Motorola Reports Sharp Drop in Quarterly Profit
Fueling fears of a continuing slowdown in the high-tech sector, Motorola Inc. on Tuesday said earnings fell 32% for the second quarter on weak chip and cellular telephone sales--a performance far worse than analysts had expected.
The Schaumburg, Ill.-based company said net income fell to $326 million, or 54 cents a share, from $481 million, or 79 cents, in the year-ago period. Sales fell to $6.83 billion from $6.88 billion a year ago.
Motorola’s bad news was counteracted somewhat by a stronger-than-expected semiconductor book-to-bill report. The widely watched barometer--which measures the level of orders, or bookings, to actual shipments, or billings, and thus indicates whether the industry is headed up or down--came in at 0.91 for June, up from a revised 0.83 in May.
While most analysts had expected a more modest improvement, few were celebrating Tuesday.
“This is not a huge surprise,” said analyst Vadim Zlotnikov of Sanford Bernstein, who noted that even though the ratio rose, the underlying numbers still indicate slackening demand. “It’s driven by weakening sales rather than an increase in orders.”
New orders last month rose to $3.11 billion from $3.09 billion in May. The June orders were down 28% from $4.31 billion in the year-ago month.
Motorola had been expected to report per-share earnings of 69 cents, according to the average estimate of 21 analysts surveyed by IBES International Inc. The lowest estimate was 60 cents--and the actual figure was 54 cents.
The results were announced after the markets had closed. Motorola shares, which had jumped in recent days on predictions by some analysts that the earnings numbers would be strong, fell $1.25 to $66.50 on the New York Stock Exchange in regular trading, then plunged to about $60.50 in after-hours trading.
“There is very little silver lining to this broad-based weak performance,” said analyst Scott Wright of Argus Research. “It looks like the semiconductor business just fell off all over the place.”
In addition, the pressure on cellular phone prices isn’t expected to subside, and Wright said Motorola has said it will continue to be aggressive in competing for customers. That means the next few quarters won’t be as good as expected.
“There are certainly cautionary notes,” said Wright, who expects to lower his estimates for the third and fourth quarters.
“Second-quarter results reflect a continuation of the conditions we noted in the previous two quarters,” said Christopher Galvin, president and chief executive.
Galvin said the problems included pricing pressures and weakening demand in semiconductors, coupled with start-up costs and depreciation from adding new capacity.
Many computer chip makers have been hurting of late as weakening demand--especially in the critical personal computer arena--hit at the same time that more manufacturing capacity was coming on line. Prices have plummeted, and there’s no sign yet that demand is turning up again.
Some analysts saw the book-to-bill report as an indication that the worst is over. “I think the order turning point has already occurred,” said PaineWebber analyst John Lazlo.
But others disagree.
“The worst is still before us,” said SoundView Financial analyst Rick Whittington. He slashed earnings estimates on several chip and chip-equipment companies, including LSI Logic Corp., Texas Instruments and Applied Materials Inc.
