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Technology Stocks : Motorola (MOT) -- Ignore unavailable to you. Want to Upgrade?

To: Angelo J Cici who wrote (1095)	5/22/1998 10:22:00 PM
From: Bobby P.	Respond to of 3436

Here's an article I found in the May 98 D/FW Edition of "Current Technology." Can Motorola Recover? By Andrew Barrett and John Chatmas When Motorola announced in early March that it would not meet analysts consensus numbers, it seemed like just another lackluster quarter for a company that has done little else but disappoint investors. In fact, investors have become so accustomed to these shortfalls, the stock price remained flat -- even in the face of a substantial insufficiency in revenues and earnings. With competitors like Ericsson and Nokia displaying very strong fundamentals and share price appreciation, we must ask the question: What is going wrong at Motorola? We at Salomon Smith Barney feel that there are several issues plaguing the company. First, the semiconductor business has been very weak. Motorola derives roughly 35 percent of its revenues from semiconductors and semiconductor products. This is not at all an isolated incident; the weakness in the silicon segment has been evidenced by almost all companies in the business. The company is now forecasting 6 percent to 8 percent industry growth this year, down from their prior estimate of 10 percent to 15 percent. If that were not enough, they could also see future losses in this area as costs are incurred in order to consolidate several fabrication facilities. Second, growth in the analog cellular handset market is slowing dramatically, by as much as 30 percent during the last quarter. In revenue terms, the analog space represents 47 percent of cellular revenues for Motorola, which is why the current industry slowdown has been so severe for them. The problem lies in the technology. As the United States upgrades its antiquated analog cellular networks to the new, high- capacity systems, Motorola has been late to market with digital product offerings. By contrast, competitors like Ericsson and Nokia produce only digital products -- an advantage which has allowed them to gain market share, particularly in North America. Finally, the messaging division -- specifically paging -- has been hit especially hard, due in large part to the problems in Asia. Motorola had been previously relying on this region to offset a domestic slowdown. Given the present dire situation, can Motorola recover? We at Salomon Smith Barney think it can. First and foremost, the semiconductor industry is expected to recover in the second half of this year. This alone could have a very positive effect on revenues. Secondly, in the first quarter, Motorola began shipping an extensive line of digital products (most notably, a digital version of the StarTac). Early indications show that the sales of these products are robust. We fully expect digital products to gain share as a component of total cellular revenues this year. Thirdly, we believe that the worst is over in Asia. As these countries reestablish cellular and messaging infrastructure contracts, we could see a turnaround in the region. The wild card is Iridium, a satellite communications network designed to offer cellular and messaging services on a planetary basis, which is 20 percent owned by Motorola. We expect this system to be up and running by September of this year. From an earnings standpoint, this venture could have as much as a 55-cent swing on earnings per share in 1999. Additionally, the exclusive management contract that Motorola has with Iridium could result in an additional $500 million per year in revenues. In summary, we believe that Motorola has put the bad news on the table. In light of the substantial shortfall this quarter, we find it interesting that the stock has held in a tight range. As business trends begin to recover, as digital takes a more dominant role in the cellular business, and as Iridium goes online, we at Salomon Smith Barney believe that Motorola is a stock that has substantial upside over the next 12 months. Given that most observers currently view Motorola in a negative light, a change in sentiment could have a significant positive impact on the stock. CT ------------------------------------------ John Chatmas is Vice President of Investments for Smith Barney's D/FW office. Andrew Barrett is a Retail Equity Strategist with Salomon Smith Barney. Salomon Smith Barney is a service mark of Smith Barney, Inc. Smith Barney, Inc. and Salomon Brothers, Inc. are affiliate but separately registered brokers/dealers under common control of Salomon Smith Barney Holdings, Inc. Salomon Brothers, Inc. and Salomon Smith Barney Holdings, Inc. have been licensed to use the Salomon Smith Barney service mark.

To: Angelo J Cici who wrote (1095)	5/25/1998 1:02:00 AM
From: Angelo J Cici	Read Replies (1) \| Respond to of 3436

Let me re-phrase that... Why buy a stock on hype when you must look at the facts first. Take a look at the deteriorating fundamentals before considering the purchase of a new position. After the illegal actions of LOR with China and the volatility in ORBI, I think it needs a strong stomach before getting involved in either. Motorola has better value and is more of a blue chip company, so at least I can sleep well at night knowing my investments are safe...