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To: pat mudge who wrote (8586)	4/10/2000 10:23:00 PM
From: Kent Rattey	Read Replies (2) \| Respond to of 24042

From the QCOM thread: Alex Cena's new report on MOT> MOT: March Quarter Results-- Salomon Smith Barney ~ April 10, 2000 04/09/00 Motorola, Inc. (MOT $153.00,1-M,Tgt $200.00) Alex M. Cena --SUMMARY:--Motorola, Inc.--Telecommunications Equipment * Last night after the close, MOT reported stronger than expected 1Q00 (March) qtr results due to stronger revs and margins. * Operating EPS of $0.59 compares to our consensus est of $0.58. * Ongoing Revs increased 13% to $8.8bn vs our $8.4bn forecast. * Operating mgn of 7.9% was better than our 6.8% est while gross mgn of 40.7% was also 110 bp higher than our est. * Surprise in qtr due to earlier than expected turn in some bizs. For ex, Infra biz had revs & op profit of $1.8bn & 15.5%, respectively, vs our est of $1.5bn & 12%. * However, Pers Comms biz had revs & op profit of $3.2bn & 1.5% vs. our est of $3.5bn & 7.8% while semi revs & op profit were $1.9bn & 6.5% vs our est of $1.9bn & 8%. * Phone mgs lower due to pdct mix twd low-end phones & ramping up of higher mgn phones late in 1Q/early Apr. Believe ests likely to rise & full yr ests reasonable, if not conservative 04/09/00 Motorola, Inc. (MOT $153.00,1-M,Tgt $200.00) Alex M. Cena --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 12/99 EPS $0.28A $0.44A $0.53A $0.82A $2.08A Previous 12/00 EPS $0.58E $0.70E $0.79E $1.12E $3.20E Current 12/00 EPS $0.58E $0.70E $0.79E $1.12E $3.20E Previous 12/01 EPS $N/A $N/A $N/A $N/A $4.25E Current 12/01 EPS $N/A $N/A $N/A $N/A $4.25E Previous 12/02 EPS $N/A $N/A $N/A $N/A $N/A Current 12/02 EPS $N/A $N/A $N/A $N/A $N/A Footnotes: 04/09/00 Motorola, Inc. (MOT $153.00,1-M,Tgt $200.00) Alex M. Cena --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:1M Prior:No Change Price (04/06/00)....:$153.00 P/E Ratio 12/00.....:47.8x Target Price..:$200.00 Prior:No Change P/E Ratio 12/01.....:36.0x Proj.5yr EPS Grth...:0.0% Return on Eqty 99...:7.9% Book Value/Shr(00)..:37.75 LT Debt-to-Capital(a)21.9% Dividend(00)........:$.48 Revenue (00)........:37420.00mil Yield...............:0.3% Shares Outstanding..:625.0mil Convertible.........:No Mkt. Capitalization.:95625.0mil Hedge Clause(s).....: Comments............:(a) Data as of the most recently reported quarter. Comments............: 04/09/00 Motorola, Inc. (MOT $153.00,1-M,Tgt $200.00) --OPINION:------------------------------------------------------------------ OVERALL A GOOD 1Q REPORT: ABOVE CONSENSUS Last night, Motorola reported its financial results for the quarter ending March. For the quarter, operating earnings were $0.59 compared to our consensus estimate of $0.58. Ongoing revenues increased 13% year on year to $8.8 billion from $7.7 billion. Ongoing revenues exclude businesses that were sold or divested. We believe estimates are likely to move higher and that full year estimates are reasonable, if not conservative. We characterize the report as a strong quarter that was above consensus. The surprise in the quarter is from an earlier than expected turn in a couple of businesses. 1) The infrastructure business was much stronger than expected both in revenues and operating profits; 2) Overall corporate operating and gross margins were better than expected; 3) Semiconductors were in line with top line estimates and the business continues to improve, but not to the extent that we expected; 4) The handset business was strong as units increased sequentially, as expected, but margins were lower than expected largely due to product mix toward the low-end of the range while the impact from the newer, higher margin phones is still to come. REVENUE STRENGTH NETWORK COMMUNICATIONS Revenues were driven by Network Communications, which increased 11%, to $1.8 billion compared to our estimate of $1.5 billion. Operating margins were 15.5% vs. our estimate of 12%. Revenues in Personal Communications were $3.2 billion vs. our estimate of $3.5 billion while operating margins were 1.5% vs. our estimate of 7.8%. Mobile phone unit sales were higher sequentially, as expected, due to the pent-up demand from the December quarter. However, margins were lower than expected due to product mix toward the lower end of phones. Additionally, the company's new, higher margin phones began shipping at the end of March/early April and thus did not have a significant impact in the March quarter. Semiconductor revenues were $1.9 billion in line with our estimates although operating margin was lower than our 8% estimate at 6.5%. OVERALL CORPORATE MARGINS BETTER THAN EXPECTED DRIVEN BY INFRASTRUCTURE. Gross margin for the company was 40.7% vs our estimate of 39.6% while operating margin was 7.9% vs our estimate of 6.8%. The margin strength was driven by Network Communications but offset by lower than expected margins in Personal Communications and Semiconductors. GENERAL INSTRUMENTS NOW REFLECTED IN OPERATING RESULTS. Motorola's acquisition of General Instruments, which closed on January 5, 2000, is now reflected in the company's results, and 1999 figures have been restated to reflect the acquisition. Our March quarter estimates did not include General Instruments. For the quarter, the Broadband and Communications business, which includes the acquisition, as well as Motorola's existing cable modem and telephony business, showed revenues of $678 million vs. $590 million a year ago. Operating profits were 13.4% vs 10.3% a year ago.