Saturday, February 24, 2001
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Posted on: Saturday, February 24, 2001

Motorola glum again on profits


Associated Press

CHICAGO — Motorola Inc., staggered by deepening slumps in its cellular phone and computer chip businesses, warned yesterday that a big drop-off in orders and sales might result in its first quarterly operating loss in 16 years.

It was the second earnings warning in six weeks by the high-tech giant, whose troubles with falling cell phone profits have been significantly worsened by the U.S. economic slowdown.

"We have fairly extreme volatility right now," said Robert Growney, the company’s president and chief operating officer, speaking to analysts in a conference call. "Some of the businesses are in a kind of free fall."

The world’s No. 2 cell phone maker behind Nokia, and No. 5 in semiconductors, Motorola said its two core businesses are taking the biggest hits. A "significant weakness" in orders is translating to lower sales, and barring a quick turnaround will produce its first operating loss since the third quarter of 1985.

The global semiconductor market, booming until last summer, may finish down for the year, Growney said, and demand for wireless devices — primarily cell phones — is softening significantly in the key European market.

The company declined to offer any guidance on its expected first quarter results. Analysts surveyed by First Call/Thomson Financial already had lowered earnings expectations to 12 cents a share after Motorola warned in January of lower sales and profits.

Motorola’s stock fell $1.04, or 6 percent, to close at $16.25 yesterday on the New York Stock Exchange, just above its two-year low of $15.81.

The Schaumburg, Ill.-based company blamed the falloff on industrywide conditions rather than loss of market share. "A lot of it can be blamed on a weak overall market, but there also are company-specific problems," said Morningstar analyst Todd Bernier. "The fact is 2000 was the best year in the history of the cell phone business, yet their sales in the sector were only up 11 percent. Nokia’s were up more than five times that amount."

Motorola has suffered a string of setbacks over the past year, since its recovery from a 1998 restructuring ran out of momentum. Its failure to anticipate the public’s preference for cheaper cell phones caused it to slip far behind former runner-up Nokia.

On Jan. 11, after reporting a 41 percent drop in fourth-quarter profits, Motorola warned of a substantial decline in sales this quarter and said investors shouldn’t expect a recovery until at least the second half of 2001.

The company, which has about 140,000 employees, has announced the elimination of more than 9,000 jobs since early December, roughly 6 percent of its work force. More layoffs are likely; the company said this week it would continue finding ways to cut $2 billion in costs in its cellular phone unit.

Motorola’s third-biggest business, broadband communications, also is seeing little if any growth in orders this quarter, officials said.

Growney said the company hopes new cell phones due out in the middle of this year will lead to a second-half turnaround.

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