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

To: HammerHead who wrote (1105)	5/27/1998 1:24:00 PM
From: AgAuUSA	Read Replies (2) \| Respond to of 3436

Wednesday May 27, 10:34 am Eastern Time S&P cuts Motorola Inc ratings (Press release provided by Standard & Poor's) NEW YORK, May 27 - Standard & Poor's today lowered its ratings on Motorola Inc. and removed them from CreditWatch (see list below). Standard & Poor's also affirmed its 'A-1'-plus commercial paper rating, which was not on CreditWatch. The rating change reflects lower than expected profitability levels, which are likely to persist due to competitive pressures and weak demand in several market sectors. Motorola Inc.'s ratings reflect the company's broad range of radio communications products and systems, supported by its substantial technology base, its solid global presence and its vertically integrated semiconductor business, as well as its conservative financial practices. These strengths are somewhat offset by wide variations in earnings measured over a span of years, and the potential for higher levels of balance sheet exposure to vendor finance transactions in support of business expansion. Schaumburg, Illinois-based Motorola is a leading supplier of cellular radios and infrastructure equipment, pagers and private radio systems. It is the prime contractor and a major supplier for Iridium, the first commercial communications satellite system, expected to enter service this fall. Additionally, the company manufactures a very wide range of semiconductors for its radio products and for the merchant market. Over the last few years, Motorola's sales growth has been affected by some product line shortfalls, compounded by heightening competition, and by concurrent weakness in several of its target market segments and geographies. Earnings have further been pressured by high levels of product development expense, reserves for developmental-stage programs, and by a number of moderate-sized restructuring charges. The cellular product line is in transition as the company introduces new digital handsets, some of which had been late to market, while the mature analog segment declines. Overall Asian market conditions are likely to remain depressed for at least several quarters, while many paging operators are aggressively trimming inventories. World semiconductor market conditions are likely to remain depressed for at least the balance of 1998. Taken together, Motorola expects operating income to decline sequentially in the June 1998 quarter, and the company has initiated cost reduction measures. Nevertheless, its program of continued reinvestment is expected to provide the basis for a number of new product lines and resumed growth in the future. Motorola's operating margin was 15% in 1997, comparable to levels early in the decade, and substantially lower than the 17%-19% range seen in 1993-1995, reflecting the underlying cyclicality of its served markets. The corresponding return on capital was 12% in 1997; returns have been above 20% in strong years. Pretax interest coverage was 8x in 1997. Funds flow coverage of debt has remained strong through the cycle, around 90% in 1995 through 1997 despite softening earnings, while total debt levels have remained consistently below 30% of total capital. Liquidity is strong, with cash balances of about $1.8 billion at March 31, 1998. Capital expenditures, which had been below $3 billion in 1996 and 1997, are expected to total about $4 billion this year. Over the long term, Motorola is a net consumer of cash, while free cash flows can vary widely from year to year. Consistent with industry practices, Motorola provides vendor financing for certain of its infrastructure customers, whose exposure is already reflected in the rating. OUTLOOK: NEGATIVE Although Standard & Poor's believes that Motorola's profitability is currently near its cyclical low point, further material declines in profitability or other financial measures could lead to lower ratings. RATINGS LOWERED AND REMOVED FROM CREDITWATCH TO FROM Bank loan rating AA- AA Corporate credit rating AA- AA Subordinated debt rating A+ AA- Senior unsecured rating AA- AA