
this year, analysts said.
''Demand for handsets has been great,'' SG Cowen's Uzdelewicz said. ''All indications are that Motorola has been selling a lot of
phones.''
Uzdelewicz said Motorola may beat Wall Street estimates by a penny or two, but said capacity constraints in semiconductors and
handset component shortages would limit upside potential.
Motorola has been unable to make enough of the chips that power Apple Computer Inc.'s (NasdaqNM:AAPL - news) PowerMac
G4 computers. The shortage led Apple to warn last month that it would miss its earnings target for the fiscal fourth quarter.
Uzdelewicz said shortages of three key wireless phone components -- flash memory, display drivers and filters -- has limited
Motorola's phone production. Last month, Qualcomm Inc. (NasdaqNM:QCOM - news) cited parts shortages as one of the
reasons it decided to sell its mobile telephone business.
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