Why We Went Down?
Analysts see Motorola topping targets
By Cecily Fraser and Janet Haney,
CBS MarketWatch
SCHAUMBURG, Ill. (CBS.MW) -- Motorola will open the books on its fourth-quarter Monday, and Wall Street
analysts are expecting profits to triple from year-ago levels with strong growth in the company's wireless handset
business.
"Handsets are going to be big," said Ed Snyder, an analyst at Hambrecht & Quist. "They (Motorola) have done very
well, limited a bit by component shortages, but they are going to do well in terms of both top line and margins.
Semiconductors have also been strong."
Snyder said he expects the boom in handsets to take fourth-quarter sales to $8.9 billion, on back of a per-share profit of
82 cents.
That's a penny above the 81-cent consensus estimate of analysts surveyed by First Call Corp. A year ago, the maker of
chips, wireless phones and networking equipment (mot) earned $159 million, or 26 cents a share, with revenue totaling
$8.34 billion.
"No. 1 is whether they beat top line and bottom line," said Sam May, senior research analyst at U.S. Bancorp Piper
Jaffray. "They've got a lot of momentum in handsets right now. I don't think investors will be disappointed with the news
on the cellular handset product side."
Ahead of the earnings report, investors bid up shares 12 3/16 to 150 3/4 during Friday's trading session after two
analysts raised their price targets on the shares. Motorola shares hit a record high of 156 3/8 on Wednesday, and have
more than doubled from year-ago levels.
The earnings report is expected to hit the wires Monday afternoon, with a conference call to follow Tuesday morning.
Taking share
Now that Schaumburg, Ill.-based Motorola has completed its $11 billion acquisition of set-top box maker General
Instrument (gic), analysts said that the diversified electronics company is poised to capture even more market share in its
businesses.
Piper Jaffray's May said he's bullish on the company's prospects. "Broadband fiber and broadband wireless is going to
be an increasingly big market for them," he said.
Motorola is also reaping the benefits of surging demand for cellular phones. Snyder said he estimates that handsets will
make up almost half of Motorola's total revenue.
"Year-to-year, we are looking for 35 percent growth," he said. "And they are definitely gaining market share."
In the fast-growing cellular technology segment -- more commonly known as code division multiple access -- Motorola is
turning up the heat on its competitors.
"In CDMA (in the U.S.), they are taking it from everybody," said Snyder. "They took a lot from Qualcomm, and they are
even winning against Samsung."
Telecommunications equipment giant Qualcomm (qcom) got out of the handset business in late 1999, selling off its
CDMA consumer phone business to Japan's Kyocera Corp. in December. See full story.
Keeping tabs
While Motorola's growth is expected to surge, analysts said they will be keeping tabs on component shortages.
Shortages of chips and other equipment used in handsets have crimped companies like Motorola as demand surpasses
production capacity. See related story.
"Component shortages have been a problem for them," said Snyder. "Other than that most everything is hitting on all
cylinders."
Analysts also said that Iridium -- the struggling communications satellite company that filed for bankruptcy in August --
should not be a worry. Last quarter, Motorola took a $994 million special charge to increase its reserve related to its
financial exposure to Iridium. Motorola has an 18 percent stake in Iridium.
Analyst impact
The 9 percent spike in Motorola's stock price came Friday after PaineWebber analyst Walter Piecyk increased his price
target to $196 a share from $146. He expects the company to report 82 cents a share.
Motorola's stock has doubled from year-ago levels.
"We believe Motorola has significant revenue and earnings per share leverage over the next two years," the analyst wrote
in a research note.
Piecyk also upped his 2001 earnings per share estimate on Motorola to $4.35 a share from $4.18 based on an assumed
higher growth rate for wireless phones and infrastructure business.
Lehman Brothers also hiked its target to $200 a share from $160. Additionally, the stock was added to Lehman's 10
Uncommon Values List.
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