TALES OF THE TAPE: Motorola Looks
Poised For More Gains
By ANN KEETON
CHICAGO -- Motorola Inc. (MOT) has traveled a rough road the past
couple of years on its way to success as a communications technology
conglomerate.
Now it has a firm foothold in wireless, semiconductors and broadband
communications, and is focused on the needs of its customers. Motorola is
learning to respond to lightning-fast changes in the global marketplace, and
that is all-important, since 60% of its business comes from outside the U.S.
Stock pickers have taken note, Some expect Motorola stock to be one of
the big winners in 2000. It made the top-10 lists of technology stocks of
Michael Ching at Merrill Lynch & Co. and Alex Cena at Salomon Smith
Barney, among others.
Mona Eraiba at Gruntal & Co. also puts Motorola among the cream of the
crop this year. She is one of the tech experts who raised their long-term
target price to $200 last week. The stock traded recently at 140, up from
a 12-month low of 60 7/16 last January.
Eraiba expects the wireless business to be a driving force at Motorola. The
exploding global market for cellular telephones and other wireless devices
is expected to result in 25% earnings growth in that sector this year.
The Gruntal analyst likes the vertical strength of Motorola, which generates
most of its sales from business customers such as corporations, police
departments and government agencies. "It's better than a pure-play
wireless company," Eraiba said. "It's a company that also makes the
semiconductors used in the wireless business."
The semiconductor business itself is in a high-growth mode. Dataquest, a
market research arm of the Gartner Group, expects worldwide demand for
computer chips to rise 30% this year.
Executives at Motorola declined to be interviewed for this article. David
Rudd, a company spokesman, said the company "still has work to do," to
complete its turnaround. Rudd said Motorola will release fourth-quarter
earnings on Monday.
A New Route To Consumers
Eraiba considers Motorola's $17 billion acquisition of General Instrument
Corp., which closed last week, "brilliant." It got the company into a huge
emerging market, she said, and "there is no way of telling now how much
that will add to their earnings in the future."
General Instrument, the largest maker of television set-top boxes, gives
Motorola access to cable television, a whole new way to reach consumers,
Eraiba said. The acquisition brought also brings General Instruments' 80%
stake in Next Level Communications Inc. (NXTV), a broadband provider.
Broadband cable, with its ability to deliver data at high speed, makes
possible new in-home applications like movies-on-demand, interactive
video and Internet phone calls. The cable box could be used for
Internet-based telephone calls in 2001, according to Edward Breen,
former chairman of General Instrument, who heads Motorola's new
Broadband Communications division.
Breen said in a teleconference with reporters last week that Motorola's
international presence will be a plus for the cable box business, which
generated just 11% of 1999 earnings outside the U.S. He said the
international television market is 10 times bigger than the U.S. market.
Motorola expects the acquisition to be neutral to earnings in 2000, and
accretive in 2001.
Motorola is no longer the self-described "stodgy" company that
Christopher Galvin, the chief executive, and Robert Growney, president
and chief operating officer, took charge of in 1997. It had been rocked by
a double whammy of internal problems and the Asian financial crisis, and
the two executives responded with sweeping cost-cutting and management
changes.
But problems persisted. Long-steeped in a "made in America" corporate
culture, the company was rocked again in in 1998, when Finland's Nokia
Corp. (NOK) usurped Motorola's No. 1 position in the global cellular
telephone business.
Motorola's play in the satellite communications business turned sour last
year when Iridium LLC, a satellite communications company, filed for
Chapter 11 bankruptcy protection. Motorola, its main backer, had to write
off a $2.3 billion investment. Motorola continues to help fund Iridium
during the reorganization.
Motorola slipped to sixth place from third among U.S. semiconductor
makers last year. But that was because Motorola weeded out and sold, for
$1.6 billion, its Semiconductor Components Group, a low-growth
business.
Analysts Forecasting 20% Earnings Growth
Analysts are bullish, forecasting 20% average annual earnings growth over
the next five years. A consensus of 28 analysts polled by First
Call/Thomson Financial expects Motorola to post earnings of 81 cents a
share for the fourth quarter of 1999, up substantially from 26 cents a year
ago.
This year, analysts see Motorola's earnings rising 50% to $3.12 a share
from the $2.06 expected for 1999.
"I think they have great people in-house," said Marc Cabi, an analyst with
Credit Suisse First Boston in San Francisco. "Prior to two years ago,
leadership was based on seniority. Now, it's all about market
performance."
Cabi thinks Motorola is back on track in the cellular phone business, even
though it still ranks second, behind Nokia. "I think they can remain in a
solid second or third place," said Cabi. "In 2000, 400,000 cellular phones
will be sold worldwide. That's a very big number of units," he said.
Motorola must "be sure they stay at the forefront of technology," Cabi
added.
The company is aware of the need to innovate. According to data just
released, Motorola received 1,205 U.S. patents in 1999, ranking it seventh
among all U.S. companies.
In addition to developing its own ideas, Motorola is actively partnering with
other companies, said Rudd, the company spokesman. One example is a
new agreement with International Business Machines Corp. (IBM) to
develop technology to access the Internet through car radios.
Cabi thinks it is too soon to assess the potential of broadband cable.
"Cable still has some work to do," he said. With the proposed America
Online Inc. (AOL) and Time Warner Inc. (TWX) merger announced this
week, and with recent AT&T (T) deals, "there's a lot of capital backing
cable. This acquisition gives Motorola a ticket to play in that arena," said
Cabi.
"There's one wrinkle in the cable business," the analyst said. "Set-top
boxes are likely to become commodity items. It will be important for
Motorola to leverage its brand name and to add attractive applications."
"Nothing happens overnight in the telecom business," he said. "They have
some time to work with and I think they can do it."
Spokesman Rudd said Motorola is working to increase brand-name
awareness. It has hired marketing executives from Procter & Gamble Co.
(PG), Sears Roebuck & Co. (S), and Nike Inc. (NKE) to lead a global
push to put Motorola's name in the minds of consumers.
"For years, we were in the consumer business with televisions and radios.
Then, the company changed to an industrial base, said Rudd. "In a way,
we've forgotten how to market to consumers. We want to get that back."
- Ann Keeton, Dow Jones Newswires; 312-750-4120 |
