Signs of recovery unlikely with Motorola results
By Ben Klayman
CHICAGO, July 6 (Reuters) - Investors badly want to see the
glimmer of a future recovery in the battered technology sector
when Motorola Inc. , the world's No. 2
wireless-telephone maker, reports second-quarter results next
week, but they aren't banking on it.
While the Chicago-based wireless technology giant already
has said it expects a loss in the second quarter, analysts and
investors want to hear that business will improve in the second
half of the year.
"I will be pleasantly surprised if Ericsson, Nokia,
Motorola -- the large cap market leaders in the sector -- don't
take September down," First Union Securities analyst Mark
Robert said of the third quarter. "On a macro basis, we are not
seeing any signs of a recovery."
Finland's Nokia is the world's largest
mobile-telephone maker and Sweden's Ericsson
ranks fourth. Nokia and Ericsson report their second-quarter
results later this month.
Motorola, the first major technology firm to report for the
latest period, said in April its second-quarter loss would be a
"few cents larger" than its first-quarter loss of $206 million,
or 9 cents a share. It will report results on July 11.
Motorola's shares closed off more than 5 percent, or 89
cents, at $16.01 in Thursday trading on the New York Stock
Exchange. Over the past year, they have underperformed the
Standard & Poor's 500 index by about 37 percent.
Rival Nokia, viewed as immune to an economic slowdown,
shocked investors last month by saying slower-than-expected
market growth would push second-quarter earnings 15 percent to
20 percent below forecasts. It said sales growth in the quarter
would be below 10 percent, less than half an earlier estimate
of 20 percent.
SLUMPING SALES, RISING INVENTORIES
The handset industry has struggled with slumping sales and
rising inventories, while newer technologies that could drive
growth has been delayed, analysts said.
Mobile telephones also have lost some allure for consumers
in Europe as carriers cut generous subsidies, analysts said.
Throw in the U.S. economic malaise spreading overseas, and that
spells trouble.
British telecom equipment firm Marconi Plc
saw its stock lose half its value after it warned on Wednesday
its operating profits would halve this year and it would shed
4,000 more jobs. Last month, Canada's Nortel Networks Corp.
, the world's largest telecom equipment maker,
said it expected to lose a staggering $19.2 billion in the
second quarter and cut another 10,000 jobs.
Nokia's warning raised fears Motorola, which has struggled
to bolster its mobile-telephone operations with cost cutting
and new products, could disappoint in the second quarter lower
expectations, analysts and portfolio managers said.
"The most important thing is that they don't revise their
(financial) guidance down," Jane Snorek, co-manager of Firstar
Large Cap Core Fund, said of the third quarter.
"2001 is going to be a little more difficult than their
current guidance," said Snorek, who sold the last of her
Motorola shares in March.
MOTOROLA A TECH BAROMETER
Motorola is a bellwether stock for the technology industry
because of its broad array of products.
"It touches on the cable industry, semiconductors,
handsets, mobile infrastructure, even the auto market," Wit
Soundview analyst Matt Hoffman said. "They're a market leader
in a number of areas. It tells us a lot about what we're going
to see in tech."
Analysts expect Motorola to report a loss of 12 cents in
the second quarter, with a range of a 10-cent loss to a 15-cent
loss, according to Thomson Financial/First Call. The wireless
technology giant is expected to break even in the third
quarter, although Snorek believes it could report a loss of as
much as 15 cents a share for that period.
Investors must be patient, especially with Motorola's
all-important wireless telephone and semiconductor units,
analysts and portfolio managers said.
"Our belief is that it's a several-year turnaround for the
handset business that will be required to restore this stock to
the kinds of prices it used to trade at," said Bill Nygren,
portfolio manager of the Oakmark Fund, which owned 2.4 million
Motorola shares at the end of March.
He wants company executives to talk about restoring
profitability at that unit, something Motorola expects will
occur in the third quarter. Motorola has said the mobile
telephone and semiconductor units will report operating losses
and lower sales in the second quarter.
Nygren also wants to hear about the company's progress
making new wireless phones with fewer and more common parts, as
Nokia has done so successfully, and about Motorola's ability to
regain market share in wireless telephones.
Some investors wonder when the industry will stop revising
its expected 2001 global mobile telephone sales downward. From
an expected 600 million units, many manufacturers have cut
forecasts to the point where little or no growth is expected
from last year's level of about 405 million units.
INDUSTRY LOSING BODY PARTS
"It's like a Monty Python movie, where the knight keeps
getting parts of his body chopped off," said Henry Asher,
president of North Star Group, a New York investment advisor
with a small number of Motorola shares. "We'd like to know when
exactly the industry stops losing body parts."
Another worry is Motorola's semiconductor unit, in a sector
where other firms are cutting forecasts, analysts said.
Justin McNichols, portfolio manager with San Francisco
asset management firm Osborne Partners Capital Management,
expects business at Motorola's wireless unit to pick up by the
end of the year, at the earliest, and at its semiconductor unit
by early next year .
Analysts also will be monitoring Motorola's financial
position -- the company's cash, debt, inventories and
receivables for progress.
Another question on many investors' minds, but not often
voiced, is the state of Motorola Chief Executive Christopher
Galvin's job security given the company's disappointing results
and declining stock price.
"How long is Chris Galvin going to survive? Well over 50
percent of the investors I talk to, that's a very common
theme," said one analyst, who asked not to be identified.
Several board members voiced their support for Galvin, the
grandson of Motorola's founder, at the company's annual meeting
in May.
(Additional reporting by Yukari Iwatani in Chicago)
REUTERS
Rtr 13:39 07-06-01
Copyright 2001, Reuters News Service |
