Motorola Posts 2nd-Quarter Loss On Charges, Sharp Decline in Sales
By ANDREA PETERSEN
Staff Reporter of THE WALL STREET JOURNAL
Motorola Inc. reported its second consecutive, quarterly net loss, largely because of weak sales of the company's cellphones and semiconductor equipment.
The second-quarter results weren't a surprise, falling in line with the company's expectations, but semiconductor sales plummeted more than analysts expected. That drop cast doubt on whether the Schaumburg, Ill., company can meet its expectations it will be profitable for the year without further cost cutting. Motorola declined to comment on its financial outlook but is expected to address the question in a conference call with analysts scheduled for Thursday.
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While some of Motorola's woes can be blamed on the softening economy, the company also has made a series of strategic missteps. The company was months late in making the critical move from old analog cellphone technology to more reliable digital technology in 1996, allowing Nokia Corp., of Finland to snare additional market share. More recently, Motorola misread the desires of both consumers and wireless carriers, which decide what phone to promote to clients. The company pushed more expensive phones with access to the wireless Web rather than the inexpensive and sometimes funky phones people generally have picked, buying them from Nokia, Motorola's fiercest competitor.
The result: During the past five years, Motorola's share of the cellphone market has fallen to 14%, from 33%, while Nokia's has surged to 35% from 22%.
"Few people have recovered from this big of a loss in handsets," said Ed Snyder, a senior analyst at J.P Morgan H&Q. "I think Motorola can do it, but to turn it around by the end of the year is going to be close."
In an effort to turn its fortunes around, Motorola has done significant cost cutting. The company has slashed 26,000 jobs out of its work force of 147,000. It is also decreasing the number of types of phones it makes and the number of parts in each phone.
For the second quarter, Motorola's net loss was $759 million, or 35 cents a share, compared with net income of $204 million, or nine cents a share, in the year-earlier period. The company also released figures excluding one-time items relating to cost-reduction measures, the lessening value of some assets and gains on investments for a loss of $232 million, or 11 cents a share, compared with income of $551 million, or 25 cents, in the same period a year earlier.
Sales slid 19% to $7.52 billion, from $9.26 billion in the year-earlier quarter. Sales in the handset division fell 25%, as consumers stopped rushing to upgrade to new phones. Sales in the semiconductor division fell 38%, while some analysts had expected a decline of 14%.
The telecommunications and automotive companies that buy Motorola's semiconductors had stocked up on chips during the technology boom, but amid a slowing economy these companies are facing inventory gluts.
The company issued the results after the close of trading. In 4 p.m. New York Stock Exchange composite trading Wednesday, Motorola shares were at $15.67, up 17 cents; in after-hours trading, they were quoted at $16.64.
Sales in the handset division, the company's largest unit, were $2.5 billion, compared with $3.33 billion in the year-earlier quarter. Sales inched up slightly from the $2.28 billion Motorola reported for the first quarter of 2001.
Christopher B. Galvin, Motorola's chairman and chief executive, said in a statement that he expects the handset business to improve and "we expect to see an increase in customer demand," especially for Motorola's higher-speed phones, starting in the third quarter.
Sales in the semiconductor division were $1.25 billion, compared with $2 billion a year earlier and $1.5 billion in the first quarter of 2001. Orders, or advanced sales, were hit even harder and fell by more than half. But the company expressed optimism the semiconductor market will soon rebound and resume double-digit growth next year.
"Semiconductors were abysmal and had much more lower profits than expected," Mr. Snyder said. "Automotive sales are slow and their own wireless group isn't doing that great." Motorola is one of the biggest consumers of its semiconductors.
Analysts were heartened by Motorola's efforts to shore up its balance sheet. The company ended the quarter with $4.45 billion of cash on hand, up from $3.3 billion at the end of 2000. Motorola also decreased its accounts receivable to $5 billion from $7.09 billion at the end of the year.
"The global economy is in tough straits right now," said Mark McKechnie, managing director at Banc of America Securities. "Motorola is portraying themselves as doing their best of managing during the downturn."
Write to Andrea Petersen at andrea.petersen@wsj.com |
