FOOL PLATE SPECIAL
An Investment Opinion by Dale Wettlaufer
Motorola Calls In Revised Earnings
MOTOROLA (NYSE: MOT) (N) (S) rebounded $3 to $69 from its close in
after-hours trading yesterday, but is still down $5 3/4 from its New York close
yesterday after the telecom equipment and semiconductor company issued
guidance on the coming quarter's earnings. Every once in a while, Motorola will
announce something like this, setting up the pundits who love to opine about the
fate of "technology stocks." What happened with Motorola specifically, though?
For one, the company has decided to exit the business of making Macintosh
PC clones, thanks to Apple's decision to stop licensing its operating system.
Motorola will take a $95 million charge to wrap up those activities, which
equates to $0.10 per share sliced from quarterly earnings, after tax. This is a
good move for Motorola in the minds of many analysts who wondered why
Motorola even entered such a dead-end business in the first place. Motorola
will continue to fabricate PowerPC chips in conjunction with IBM (NYSE:
IBM) (N) (S) and will continue to use those processors in devices of its own
making, where the powerful RISC processor architecture has been quite
successful.
The other problem at Motorola this quarter was the paging business in the U.S.
and China. China represents about half the world's market for pagers, and thus
is the most important single market for this equipment. Demand in China is
always a big question for Motorola, and quarter after quarter the company's
management reminds investors and analysts that the market is seasonal. This
time around, the seasonal effects were a bit more pronounced than expected,
as higher orders from China earlier this year are apparently working their way
more slowly through the retail and wholesale channels. That directly affects the
way analysts model the outlook for sales of higher-margin cellular infrastructure
equipment -- the electronics in the cellular base stations and on towers.
Inventory is still being worked through the U.S. channel, too, which is nothing
new this year, but was expected to be cleared by now. Apparently, though,
Motorola has issued soothing words this morning on the outlook for
higher-functionality paging equipment such as two-way paging. With the
semiconductor business out of last year's glut, Motorola still generates a decent,
if unspectacular, return on equity above 10%, but investors looking at the whole
will have to continue taking things quarter-by-quarter with Motorola. |
