Motorola misses mark

April 10, 2001: 6:26 p.m. ET

Company's mobile phone and chip sales decline as profits turn to losses

NEW YORK (CNNfn) - Motorola Inc., the No. 2 supplier of mobile phones and a leading semiconductor maker, posted a first-quarter loss Tuesday that failed to meet Wall Street's already lowered expectations.

The company said its operating loss for the quarter ended March 31 was $206 million, or 9 cents per share. That compares with an operating profit of $481 million, or 21 cents per share, during the same period a year earlier, and is 2 cents more than the 7 cents per share analysts polled by earnings tracker First Call had expected the company to lose.

At $7.8 billion, Motorola's first-quarter revenue fell 11 percent from the $8.8 billion it reported a year earlier. The Street had expected a revenue decline of about 9 percent, according to the First Call survey.

Shares of Motorola (MOT: up $1.50 to $13.00, Research, Estimates) rose sharply in New York Stock Exchange trade ahead of the earning news, which was released after the close of trading. They were down nearly $1 to $12.05 in after-hours trade.

The Schaumburg, Ill.-based company has been particularly hard hit by the slowdown in the technology sector, which has weighed across all its business lines. In response to the deteriorating market conditions, Motorola has implemented a broad restructuring plan under which executives said they expect to cut more than $750 million in costs.

While Motorola is best known for its mobile phones and pagers, which account for roughly 55 percent of sales, the company also is a leading supplier of the semiconductors used to make wireless communications devices. About 25 percent of Motorola's sales are derived from its semiconductor unit.

The wider-than-expected quarterly operating loss, Motorola's first in 15 years, came after the company twice ratcheted down its financial targets during the course of the quarter. Executive pinned the blame for the shortfall primarily on the slowing U.S. economy, which weighed across all its business lines.

In its personal communications segment, which includes wireless phones, Motorola said total sales fell 29 percent to $2.3 billion and the unit incurred an operating loss of $402 million, compared with an operating profit of $53 million a year ago.

The company blamed the poorer results on softening global demand for wireless handsets by service providers and an increase in manufacturing costs as a percent of sales.

Motorola's first-quarter semiconductor sales fell 22 percent to $1.5 billion, while orders fell 47 percent to $1.1 billion, the company said. The chip unit's operating loss amounted to $131 million, compared with a profit of $128 million during the same period last year.

Christopher B. Galvin, Motorola's chairman and chief executive, said the company sees the slowdown that had been felt primarily in the United States beginning to spill over to the rest of the world.

However, he did not provide a specific revenue or earnings forecast for the current quarter or the remainder of the year. Executives are expected to provide those details during a teleconference with analysts and investors Wednesday morning.

"Beginning last year and continuing throughout the first quarter, Motorola has undertaken aggressive cost-cutting measures," Galvin said in a statement. "These steps are necessary to restore Motorola's balance sheet performance, earnings performance and the confidence of our shareholders and employees."

Among the measures Motorola has taken to rein in costs is combining its 30 separate units that made communications products into one large division. The company also has announced layoffs of about 23,000 employees since December.

Earlier Tuesday, a company spokesman told CNNfn Motorola has frozen merit-pay increases for all its employees within the past two weeks. Rank-and-file employees will be reassessed in October, while pay increases for executives will be deferred for a full year.

"It's appropriate to ask employees to share the burden, all the way through the executive ranks," the spokesman said.

Motorola was the first of the top three mobile phone makers and the first blue-chip technology outfit to report its latest quarterly results. Nokia (NOK: up $1.33 to $25.50, Research, Estimates), the No. 1 mobile phone maker, and Ericsson (ERICY: up $0.56 to $6.20, Research, Estimates), which ranks third, each are expected to report their earnings on April 20.

Both those companies have reined in their financial targets during the last three months as well, pointing to weakening global demand for wireless handsets.

Motorola's latest quarterly earnings report excludes the impact of a net charge of $279 million, related primarily to its cost-reduction activities and product portfolio changes.

Accounting for that charge, Motorola's net loss for the first quarter was $533 million, or 24 cents per share, compared with a net profit of $448 million, or 20 cents per share, during the same quarter in 2000.