This year’s financial outlook appears gloomy for Motorola Inc., which released poor first-quarter results last week and told analysts this quarter’s results won’t look much better.
“The primary factors likely to prevent sequential earnings improvement include further gross-margin pressure from higher shipments of new cellular telephone products whose initial manufacturing costs are high and a larger loss recognition from the Iridium L.L.C. investment,” said Ed Gams, corporate vice president and director of investor relations.
“Pricing remains very competitive in all of our major businesses. We not only expect this to continue but expect that the economic conditions in Asia will put further pricing pressure not only on products sold in that region, but those manufactured elsewhere in the world,” Gams commented.
Motorola’s shares fell $6.38 Tuesday to $53.50 and rebounded slightly Wednesday to close at $54.94. The company warned investors in early March that its first-quarter financials would fall well below expectations. The primary culprit, says Motorola, is the economic crisis in Asia, but analysts also say the company is impacted by the increasing number of players entering the market.
“Motorola is facing a number of issues, not just an Asian crisis,” said Ira Brodsky, president of Datacomm Research in St. Louis. “It’s worldwide competition.”
Motorola said corporate sales declined during the first quarter compared with last year, not only in the Asia-Pacific region, but in China, middle and eastern Africa and Canada.
Many of the company’s business segments experienced increased pricing pressures primarily due to weakened Asian currencies, reduced demand for pagers and analog cellular phones, said Motorola.
Earnings totaled $180 million compared with $325 million for the first quarter in 1997. Earnings per share on a diluted basis were 30 cents per share compared with 53 cents a year ago. Sales increased 4 percent to $6.9 billion from $6.6 billion in the first quarter 1997. Excluding special items from both periods, earnings would have been $142 million, or 23 cents per share, and $286 million, or 47 cents per share, in the year-earlier quarter, said Motorola.
The company expects earnings this quarter to be equal or less than 23 cents per share. It also anticipates its share of Iridium losses will increase to $64 million this quarter, compared with $44 million for the first quarter. Motorola owns about 20 percent of the satellite company.
Drops in paging and cellular sales
One of Motorola’s hardest hit segments during the first quarter was the Messaging, Information and Media Segment, which experienced a 25-percent decline in sales and an operating loss. Motorola blamed soft paging sales to operators in North America and China, as well as the weak Asian economy.
Sales and orders also dropped in Motorola’s Cellular Subscriber Sector as the company was caught off guard by the fast decline in the demand for analog handsets.
Analysts have criticized the company for its late arrival into the digital handset market. Only now is Motorola selling Time Division Multiple Access handsets in commercial volumes, while Code Division Multiple Access handset sales are minimal.
“Motorola is making progress in terms of digital handsets sales,” said Gams. “But the fact remains that we have a significant legacy in the analog marketplace. That marketplace is declining. It declined at an unexpected rate for us in the first quarter. As long as the analog marketplace represents a reasonably large portion of our handsets sales, and its sequential decline continues, it will be a drag on our overall cellular handset market share worldwide.”
Though overall cellular infrastructure sales and orders increased during the quarter compared with first-quarter 1997, fueled by inflated sales in the Americas and Japan, Motorola’s sales declined in Europe, China and the Asia-Pacific region.
Semiconductor segment is up
Sales increased by 1 percent in Motorola’s semiconductor segment to $1.83 billion, while orders were 4-percent lower compared with last year.
The segment posted a loss this year, compared with a profit a year ago, attributed to various special charges, without which the segment would have reported a slight profit, said the company. Sales in Motorola’s land mobile radios products division increased 27 percent to $1.24 billion, and profits were higher, said Motorola.
Motorola is expected to announce a restructuring effort that could include two separate divisions-an industrial products group and a consumer products group.
