MOT ( $25-bottomed $17) Sees Sales and Margins Slipping at PCS Unit in 1st Period
By Andrea Petersen
Staff Reporter of The Wall Street Journal
Struggling cellphone maker Motorola Inc. painted a gloomy picture for the first quarter of 2001, saying it expects sales and operating margins at its PCS unit to dip, while demand for semiconductor parts world-wide will weaken.
The bad news came in a call with analysts a day after the Schaumburg, Ill., company reported fourth-quarter results that were in line with lowered expectations.
"While we have made some progress in a number of areas that we expect to have a positive impact on our long-term financial performance, we do not expect to see significant improvements in the next three to six months," said Mike Zafirovski, president of Motorola's PCS unit. Mr. Zafirovski said that he expects better results at the PCS unit in the second half of this year as the company begins to reap the benefits of cost-cutting measures and starts rolling out new phones.
Motorola said it expects first-quarter earnings of 12 cents a share on sales of $8.8 billion. That compares with earnings of 20 cents a share on sales of $8.8 billion a year earlier. On Wednesday, the company reported fourth-quarter net income of $135 million, or six cents a diluted share, including one-time items, compared with $323 million, or 15 cents a diluted share, a year earlier. The company also reported an 11% increase in sales to $10.06 billion from $9.08 billion.
Motorola executives declined to give any guidance on earnings or sales for all of 2001, citing uncertainty caused by the slowing U.S. economy.
Motorola shares nudged up a bit Thursday, indicating that Wall Street had already digested enough bad news from the company. As of 4 p.m. in New York Stock Exchange composite trading, the stock was up 94 cents to $22.13, though nowhere near the 52-week high of $61.54.
Analysts were particularly concerned about the company's prediction that first-quarter 2001 operating margins at its PCS unit, which include its cellphone manufacturing division, would fall below the lackluster 2% it reported for the fourth quarter of 2000. The company blamed the lower margins on Motorola's shift to selling cheaper phones, as well as costs related to its complex portfolio of offerings that run on many different kinds of platforms.
Motorola is placing much of its hope on a slew of new phones and devices that it plans to introduce in the middle of this year. It remains to be seen, however, what kind of demand it will see. Motorola has badly misjudged the cellphone market before. In 2000, it put a lot of resources into developing fancy phones that let users access the Web. But consumers largely ignored the new Web phones and many instead bought cheaper phones. "What is most important is introducing a product that the market wants," said Michael Ching, an analyst at Merrill Lynch & Co. in New York. "We'll be watching new-product announcements very carefully."
Motorola estimates that about 410 million handsets were sold industrywide in 2000, and that this figure will grow to between 525 million and 575 million in 2001. But Motorola warned analysts that it expects 2001 industrywide handset sales to be closer to 525 million.
The company also ratcheted down its expectations for the semiconductor market. Previously, it had said that industrywide semiconductor sales would grow 20% to 25% in 2001. Now, it expects the growth rate to be 10% to 15%, largely because of slowing demand by telecommunications companies and the automotive industry. "A lot of the carriers are lowering their spending plans," said Tim Luke, a senior vice president at Lehman Brothers. "Their stock prices are low, they've got a lot of debt, and they don't have the funds to invest."
Write to Andrea Petersen at andrea.petersen@wsj.com |
