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Motorola Earnings Plunge

July 7, 1998

CHICAGO (AP) _ Motorola Inc.’s second-quarter earnings plunged as economic troubles in Asia pummeled its computer chip operations. Its sales in other business segments also shrank, but overall the report Tuesday beat Wall Street’s expectations.

The world’s largest maker of mobile phones, pagers and telecommunications equipment is the first of the big semiconductor and telecom concerns to report its second-quarter earnings, and has been widely seen as an early indicator of how much the Asian crisis has affected profits for the entire high tech industry.

Motorola chief executive Christopher Galvin warned a sharp drop in consumer confidence in Asia likely will affect earnings for the remainder of the year, but he said the company this week will announce a long-awaited reorganization plan for its communications sector aimed at reducing costs and improving efficiency, for savings of $750 million.

For the three months ended June 27, the Schaumburg-based company reported a net loss of $1.33 billion, or $2.22 a diluted share, compared to a net gain of $268 million, or 44 cents a diluted share, after a one-time charge in the same period a year ago.

The current quarter also included a charge: $1.98 billion for restructuring costs. Excluding that charge, earnings were $6 million, or 1 cent a diluted share.

The earnings excluding charges beat Wall Street expectations of a loss of 4 cents a share, according to a survey of analysts by First Call Corp. Motorola reported its results after trading on the New York Stock Exchange had ended for the day.

The company’s stock has fallen over the past year amid concerns it has done little to promote a quick turnaround in its fortunes. But its stock rose $1.43 3/4 Tuesday, or 2.7 percent, to $55 a share.

The company reported that its sales fell 7 percent to $7 billion from $7.5 billion in the year-earlier period.

Motorola has been battered in recent months in two of its larger businesses _ computer chip sales and cellular products.

The company in recent months has seen steady market share erosion to such cellular phone competitors as Finland’s Nokia Corp. and Sweden’s LM Ericsson, who for months have been offering increasingly popular digital phones while Motorola has yet to provide details on when its phones will be widely available.

Company executives said in April they will reorganize the phone-equipment business to develop go-anywhere packages of products for the Internet, software systems and wireless data services via satellite transmissions.

Many of the recently announced 15,000 job cuts amounting to 10 percent of the company’s global work force are expected to come during that reorganization, analysts have speculated.

Cellular product sales for the quarter fell 1 percent to $2.78 billion and orders were down 11 percent. In the paging and other messaging information segment, sales fell 32 percent to $771 million, while orders plunged 35 percent.

Meanwhile, Motorola’s semiconductor business _ which accounts for nearly a third of annual sales _ has sunk under the weight of problems in key Asian production and consuming regions.

The computer chips help run everything from pagers to electronic devices and cars, but Asian competitors, particularly from South Korea, have been sharply cutting prices to weather the economic damage in their countries, stealing business from Motorola. Demand in that region, meanwhile, fell sharply just as Motorola completed massive facilities designed to meet expected increases in demand.

Analyst Brian Modoff at BT Alex. Brown said while the earnings were above expectations, the short-term picture looks dim as orders in most of Motorola’s segments continue to slide. He said the company’s fortunes may turn on its restructuring plan.

``We’ll hopefully have a better view of what they plan to do very soon,″ Modoff said. ``Where they’re going to restructure and how would be very important. They’re going to have to make significant changes in their messaging and semiconductor segments because you’ve got significant overcapacity there now.″

For the first half of the year, the company reported a net loss of $1.15 billion, or $1.92 a diluted share, compared to a net gain of $593 million, or 97 cents a diluted share, the year earlier. Sales fell to $13.9 billion from $14.2 billion.

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