BB, All,
MOT's earnings release. Conference call tomorrow morning. Enough
special charges for you??
Motorola Reports Second Quarter, First Half Results
SCHAUMBURG, Ill.--(BUSINESS WIRE)--July 7, 1998--Motorola, Inc.
today reported sales of $7.0 billion in the second quarter of 1998,
down 7 percent from $7.5 billion a year earlier. In the first half,
sales declined 2 percent to $13.9 billion from $14.2 billion in the
first half of 1997.
Excluding special items, second-quarter earnings were $6 million,
or 1 cent per share in 1998, compared with $392 million, or 64 cents
per share in the second quarter of 1997. Excluding special items,
earnings for the six months were $147 million, or 25 cents per share,
compared with $678 million, or $1.11 per share a year earlier.
The company recorded special items of $1.91 billion pre-tax, or
$2.23 per share after-tax, in the second quarter of 1998. These items
include $1.98 billion of charges associated with a comprehensive
series of manufacturing consolidations, cost reductions and
restructuring steps intended to improve financial performance, as
announced June 4, partially offset by gains on the sale of assets. As
a result, the second-quarter loss, including the special items, was
$1.3 billion, or $2.22 per share, compared with earnings of $268
million, or 44 cents per share, in the second quarter a year ago. The
year-earlier quarter includes special charges against pre-tax earnings
of $190 million, or 20 cents per share after-tax, largely from the
phase-out of the dynamic random access memory (DRAM) business.
In the first six months of 1998, the loss, including special
items was $1.15 billion, or $1.92 per share, compared with earnings of
$593 million, or 97 cents per share, in last year's first half.
Robert L. Growney, president and chief operating officer, said,
"As we indicated last month, the second-quarter results reflect
further slowing of demand and continuing global pricing pressure,
principally in the Semiconductor Products and Messaging, Information
and Media segments and driven primarily by economic conditions in
Asia," he said.
"The goal of our renewal plan," Growney continued, "is to
generate annualized savings, once all actions have been implemented
over the next 12 months, of more than $750 million. We expect to see
the positive impact of these savings to steadily increase over the
next several quarters."
Growney reviewed the following results of Motorola's major
operations for the second quarter, compared with the second quarter of
1997:
Cellular Products Segment
Segment sales declined 1 percent to $2.78 billion and orders were
down 11 percent. Excluding special items referred to earlier, the
segment had a smaller operating profit than a year ago. Including
special items, the segment had an operating loss versus a profit a
year ago.
Cellular Subscriber Sector (CSS) sales and orders declined. Sales
and orders were higher in Europe, lower in Pan America and
significantly lower in Asia. Sales of digital products continued to
increase versus last year. This increase was entirely offset by a
decline in sales of analog products, caused by a continuing trend of
demand shift to digital products.
CSS announced an integrated smart card GSM (Global System for
Mobile Communications) digital cellular phone that uses two smart
cards. This new category of cellular telephones is expected to pave
the way for an impressive new range of consumer services, including
mobile automated teller machine, remote ticketing, pay-as-you-use
telephony and flexible, secure on-line payment mechanisms using smart
cards.
Cellular Infrastructure Group (CIG) sales increased while orders
were significantly lower. Sales were up significantly in Japan and Pan
America, lower in Europe and significantly lower in Asia. Orders were
higher in Europe, lower in Asia and Pan America, and significantly
lower in Japan than a year ago when an unusually high level of orders
was recorded on a contract to build a nationwide Code Division
Multiple Access (CDMA) system. The cellular infrastructure business
has been historically characterized by large orders and irregular
purchasing patterns, which can cause volatility in quarterly growth
rates.
CIG was awarded GSM infrastructure contracts valued at more than
$750 million, including the world's single largest GSM contract to
date with network operator Telsim in Turkey and multiple contracts in
China. These contracts were only partially reflected in the orders
reported during the quarter.
CIG announced that it has been selected by two of Japan's leading
cellular service providers, DDI and IDO, to deploy a trial version of
third-generation (3G) cdma2000, also known as Wideband cdmaOne(TM),
wireless systems. CIG announced it is establishing a research and
development complex in Tokyo to advance its strong position in 3G
experimental and commercial wireless systems.
CIG announced the development and successful trials of a new
software feature called Extended Range Cell that enables GSM operators
to achieve three times the coverage from their networks with no
additional infrastructure equipment. In addition, CIG announced it was
the first in the U.S. to install circuit-switched data and fax
services for CDMA digital wireless networks.
Semiconductor Products Segment
Segment sales decreased 11 percent to $1.81 billion and orders
were down 25 percent. Excluding special items referred to earlier, the
segment had an operating loss versus a profit a year ago. Including
special items, the segment had a larger operating loss than a year
ago.
Orders were higher in the Transportation Systems Group, lower in
the Consumer Systems and Networking and Computing Systems Groups, and
significantly lower in the Wireless Subscriber Systems Group and
Semiconductor Components Group. All major regions posted lower orders
with orders in Japan and Asia down significantly. The semiconductor
market continued to be adversely affected by economic difficulties in
Asia, contributing to general market weakness and severe pricing
pressures in many product lines.
Motorola and Lucent Technologies announced a strategic alliance
to develop next-generation digital signal processor (DSP) technology,
and to cross-license existing DSP architectures. As part of the
alliance, Lucent and Motorola will create a joint design center, named
StarCore, in the Atlanta area. Lucent also became the first company
to license Motorola's M.CORE(TM) microRISC architecture.
To serve the consumer and small-office markets, the Semiconductor
Products Sector (SPS) announced a new family of imaging products,
including the world's first tri-linear complementary metal-oxide
semiconductor (CMOS) image sensor with an on-chip digital signal
processing engine. Kodak selected a member of Motorola's PowerPC(TM)
microprocessor family for its new low-cost Mega-Pixel cameras.
SPS announced high-speed CMOS static random access memory (SRAM)
technology using copper interconnect, which dramatically improves
circuit speed, reliability and manufacturing costs.
Land Mobile Products Segment
Segment sales increased 18 percent to $1.37 billion, orders rose
12 percent and operating profits increased.
Orders for iDEN(R) equipment for integrated digital enhanced
networks were up significantly, led by orders for infrastructure
equipment in North America, Brazil, Colombia and Japan. A new system
in Sao Paulo, Brazil, and a second system in Buenos Aires, Argentina,
began operations during the quarter. A 900 MHz dispatch-only system
based on iDEN technology was announced and the first trial system was
launched in Las Vegas, Nev.
The Land Mobile Products Sector won several contracts for TETRA
(Terrestrial Trunked Radio) equipment. TETRA is the only
European-approved standard for digital trunked radio communications. A
contract in excess of $60 million was received from Dolphin
Telecommunications for 150,000 radio handsets for use on its national
network in the U.K.
Contracts for other systems were received from Bucks County, Pa.,
United Parcel Service, the Vietnam Ministry of Interior, the Royal
Malaysian Police, a public safety customer in Brazil and Mexico's
railroad, Ferrocarriles de Mexico. Motorola is providing radio
products for the 16th Commonwealth Games to be held in Malaysia in
September.
Messaging, Information and Media Segment
Segment sales declined 32 percent to $771 million and orders were
down 35 percent. Excluding special items referred to earlier, the
segment had a smaller operating profit than a year ago. Including
special items, the segment had an operating loss versus a profit a
year ago.
Orders in the Paging Group were down significantly. Sales and
orders were lower in North America and significantly lower in China.
Motorola announced the first commercial launch of the FLEX(TM) high
speed, multi-frequency roaming paging network in the Guangxi Zhuang
Autonomous Region of China's nationwide paging network.
Motorola announced the Email VClient(TM) application allowing
Lotus Notes(R) Mail users to receive and manage electronic mail on a
Motorola PageWriter(TM) 2000 pocket message center. The PageWriter
2000 design team won this year's Mobile Innovation Award for
Communications Design.
The Information Systems Group announced a V.90 version of its
software modem product. Orders and sales increased significantly in
the emerging cable modem business.
Automotive, Component, Computer and Energy Sector
Sales declined 9 percent and orders were down 15 percent.
Excluding special items referred to earlier, the sector had a smaller
operating profit than a year ago. Including special items, the sector
had an operating loss versus a profit a year ago. The sector's results
are reported as part of the "Other Products" segment.
In its automotive business, the sector was awarded additional
telematics business by a major U.S. automotive manufacturer.
Telematics is designed to provide security, information, convenience
and entertainment from a central service center to drivers and their
passengers.
Motorola's Telematics Information Systems business announced
contracts from Renault and Visteon Automotive Systems. The Renault
telematics system will be offered as an option on all new Renault
vehicles in France, beginning in the fall of 1998, and will gradually
be extended throughout Europe. Motorola and Visteon announced a new
vehicle emergency messaging system that will be available for
Ford-authorized aftermarket installation on select new vehicles in
North America.
Motorola Computer Group announced the first CompactPCI(R) Single
Board Computer utilizing Intel Corporation's recently announced
Pentium(R) II processor mobile module.
Space and Systems Technology Group
Sales declined 36 percent, orders were 30 percent lower, and the
group had an operating loss versus a profit a year ago. The changes in
sales, orders and operating profits are all largely attributable to
the lower dollar value than a year ago of contractual milestones on
the IRIDIUM(R) program. Results are reported as part of the "Other
Products" segment.
Initial deployment of the IRIDIUM global personal communications
system was completed, bringing the total of operational, on-orbit
satellites to 67. Operational and voice quality testing of the system
continued to be demonstrated successfully, and nine Iridium gateways
achieved pre-commercial acceptance by gateway owners. As previously
reported, Iridium LLC may require additional financing, possibly
during the second half of 1998, to continue to make contractual
payments to Motorola.
Motorola and Teledesic LLC announced that they intend to become
partners in the further development of the broadband
Internet-in-the-Sky satellite communications system. Motorola would be
the prime contractor for construction of the network, designed to
provide high-speed data connections to businesses and individuals
everywhere on Earth. Other industrial partners include Boeing Co. and
Matra Marconi Space.
General Corporate
Manufacturing and other costs of sales were 71 percent of sales,
compared with 67 percent in the second quarter of 1997. Increased
pricing pressures were experienced in several business segments and
were due to a variety of factors including weakened Asian currencies
and reduced demand.
Selling, general and administrative expenses were 19 percent of
sales compared with 17 percent in the year-earlier period, largely as
a result of lower sales.
Depreciation expense decreased slightly as a percent of sales.
Interest expense increased slightly as a percent of sales. The tax
rate for the second quarter was 30 percent versus a 35 percent tax
rate a year ago.
Review and Outlook
Christopher B. Galvin, chief executive officer, said conditions
in the whole semiconductor industry worldwide and general business
conditions in Asia weakened further in the second quarter. "The
currency-related impact on pricing and consumer confidence continues
to affect the Asian region and Motorola. Significant efforts to
stabilize the region by the International Monetary Fund and various
governments have not yet proven successful. The negative impact on our
business is likely to continue for at least the remainder of the
year," he said.
"To respond to the severity of these business conditions, we are
resizing the company through aggressive restructuring steps announced
last month. These actions are intended to improve our long-term
profitability and efficiency.
"In the next few days we will announce a more collaborative and
market-focused Communications Enterprise that links together all of
Motorola's communications businesses so they can easily share
resources and cooperate on key business and technology issues. At the
same time, it will realign individual businesses so they can quickly
and more efficiently direct Motorola's diverse core competencies
toward winning solutions, as the convergence of wireless technologies
continues," Galvin said.
"In the longer term," Galvin said, "we expect to see the benefits
of alliances and joint development projects in technologies ranging
from digital signal processors to Internet Protocol telephony. We are
pursuing a number of cooperative efforts to enable us to build on our
software strengths and technology portfolio and to bring profitable
new products to the marketplace ahead of the competition. We believe
these efforts, coupled with our strong position in emerging markets
throughout the world, set the stage for a renewal of growth in sales
and earnings."
Business Risks
Statements about Motorola's renewal plan and the impact of such
plan, the impact of new products, the planned StarCore design center,
the Teledesic LLC investment, and the statements in "Review and
Outlook" are forward-looking and involve risks and uncertainties.
Motorola wishes to caution the reader that the factors below and those
in Motorola's 1998 Proxy Statement on pages F-8 and F-9 and in its
other SEC filings could cause Motorola's results to differ materially
from those stated in the forward-looking statements. These factors
include: (i) the ability of Motorola to implement the manufacturing
consolidations, cost reductions and restructuring actions in a timely
manner and the success of those efforts; (ii) the ability of the
Company to integrate its businesses to reduce costs and increase
efficiencies; (iii) unanticipated impact of the renewal plan on
productivity and the ability of the company to retain and where
necessary recruit employees; (iv) the success of efforts to stabilize
economic conditions in Asia; (v) pricing pressures and demand for the
company's products, particularly semiconductor and messaging products,
especially in light of the current economic conditions in Asia; (vi)
the potential that the impact of weakened currencies in Southeast Asia
could spread to countries where Motorola does a sizable amount of
business, including China and Japan; (vii) the ability of Motorola's
cellular businesses to continue to transition to digital products and
gain market share; (viii) the risk that Motorola will not be able to
finalize the terms of its partnership with Teledesic LLC; (ix) product
and technology development and commercialization risks, including for
newer digital products and IRIDIUM(R) products; (x) steady growth in
emerging markets; (xi) unanticipated changes in demand for products;
and (xii) continued weak demand for paging products in North America
and China.
IRIDIUM(R) is a registered trademark and service mark of Iridium LLC.
LotusNotes(R) is a registered trademark of Lotus Development
Corp.
CompactPCI(R) is a registered trademark of PCI Industrial Computers
and Manufacturers Group.
PowerPC(TM) is a trademark of IBM Corporation.
Pentium(R) is a trademark of Intel Corporation.
Motorola, Inc. and Subsidiaries
Consolidated Statements of Operations
(In millions, except per share amounts)
Three Months Ended Six Months Ended
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
---- ---- ---- ----
Net sales $7,023 $7,521 $13,909 $14,163
------ ------ ------- -------
Manufacturing and
other costs of sales 5,018 5,019 9,832 9,403
Selling, general and
admin. expenses 1,351 1,311 2,588 2,473
Restructuring charges 1,980 170 1,980 170
Depreciation expense 518 572 1,058 1,137
Interest expense, net 53 36 91 68
------ ------ ------- -------
Total costs and expenses 8,920 7,108 15,549 13,251
------ ------ ------- -------
Earnings(loss)before
income taxes (1,897) 413 (1,640) 912
Income tax(benefit)
provision (569) 145 (492) 319
------ ------ ------- -------
Net earnings(loss) $(1,328) $ 268 $(1,148) $ 593
------ ------ ------- -------
------ ------ ------- -------
Net earnings(loss)
per share
Basic $ (2.22) $ .45 $ (1.92) $ 1.00
------ ------ ------- -------
------ ------ ------- -------
Diluted $ (2.22) $ .44 $ (1.92) $ .97
------ ------ ------- -------
------ ------ ------- -------
Avg. common shares
outstanding
Basic 597.9 594.7 597.6 594.3
------ ------ ------- -------
------ ------ ------- -------
Diluted 597.9 610.2 597.6 611.4
------ ------ ------- -------
------ ------ ------- -------
Dividends paid per share $ .12 $ .12 $ .24 $ .24
Net margin on sales (18.9%) 3.6% (8.3%) 4.2%
Return on average
invested capital (3.8%) 7.4% ---- ----
R&D expenditures $ 722 $ 678 $1,425 $1,292
Motorola, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in millions)
ASSETS June 27, Dec. 31,
1998 1997
------- -------
Cash and cash equivalents $ 1,177 $ 1,445
Short-term investments 268 335
Accounts receivable, net 4,904 4,847
Inventories 4,383 4,096
Other current assets 2,576 2,513
----- -----
Total current assets 13,308 13,236
------ ------
Property, plant and equipment, net 9,990 9,856
Other assets 4,930 4,186
----- -----
Total assets $28,228 $27,278
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current portion of
long-term debt $ 2,973 $ 1,282
Accounts payable 1,972 2,297
Accrued liabilities 6,140 5,476
----- -----
Total current liabilities 11,085 9,055
------ -----
Long-term debt 2,129 2,144
Other liabilities 2,942 2,807
Stockholders' equity 12,072 13,272
------ ------
Total liabilities, stockholders' equity $28,228 $27,278
------- -------
------- -------
Motorola, Inc. and Subsidiaries
Information by Industry Segment
(Dollars in millions)
Summarized below are the Company's segment sales as defined by
industry segment for the three and six months ended June 27, 1998 and
June 28, 1997:
Three months ended
June 27, June 28,
1998 1997 % Change
-------- -------- --------
Cellular Products $2,785 $2,824 (1)
Semiconductor Products 1,808 2,032 (11)
Land Mobile Products 1,370 1,160 18
Messaging, Information
and Media Products 771 1,135 (32)
Other Products 959 1,166 (18)
Adjustments & eliminations (670) (796) (16)
----- -----
Industry segment totals $7,023 $7,521 (7)
------ -------
------ -------
Six months ended
June 27, June 28,
1998 1997 % Change
------ --------- --------
Cellular Products $5,592 $5,537 1
Semiconductor Products 3,641 3,840 (5)
Land Mobile Products 2,613 2,137 22
Messaging, Information
and Media Products 1,463 2,059 (29)
Other Products 1,977 2,042 (3)
Adjustments & eliminations (1,377) (1,452) (5)
------- -------
Industry segment totals $13,909 $14,163 (2)
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