MOTOROLA REPORTS SECOND-QUARTER RESULTS
SCHAUMBURG, Ill. - Motorola, Inc. (NYSE:MOT) today reported sales of $7.5 billion in the second quarter of 2001. For ongoing operations, this is a decrease of 19 percent from $9.3 billion a year earlier. Including pro forma adjustments, the company incurred a loss of $232 million, or (11) cents per share, compared with earnings of $551 million, or 25 cents per share a year ago.
Robert L. Growney, president and chief operating officer, said, “Despite the difficulties the telecom and semiconductor industries continue to experience and our operational loss for the second quarter, we continue to strengthen our balance sheet. Cash flow from operations was strongly positive at approximately $1 billion. The actions we have taken to improve the performance of the wireless telephone segment of our business are beginning to show positive results with new products and orders. The Office of the Chairman is also working very closely with our semiconductor management in efforts to revitalize that business.”
In the second quarter of 2001, Motorola reported pro forma adjustments resulting in a net charge of $496 million pre-tax, or 24 cents per share after-tax. Charges were incurred primarily relating to various cost-reduction activities and asset impairments, many of which did not result in a tax benefit. These charges were partially offset by gains from sales of investments.
In the second quarter of 2000, the company reported pro forma adjustments resulting in a net charge of $355 million pre-tax, or 16 cents per share after-tax, which was largely comprised of in-process research and development charges, not deductible for tax purposes, related to acquisitions completed during that quarter.
Excluding pro forma adjustments, the second-quarter 2001 loss was $759 million, or (35) cents per share, compared with earnings of $204 million, or 9 cents per share, in the second quarter of 2000.
Consolidated Results for Ongoing Operations, Including Pro Forma Adjustments
Including pro forma adjustments, a comparison of results from ongoing operations is as follows:
(Dollars in millions, except per-share amounts)
Second Quarter Six Months
2001 2000 2001 2000
Sales $7,522 $9,255 $15,274 $18,007
Net Earnings (Loss) $(232) $551 $(438) $1,032
Earnings (Loss) Per Share $(.11) $.25 $(.20) $.46
Net Margin on Sales -3.1% 6.0% -2.9% 5.7%
Total Consolidated Results
Excluding pro forma adjustments, a comparison of results from operations is as follows:
(Dollars in millions, except per-share amounts)
Second Quarter Six Months
2001 2000 2001 2000
Sales $7,522 $9,255 $15,274 $18,023
Net Earnings (Loss) $(759) $204 $(1,292) $652
Earnings (Loss) Per Share $(.35) $.09 $(.59) $.29
Net Margin on Sales -10.1% 2.2% -8.5% 3.6%
The impact of pro forma adjustments (as defined in a footnote to this press release) on segment results is shown in the segment information tables at the end of this press release.
Growney reviewed the following results of major operations for the second quarter of 2001 compared with the second quarter of 2000. This review is based on ongoing operations, including pro forma adjustments.
Personal Communications Segment
Segment sales were $2.5 billion, down 25 percent. Orders were $2.9 billion, down 9 percent. The segment incurred an operating loss of $237 million versus operating earnings of $136 million a year ago. The decline in financial performance is due to lower worldwide demand for wireless telephones by service providers and average selling price declines resulting from substantial shipments of end-of-life products.
In the Americas, sales and orders for wireless telephones were down. In Europe, sales were down very significantly and orders were significantly lower. In Asia, sales were lower, while orders were significantly higher.
Shortly after the close of the quarter, Motorola and Hutchison Whampoa Group signed a Third-Generation (3G) handset contract that runs through 2003. Motorola was named a Hutchison “preferred supplier” of 3G, Universal Mobile Telecommunications Services (UMTS) devices in its key markets including Australia, Austria, Italy, Sweden and the United Kingdom. The contract has an estimated value of more than $700 million. Shipments are expected to begin in the second half of 2002.
In North America, two new wireless telephones for Code Division Multiple Access (CDMA) technology, the V.Series™ 60c and V120c, became available nationwide in the United States. Motorola also began shipping its Timeport™ 270c phone in regional markets. All three CDMA devices are tailored to specific consumer segments and include Motorola's new and improved user interface.
Motorola began U.S. shipments of its V.Series V100 personal communicator. Based on Global System for Mobile (GSM) Communications technology, the first-of-its-kind device includes a full keyboard and oversize display for fast and easy text messaging, plus a full-featured wireless phone. Motorola also began delivering its new, compact and easy-to-use Talkabout® 189 phone in Asia and began shipping to Korea its first 3G phone based on CDMA 1X technology.
Motorola also shipped its one millionth Talkabout T900 2-Way text messaging device less than a year after its introduction. The first two Java™ technology-enabled wireless telephones in North America, the Motorola iDEN® i85s and i50sx models, were made available to subscribers.
Global Telecom Solutions Segment
Segment sales were $1.7 billion, down 14 percent. Orders declined 6 percent to $2.0 billion. Operating earnings declined to $47 million, compared with $258 million a year ago. Operating earnings declined due to a decrease in sales stemming from lower worldwide demand for wireless infrastructure equipment by service providers and an increase in manufacturing costs.
In the Americas, sales and orders were lower. In Europe, sales and orders were down significantly. In Asia, sales were down while orders were up.
Motorola won 11 contracts valued at $407 million as part of China Unicom’s nationwide deployment of CDMA digital network technology. Motorola also was awarded more than $600 million in additional contracts with China Mobile and China Unicom during the second quarter for GSM networks.
Motorola will provide a 3G radio access network under a supply contract awarded by Hutchison Telecommunications for a UMTS network in Brisbane and Sydney, Australia.
After the quarter ended, Motorola announced it had won its first two contracts to supply 3G CDMA infrastructure in Latin America. The contracts, awarded by Portugal Telecom and valued at approximately $147 million, are for its Brazilian cellular operators Telesp Celular and Global Telecom. Motorola also announced a $150 million GSM infrastructure expansion contract with BT Cellnet, a leading UK mobile operator.
Commercial, Government and Industrial Systems Segment
Segment sales declined 8 percent to $1.0 billion and orders decreased 4 percent to $1.2 billion. Operating earnings decreased to $66 million from $117 million a year ago due to a decline in sales and an increase in manufacturing costs as a percentage of sales.
In the Americas, two-way radio equipment sales and orders were down. In Europe, sales were down significantly and orders were down. In Asia, sales were down and orders were down significantly.
Motorola was awarded contracts for TETRA (TErrestrial Trunked RAdio)-compliant radio equipment in China and the UK. Motorola and SAIT-STENTO were granted a license from the Danish Telecom Authority to establish and provide service on a new, TETRA-based digital mobile radio network.
Motorola was awarded a contract for a statewide ASTRO 25™ digital radio system from the State of South Dakota. The company also signed an agreement to purchase, operate and upgrade SCANA Communications’ statewide radio system, which serves public safety agencies and utilities throughout South Carolina.
Additional large radio equipment contracts were received in Asia, Australia, Europe, Latin America and the United States.
Motorola announced that it was exploring strategic alternatives for its Integrated Information Systems Group (IISG) business, including a possible divestiture. IISG is an Arizona-based government communication/information technology business.
Broadband Communications Segment
Segment sales increased 7 percent to $820 million but orders fell 16 percent to $760 million. Operating earnings increased to $145 million from $137 million a year ago.
Digital Network Systems had a significant increase in sales but a decline in orders. Internet Protocol Network Systems had lower sales and higher orders. Transmission Network Systems had a significant decline in sales and in orders. Satellite Broadcast and Network Systems had an increase in sales and in orders.
Motorola announced two important industry milestones during the quarter by shipping its 15 millionth interactive digital cable set-top terminal and its five millionth cable modem. Motorola is the first and only supplier to reach these broadband-industry milestones.
Motorola’s commercial deployment of Voice over IP (Internet Protocol) solutions continues to see progress. Kabel NRW, a network operator affiliated with Callahan Associates, has recently upgraded approximately 100,000 homes in Germany with Motorola transmission equipment and will begin commercial deployment of our IP telephony equipment later this year. Additionally, United Pan-Europe Communications N.V., eKabel and others have begun installation of Motorola’s digital headend equipment featuring MediaCipher™ Conditional Access technology in various European markets.
In China, Motorola was selected to supply optical and RF transmission products to Beijing Gehua CATV Network Co., which are intended to enable Beijing Gehua CATV to offer advanced video, voice, high-speed Internet access, and other data services.
Semiconductor Products Segment
Segment sales decreased 38 percent to $1.3 billion and orders declined 51 percent to $1.0 billion. The segment had an operating loss of $381 million versus operating earnings of $176 million a year ago due to the decline in sales and orders, which are part of a very substantial downturn occurring across the worldwide semiconductor industry. This also caused an increase in manufacturing costs as a percentage of sales.
Sales were down significantly in Europe and the Americas and down in Asia/Pacific and Japan. Sales among major markets were down very significantly in standard embedded solutions, down significantly in wireless and network/computing and down in imaging/entertainment and transportation.
Orders were down very significantly in the Americas and Europe, down significantly in Japan and Asia/Pacific. Among major markets, orders were down very significantly in standard embedded solutions, wireless and networking/computing, down significantly in imaging/entertainment and down in transportation.
Motorola announced several new members of its PowerQUICC™ family, the industry’s most widely used communication processors. Built on the Smart Networks Platform, these products are used in cellular base stations, telecom switching, remote access concentrators and ATM (asynchronous transfer mode) applications.
Motorola also introduced two new products within its DragonBall™ microprocessor (MPU) family, the industry’s leading MPUs for handheld computers and portable wireless devices. The new ARM core-based MX1 multimedia platform and the MC68000-based SuperVZ both offer system solutions for 2.5G and 3G portable wireless devices.
Motorola’s mobileGT™ architecture for driver information systems was selected by Hyundai Autonet Co. Motorola is a key member of the mobileGT alliance of companies whose technologies are enabling automakers worldwide to bring "smart cars" to consumers.
Integrated Electronic Systems Segment
Segment sales decreased 19 percent to $549 million and orders decreased 21 percent to $554 million. The segment incurred an operating loss of $3 million versus operating earnings of $45 million a year ago due to a decline in sales of higher margin products.
During the quarter, the Automotive and Industrial Electronics Group was combined with the Telematics Communications Group to form the new Automotive Communications and Electronic Systems (ACES) Group. This reorganization is expected to enable Motorola to offer a broader automotive communications solutions portfolio. ACES sales and orders decreased. Sales and orders of automotive electronics and communications systems were down due to lower production in the automotive industry. Sales of telematics systems were up very significantly and orders were higher.
ACES and Trafficmaster, PLC announced plans to jointly produce a dynamic navigation system, called T-nav service, which is expected to incorporate real-time, traffic-flow data.
Motorola Computer Group (MCG) sales were down significantly while orders were down very significantly due to the downturn in the telecommunications industry, its major market. After the quarter ended, Motorola completed its acquisition of Blue Wave Systems, Inc., a leading supplier of high-channel Digital Signal Processing (DSP) subsystems used in telecommunication infrastructure equipment. The acquisition is intended to strengthen MCG's ability to provide DSP solutions to that market and gives MCG a stronger presence in Europe.
Energy Systems Group sales and orders were down due to the decrease in demand for portable and handheld devices.
Other
Motorola announced that it had completed the sale of its investments in four cellular operating companies in northern Mexico to Telefonica, SA. Motorola also sold its investments in cellular operating companies in Hong Kong, southern Mexico and South Korea.
After the quarter ended, Motorola announced that it had signed an agreement to sell its Multiservice Networks Division to Platinum Equity.
Motorola has a loan of approximately $2 billion to Telsim, a GSM operator in Turkey. At the end of April, $728 million of the loan became due and was not paid. In June, following Telsim’s event of default, Motorola accelerated all payments due under the loan. Motorola continues to explore alternatives for repayment of the loan, including legal action.
Review and Outlook
Christopher B. Galvin, chairman and chief executive officer, said, “During the second quarter, Motorola recorded strong, positive cash flow from operations; reduced receivables; reduced inventories; reduced short-term and total debt; while simultaneously, increasing its cash position. We know how to manage in recessionary environments and all businesses in Motorola will continue to be very focused on maintaining a strong balance sheet and improving operating cash flow.
"Motorola sensed the downturn of the telecom and semiconductor industries over 10 months ago and began reducing its costs early. Most industry participants and experts have acknowledged the reality of the sharpest downturns in high-tech in decades. Newly revised government data shows that the decline in communications equipment orders is worse than many in the industry first believed. The industry’s fundamentals are weak and the imbalance between inventories and demand has spilled over into Europe.
"Despite the economy, our new products are again capturing the imagination of service providers and consumers. Our wireless telephone business, for example, is already beginning to show signs of recovery and we expect to see an increase in customer demand, especially for our new 2.5G products, starting in the third quarter.
“The semiconductor industry should resume a double-digit growth pattern next year. Renewed demand, fueled by new products, combined with a reduction in excess manufacturing capacity in both the wireless telephone and semiconductor industries, is reducing inventories, and over time, inventories are expected to return to normal levels.
"We continue to review, renew and adjust our strategies to ensure Motorola is in attractive businesses. We will continue to invest to develop or acquire the technologies necessary to ensure the success of our businesses. All of our efforts are focused on leading Motorola out of this high-tech recession and creating value for our shareholders.”
Note:
Pro Forma adjustments include unusual charges, amortization of goodwill, asset impairments, and gains (losses) on sale of investments.
The use of the word “significant” in this press release indicates a change of greater than 25 percent. The use of the words “very significant” indicates a change of greater than 50 percent.
Business Risks:
Statements in this press release that are not historical facts are forward-looking statements based on current expectations that involve risks and uncertainties. Such forward-looking statements include, but are not limited to, statements about: the future performance of Motorola’s wireless telephone and semiconductor businesses; the value of contracts to supply 3G products; expected shipments of 3G wireless telephones; the commercial availability and performance of new products; the impact of Motorola’s reorganization and cost-reduction activities; the impact of recent acquisitions and divestitures and the completion of pending transactions; as well as, the statements in “Review and Outlook”. Motorola wishes to caution the reader that the factors below and those on pages F-29 through F-33 of the appendix to Motorola's Proxy Statement for the 2001 annual meeting of stockholders and in its other SEC filings could cause Motorola's actual results to differ materially from those stated in the forward-looking statements. These factors include: (i) the impact of the slowdown in the overall economy and the uncertainty of current economic conditions; (ii) ongoing difficulties experienced by the entire telecommunications and semiconductor industries; (iii) the success of Motorola’s ongoing cost-reduction efforts; (iv) Motorola’s continuing ability to access the capital markets on favorable terms; (v) demand for Motorola’s products, including products related to new technologies; (vi)
Motorola’s ability to achieve profitability in its wireless telephone business, especially as it competes in the lower-tier wireless telephone market; (vii) the demand for vendor financing and Motorola’s ability to provide that financing in order to remain competitive; (viii) the creditworthiness of Motorola’s customers, especially purchasers of large infrastructure systems; (ix) the repayment of Motorola’s loan to Telsim; (x) unexpected liabilities or expenses, including unfavorable outcomes to any currently pending or future litigation, including any relating to the Iridium project; (xi) the success of alliances and agreements with other companies to develop new products and services; (xii) product and technology development and commercialization risks; (xiii) difficulties in integrating the operations of newly-acquired businesses and achieving strategic objectives, cost savings and other benefits; (xiv) the impact of foreign currency fluctuations; and (xv) the impact of changes in governmental policies, laws or regulations.
MOTOROLA and the Stylized M Logo are registered in the U.S. Patent & Trademark Office. All other product or service names are the property of their respective owners. Ó Motorola, Inc. 2001
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