Motorola stock dives on news of reduced earnings
CHICAGO (AP) – A day after posting its first profit since 2000, Motorola Inc. touched off a 27 percent sell-off of its stock Wednesday when it acknowledged that weakening demand and the rocky world economy have eroded its recovery effort. The cell phone and semiconductor maker scaled back sales and earnings guidance for both the fourth quarter and 2003, saying the absence of a hoped-for global rebound has hurt its key markets.
Motorola shares fell $2.70 to $7.40 in heavy afternoon trading on the New York Stock Exchange. The stock, adjusted for splits, hasn’t closed below $8 since November 1982. Trading volume topped 70 million shares – more than six times the average amount for a full day’s session. The stock plunge came just a day after Motorola reported $111 million in third-quarter earnings as the company’s profit margins benefited from extensive cost-cutting and restructuring. But sales were lower than expected, and the sharply reduced outlook on Wednesday compounded investors’ concerns.
“They have come through almost two years of restructuring, have gotten costs off the books, have gained operating leverage,” said analyst Vivian Mamelak of Arnhold and S. Bleichroeder. “The question is, are they going to get the sales to capitalize on all the wonderful cost reductions that they’ve done?”
Citing a noticeable falloff in demand starting in September, the Schaumburg, Ill.-based company reduced its estimate for fourth-quarter sales to $7.1 billion from the previous figure of $7.5 billion. And it took $1.5 billion off its 2003 revenue estimate, now pegging it at $27.5 billion.
While maintaining that it will remain profitable after emerging from 11/2 years in the red, Motorola lowered its earnings forecasts to 10 cents a share for the fourth quarter from 14 cents, and 40 cents for 2003 from 45 cents.
“This lowered revenue and earnings guidance is driven by slower overall industry demand, particularly in the infrastructure, broadband and semiconductor businesses,” chief financial officer David Devonshire told analysts on a conference call.
“Taking their sales down as far as they did is big,” said analyst Todd Bernier of Morningstar Inc. “The heavy lifting has been done – they can’t cut many more employees. What they really need is a sales boost, and it’s clearly not coming.”
Since beginning a restructuring in the second half of 2000, Motorola has replaced 70 percent of its senior leadership and cut its work force from 150,000 employees to a planned 93,000 by 2003.
But the uncertainty of the world economy has eaten into cell phone sales, and Motorola on Wednesday scaled back its estimate of industrywide sales for the year by 10 million units, to 390 million, citing weaker demand in Europe and Asia.
Chairman and CEO Christopher Galvin said the up-and-down economy, some recent instances of corporate malfeasance and varied political factors are “causing some customers to hesitate a bit.”
He said the company is gradually improving its profitability, adding: “We are making continued progress in a very tough environment.”
The company expects to take a $200 million charge in the fourth quarter, which it said will “substantially complete” the restructuring.
After the market closed Tuesday, Motorola announced net earnings of 5 cents a share – snapping its string of six straight unprofitable quarters – and operating earnings of 6 cents a share, beating Wall Street’s consensus estimate by a penny.
But sales continued their nosedive, sinking by 14 percent to $6.37 billion – short of the targeted $6.7 billion – and handset shipments came in under expectations at 18 million units.
A decline in orders from the previous year also was a red flag to investors. Orders were down 16 percent for handsets, to $2.5 billion, and 44 percent for wireless networking, to $880 million – although semiconductor orders climbed 14 percent to $1.3 billion.
The long-slumping semiconductor division is expected to show a slight profit in the fourth quarter, Motorola executives said Wednesday, but the operating margin will be flat.
Galvin declined comment on rumors about pending Motorola deals, the latest being a Financial Times report that Europe’s biggest chipmaker, STMicroelectronics, is in talks to buy Motorola’s semiconductor operations.
“We don’t comment on rumors,” he said. “In the whole telecom arena, everybody is talking to everybody.”
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