MOT takes huge charge for Telsim, Technology giant says handsets are profitable again
By Jennifer Waters, CBS.MarketWatch.com
Last Update: 7:34 PM ET Oct. 9, 2001
SCHAUMBURG, Ill. (CBS.MW) -- Motorola Corp. posted a quarterly loss Tuesday that matched Wall Street's expectations amid a $1.3 billion non-cash charge to build up reserves to cover its hefty Telsim loan default.
But the chip and handset giant also returned its wireless handset business to profitability.
Motorola posted a pro-forma third-quarter loss of $153 million, or 7 cents a share, excluding about $2 billion, or 57 cents a share, in pre-tax charges. Of that, $1.3 billion went into a fund to cover the $2 billion loan default of Turkish cellular company Telsim, Motorola said after the markets closed.
Another $850 million in charges was related to investment losses, particularly in other technology companies. The technology giant (MOT: news, chart, profile) also took a charge of $220 million to cover the costs of firing more than 28,000 workers and paring operations this year.
The charges, however, were partially offset with the $525 million gain from the sale of Motorola's defense and government electronics business to General Dynamics for $825 million.
The losses, in line with Wall Street's expectations, were a far cry from last year's profits of $643 million, or 28 cents a share. Total sales plunged 22 percent to $7.4 billion from $9.49 billion in the year-ago period.
The company also said it slashed its much-watched net debt by $2.4 billion and generated positive operating cash flow of about $200 million.
Probably the best tidings for Motorola were the results of its personal communications sector, the most troubled piece of the company. Though the segment's sales were down 16 percent, to $2.69 billion, they were profitable and attributed to market-share gains.
Operating earnings of $19 million were 90 percent below last year's profit of $189 million, which Motorola blamed on the lower worldwide demand for wireless handsets. But the maker of a line of personal communications equipment added 2 percent to bring its market share to almost 18 percent.
"Our new portfolio of wireless handsets is being very well received by both service producers and consumers," Chief Executive Christopher Galvin said in a statement. "We continue to recapture wireless handset market share vs. last year and have returned to profitability in that business segment."
That will only improve, given the worldwide attention to how victims on the four jetliners hijacked Sept. 11 relied on cellular phones to bid farewell and to tell loved ones of what happened on board the ill-fated jets in their final hour.
"Recently, the world was reminded of the extraordinary communications benefits that wireless handsets, pagers and public safety-two-way radios bring to our society," Galvin said. With its systems and products and its ability to "bridge the broadband gap," among other things, "Motorola is positioned for a very bright long-term future," he said.
The concern's global telecom solutions segment's profit sunk 87 percent to $33 million. Sales were down 10 percent to $1.77 billion.
The broadband communications segment profits fell 25 percent to $120 million. Sales were down 31 percent to $637 million.
Hardest hit was Motorola's semiconductor operation, which posted a loss of $355 million vs. a profit of $202 million a year ago. Motorola attributed that to the worldwide industry's "sharpest decline in history." Sales plummeted 48 percent to $1.08 billion.
Galvin and other senior executives will discuss the third quarter and their outlook for the fourth quarter on a conference call early Wednesday.
Shares of Motorola, which should gain on the earnings momentum, ended the session Tuesday at $16.72, off 67 cents.
Jennifer Waters is the Chicago bureau chief for CBS.MarketWatch.com.
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Motorola's Quarter Was as Bad as Expected -- and Then Some
By Tish Williams
Senior Writer
10/09/2001 07:13 PM EDT
Motorola can't sugarcoat its third quarter.
Another quarter, another big loss, another huge write-down and semiconductor fiasco for Motorola. The company's third-quarter results came in at the high end of internal estimates and matched the Street's expectation of a 7-cents-a-share loss on the quarter that ended Sept. 30.
The communications company fell short of revenue hopes with $7.4 billion, compared with analyst expectations of $7.54 billion, as gathered by Multex.com. Motorola was down 3.85% in Tuesday trading to $16.72 as investors took a seat and waited for the news.
That 7-cents-a-share loss is dwarfed by the $2 billion, or 57-cents-a-share charge Motorola took to write down the value of long-term investments, cover layoff costs and pay $1.3 billion on its $2 billion vendor-financing deal to Turkish wireless provider Telsim.
Without the charge, Motorola lost 64 cents on the quarter. The company took a $496 million charge in the second quarter related to layoffs and "asset impairment," turning a 35-cents-a-share loss to its announced 11-cents-a-share figure.
If you're looking for something sweet in the communications company's third consecutive loss, it'll have to come from its mobile-phone business. Motorola's Personal Communication Segment took another step in revenue and orders in its third quarter reported after market's close Tuesday, moving up to $2.7 billion in sales and $3 billion in orders from the second-quarter's $2.5 billion in sales and orders of $2.9 billion. Motorola happily announced the mobile-phone business returned to the black after two quarters of losses, turning a pro forma profit of $19 million.
Motorola's chip business took another expected step down, as sales languished below the second quarter's depressed $1.3 billion to $1.1 billion The chip segment added a monstrous $355 million operating loss to last quarter's $381 million deficit.
On a positive note, orders increased from $1 billion last quarter to $1.1 billion in the third quarter. The wireless equipment business took the opposite tack, with sales increasing consecutively from $1.7 billion to $1.8 billion, but orders for infrastructure dropping off sharply from $2 billion to $1.6 billion.
Before Sept. 11, dark clouds were swirling over the wireless infrastructure giants that sell equipment to a set of increasingly cash-conservative carriers. Mobile phone companies' reluctance to spend equipment dollars caused Ericsson (ERICY:Nasdaq ADR - news - commentary - research) to caution that it doesn't expect to see growth in its equipment business in 2002. Motorola emphasized the same, saying it would lay off another 2,000 people from its infrastructure segment, bringing total announced companywide layoffs to 32,000 this year.
On Sept. 6, Motorola toned down its previous forecasts for the third quarter, saying that instead of 5% revenue growth over the second quarter's $7.5 billion, it would have flat revenues. Motorola got more specific on its prediction for "several cents a share" losses in Q3, advising analysts to expect losses in the range of 5 cents to 8 cents per share.
The communications giant's second quarter featured a promising rebound in the Personal Communication Sector that holds the No. 2 spot worldwide in mobile phone market share, and the Sept. 6 warning pointed out "improved profitability" in the PCS segment, along with increased sales. The PCS group lost a whopping $237 million in the second quarter.
Following a several-quarter pattern, investors had resigned themselves to poor Motorola results weeks ago, making the communications company's predictions for the fourth quarter the most important data to come out of its results. Motorola will announce its projections at 8 a.m. Eastern time Wednesday morning. |
