Motorola’s Weak Cellular Sales Reflect the Tone Among Techs
In a further indication that demand for high-tech products is slackening, Motorola Inc. said Tuesday that its fourth-quarter earnings dropped 16% from a year ago, falling well below analysts’ estimates.
Motorola, a bellwether telecommunications and semiconductor company, said it was hurt by declining prices and sales of cellular telephones. The announcement was the latest in a string of disappointing earnings reports from technology companies that have sent tech shares tumbling.
While some analysts continue to believe that the months-long slump in tech stocks is mainly an overdue correction, there are more and more signs that business is slowing. Many PC retailers and manufacturers sold fewer machines than expected over the holidays, for example--although others appear to have done well--and any weakness in PCs has ripple effects for chip makers and others.
Motorola’s weak earnings point to weakness in cellular phone growth, which has been torrid in recent years. Some analysts think that cellular phones, like PCs, may have almost saturated the market among high-income consumers, and that sales growth won’t pick up again until prices for cellular service decline substantially.
The broad sell-off in tech stocks Tuesday was also driven by a weak earnings report from software vendor Symantec and by Soundview analyst Rick Wittington’s unusual “sell” recommendation on a basket of computer chip stocks. More selling is expected today.
Motorola, the world’s largest producer of cellular phones, said it earned $432 million, or 72 cents a share, in the final three months of 1995, down from $515 million, or 86 cents a share, during the same 1994 period. Sales were up 13%, to $7.3 billion from $6.5 billion a year earlier.
“It’s obviously a disappointment, and by a fairly large margin,” said Jim McIlree, an analyst in Chicago with Duff & Phelps, who said he had been expecting quarterly earnings of about 84 cents a share.
The average analyst surveyed by Zacks Investment Research estimated Motorola would earn 90 cents a share for the quarter.
Motorola stock plunged $10.625 to close at $45.625 in after-hours trading Tuesday.
Motorola’s chief executive, Christopher Galvin, said the poor showing partly results from a large buildup of cellular phone inventories a year ago, continued price cutting and the high costs associated with new technologies.
The company said sales of cellular phones declined 5% in the final quarter compared with the fourth quarter of 1994. Spokesman George Grimsrud would not supply total sales figures.
“Prices for the phones come down 15% to 20% a year,” McIlree said. “So you need volume growth of the same amount just to stay even. If you don’t get it, earnings go down.”
The company’s fourth-quarter revenue of $7.3 billion was about what analysts were expecting, but profit margins declined to 5.9% from 8% a year ago.
For the full year, sales increased to $27 billion from $22.2 billion. Earnings were $1.78 billion, or $2.93 a share, compared with $1.56 billion, or $2.65 a share, in 1994.
The company said its general systems products, of which cellular phones are the largest part, experienced 24% sales growth for the year, to $10.7 billion.
