Thursday July 15 2:32 AM ET,,,,Motorola Upbeat On Second Half; Iridium Woes Mount
By Emily Kaiser
CHICAGO (Reuters) - Wireless phone and computer chip maker Motorola Inc. (NYSE:MOT - news) said Wednesday it expected to post strong earnings in the second half of the year amid prospects for brisk digital phone sales and improvement in the semiconductor industry.
However, Motorola's shares fell after the company said global satellite phone company Iridium World Communications Ltd (Nasdaq:IRID - news). may face bankruptcy or liquidation. Motorola owns 18 percent of Iridium and is the primary financial backer.
In a conference call, Schaumburg, Ill.-based Motorola said it expected to meet analysts' earnings and revenue expectations for the third quarter and full year.
Analysts were expecting Motorola to earn 51 cents a share on revenues of $7.8 billion in the third quarter and $2.00 a share on revenues of $31.6 billion for the full year.
That would far exceed last year's third quarter operating profit of 7 cents a share and sales of $7.2 billion. In 1998, full-year operating profits before restructuring charges were 58 cents a share on revenues of $29.4 billion.
Motorola Tuesday reported a second-quarter operating profit of 44 cents a share, well above last year's one cent a share. Both periods exclude one-time items. The earnings per share topped Wall Street expectations for 41 cents a share.
''The conference call was pretty upbeat,'' said Mona Eraiba, telecommunications analyst with Gruntal & Co. Eraiba said strong performance in digital handsets and improvement in the semiconductor sector contributed to a bright outlook.
However, Motorola's shares fell $1.625 to $94.875 in composite New York Stock Exchange trading after it said cash-strapped Iridium had three options: an out-of-court restructuring, Chapter 11 bankruptcy protection, or liquidation.
Including loan guarantees and other investments, Motorola said its financial exposure to Iridium was $2.2 billion at the end of the second quarter, although it has built reserves to cover part of that total.
''It is Motorola's hope that this last scenario (liquidation) can be avoided,'' said Robert Growney, president and chief operating officer, in a conference call.
Growney reiterated the company's stance that it would not increase support for Iridium unless the other backers also contributed.
An Iridium spokeswoman said the company was working with its lenders to reorganize its debt, but was not aware of any consideration being given to liquidation.
Iridium's shares fell $1.00, or 12 percent, to $7.125 in midday trading on the Nasdaq.
Credit Suisse First Boston lowered its recommendation on Iridium to sell from hold.
Iridium has had trouble signing up subscribers to its pricey system, which allows customers to make phone calls from anywhere in the world via a network of low-earth orbit satellites. Critics say the phones are unpopular because they are too bulky and require a line-of-sight connection with the satellites, which means they don't work inside or in cars.
Iridium's lenders have extended its $800 million credit facility three times and analysts have said the company is in danger of defaulting. Interest is due Thursday on Iridium's high-yield bonds, with an automatic 30-day grace period.
Ed Gams, head of investor relations for Motorola, said Iridium and its backers would hold ''significant discussions'' about Iridium in the third quarter, but said Motorola would not comment on those talks until some conclusion was reached.
''I believe they'll (Iridium) get over this current hurdle,'' said Timothy O'Neil, an analyst with SoundView Technology.
''Management understands that there is a problem, and they've addressed the problem internally. All that has to be followed up with some sort of attraction of customers.'' |
