Motorola Inc. said it expects to meet Wall Street’s earnings expectations for the first quarter, though it
remains cautious in light of last week’s currency devaluation in Brazil and the semiconductor industry’s
recovery.
Analysts say Motorola is cutting operating costs more than expected, while its handset and semiconductor
businesses are strengthening. But significant deterioration of the global economy could push Motorola off track in
continuing to post improved financial results. The company already is reeling from a meltdown of the Asian
economy.
“There’s concern over growth opportunities in Latin America,” said Robert Growney,
president and chief operating officer, in a conference call last week announcing the company’s fourth-quarter results.
“We believe the economy will slow, which will negatively impact our expectations for sales and profits in the
country in 1999 … Devaluation in the rest of Latin America could negatively impact the economies in other countries,
lowering economic growth.”
Brazil’s central banker unexpectedly resigned last week, and his successor
devalued the currency by 7.6 percent, wreaking havoc on world financial markets. Brazil is considered one of the
world’s hot beds for wireless telecommunications as the country recently privatized its telecommunications businesses
and sold off several cellular licenses.
Motorola realized only 3 percent of its sales from Brazil in 1998. The
company expects to write off $15 million because of asset exposure based on the change in currency.
“Our
Brazilian factory will help our competitive position by reducing the amount of foreign cost increase we would
otherwise experience without a manufacturing presence,” said Growney.
Motorola said Japan, followed by
Latin America, the Middle East and Africa represented the highest total sales growth markets for the company in 1998,
while all other markets declined, with the largest declines in Asia, Canada and China.
The Schaumburg, Ill.-based
manufacturer said it expects to meet Wall Street’s estimate of $7.1 billion in sales with earnings per share of 23 cents
for the first quarter.
Motorola reported sales of $8.34 billion in the fourth quarter, up 1 percent from $8.28 billion
the previous year. Fourth-quarter earnings totaled $159 million, or 26 cents per share, compared with earnings of $321
million, or 53 cents per share, in 1997. These results exceeded Wall Street’s expectations.
Sales for 1998 decreased
1 percent to $29.4 billion from $29.8 billion in 1997. The full-year loss, including special charges, was $1 billion, or
$1.61 cents per share after-tax, compared with earnings of $1.2 billion, or $1.94 per share after-tax, in 1997. Last year’s
loss includes special charges of $1.9 billion pre-tax, or $2.19 per share after-tax, as a result of the manufacturing
consolidation, cost reduction and restructuring programs the company announced in June.
Growney said operating
results in the fourth quarter improved from the previous two quarters, largely because of strong sales in digital cellular
phones, sequential sales growth in semiconductors and cellular infrastructure equipment, and the benefits of the
company’s cost-cutting measures.
He said the programs may achieve an annualized rate of $1 billion of profit
improvement by mid-year, above the original goal of $750 million. The programs have generated an estimated $210
million of continuing profit improvement in the fourth quarter, said Motorola. The benefits of these programs totaled
more than $300 million for the second half of 1998.
Motorola said it already has reduced its number of employees
by 17,000, exceeding its goal of slashing 15,000 jobs by mid-1999. The manufacturer said it plans to reach 18,000 total
cuts by the middle of the year, given a greater-than-expected number of retirements, voluntary severance acceptances
and planned actions. A further 4,500 employees will be reduced following the final sale of Motorola’s Component
Products Division of the Automotive, Component, Computer and Energy Sector to CTS Corp. this quarter, said the
company.
Growney said digital handset shipments in November and December increased to more than 1 million per
week to meet Christmas season demands. Analog handset demand continued to fall significantly, while the demand for
digital products increased rapidly, said the company. Sales and orders increased.
Analysts criticized the company in
1998 for underestimating how fast the digital handset market would take off.
“In the U.S., Motorola hasn’t
recovered its market share,” said Phillip Redman, wireless analyst with the Yankee Group in Boston. “We
believe for the first time ever, Motorola is going to be second in combined market share (analog and digital) in 1998.
It’s still first in analog, and will be third or fourth in digital … It will be a slow recovery in the first part of the year, but
it should shine mid-year with additional launches of the CDMA StarTac and multiband TDMA phone and the
introduction of the V-Series in Europe.”
Motorola said the quarter for its handset business was characterized
by volume shipments of CDMA and TDMA StarTac phones, the V-Series GSM dual-band phone, 36,000 Iridium
handsets and original equipment manufactured CDMA phones in Korea.
