Motorola sees tough first half in 2001
By Yukari Iwatani
CHICAGO, Jan 11 (Reuters) - Motorola Inc., the world's second-largest mobile phone maker, on Thursday said weakening economic conditions would hurt its business in the first half of 2001 but cost cuts and other measures should help improve performance in the second half.
Motorola <MOT.N>, which on Wednesday was the first of the Big Three mobile phone makers to report quarterly earnings, also said it now sees slightly lower-than-expected industrywide mobile phone sales in 2001, confirming rival Nokia Corp.'s <NOK.N> <NOK1V.HE> data released this week showing a slowdown in demand.
Analysts said Motorola's guidance for the first quarter and 2001 was in line with expectations, and the company's shares rose 6 percent as investors who had feared another earnings warning breathed a sigh of relief.
"The economy is the key here for the company. Their guidance is very economically based and seems very reasonable given the current economic conditions," Tim Ghriskey, portfolio manager of Dreyfus Fund, told Reuters. Dreyfus Fund owns a small share of Motorola.
Shares of Schaumburg, Illinois-based Motorola rose $1-4/16 at $22-7/16 on the New York Stock Exchange in afternoon trading, on volume of more than 15 million shares. It was near the low end of a 52-week range of $15-13/16 to $61-1/2. Since a year ago, Motorola's shares have been trading about 20 percent below the shares of the world's No. 1 mobile phone maker, Nokia Corp.
"The reason why the stock is up is because there was no huge negative guidance. People were a little bit worried about that," Ed Snyder, an analyst with Chase H&Q, said.
American Depository Receipts of Nokia also rose 4.5 percent at $41-5/16 on the New York Stock Exchange and ADRs of Ericsson <LMEb.ST> <ERICY.O> rose 9 percent at $11-9/16 on Nasdaq.
In a conference call with analysts, Motorola reiterated its previous first-quarter expectation of $8.8 billion in sales and 12 cents a share in earnings, alleviating investors' fears of another earnings warning. The company twice lowered earnings expectations over the last few months.
The company declined to give detailed guidance on full year performance for 2001, and although a forecast had been expected analysts said the decision was reasonable in light of the uncertainty stemming from the slowdown in the global economy.
Motorola said it plans a 2001 outlook in April when it reports its first quarter results.
INDUSTRY GROWTH SLOWING BUT STILL HEALTHY
Motorola told analysts it saw industrywide global mobile phone sales in 2001 at the lower end of the 525-million to 575-million range it forecast in October. It put 2000 unit sales at 410 million, above Nokia's estimate of around 405 million units.
Analysts said the estimated 28-percent growth was still positive, especially in light of the slowing economy.
Herschel Shosteck, president of wireless consulting firm Herschel Shosteck Associates, said Motorola's revised outlook for 2001 matched his expectations. "The issue will be how many subscribers are going to be added this year," he said.
Analysts attributed the slowing industry demand mainly to a maturing market in Europe, which is offsetting growing demand in other regions such as China, North America and Latin America. Snyder predicted that growth would accelerate again when markets in China and India begin gaining momentum.
Motorola rivals Nokia and Ericsson <LMEb.ST> <ERICY.O> of Sweden have declined to forecast 2001 global handset sales until they release their profit reports later this month.
HANDSETS TO SHOW IMPROVEMENT IN SECOND HALF
Motorola said it expected handset sales and operating profit to fall in the first quarter compared with a year ago, but forecast "material improvement" in the second half due to cost cutting and better customer relations.
The handset unit, which posted a 69 percent decline in fourth-quarter operating profit on Wednesday, had said last month that its cell phone unit was hurting its overall profit due to delays in cost cutting.
Charles DiSanza, analyst with Gerard Klauer Mattison & Co., said the unit's bottom line was hurt by a lack of demand for its low-end, cost-effective phones, which it began selling in the fourth quarter.
Mike Zafirovski, president of the Motorola personal communications unit, which makes the mobile phones, told analysts that sales in Europe were down significantly. He said a new management team in Europe will help improve results.
"Motorola is still strong in southern European countries, but has been losing heavily in key north-European markets such as Germany for the past two years," noted Peter Richardson, chief researcher of mobile markets at Gartner Dataquest. "Their handsets are not desirable (in Europe)."
Overall, Zafirovski said, he believes Motorola still regained market share in the fourth quarter. Chase's Snyder said Motorola's above average growth in CDMA and TDMA standard phones supported Zafirovski's claim.
According to a Gartner Dataquest report, Motorola's market share shrunk 2.3 points to 13.3 percent in the third quarter while Nokia's share grew more than 3 percentage points to 30.6 percent and Ericsson's share fell 0.6 percentage point to 9.7 percent.
MOTOROLA STILL IN THE GAME
Motorola also told analysts that the expected slowdown in the chip industry will pressure its semiconductor sales and margins in the first half of 2001. In the second half, the company expects to show improvement, with semiconductor sales and margins rising from the first half.
Motorola's semiconductor sales rose 7 percent to $1.9 billion in the 2000 fourth quarter, but orders fell 19 percent to $1.6 billion. Orders were lower in all regions.
Motorola late Wednesday reported earnings of $335 million, or 15 cents a share, for the 2000 fourth quarter, down from $564 million, or 25 cents a share, a year earlier. The results, which excluded special items, were in line with analysts' lowered forecasts, according to research firm First Call.
Motorola's fourth-quarter sales were $10.1 billion, slightly higher than its estimate of $10 billion and up 11 percent from $9.1 billion in the 1999 fourth quarter.
Overall, analysts said 2001 would be a key year for Motorola.
"This is the year for Motorola. They're still in the game but they've got to get with it because Nokia's not going to sit by and wait for these guys (to catch up)," Snyder said.
((--With additional reporting by Jessica Hall in New York, Lucas van Grinsven in London, Brett Young in Helsinki, Chicago Equities News at 312 408 8787, chicago.equities.newsroom@reuters.com))
17:53 01-11-01
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