Motorola Profit Increases 16%, Reversing Decline
Motorola Inc.’s second-quarter profit rose 16%, topping expectations, as increased sales of mobile phones and semiconductors helped the company reverse four quarters of earnings declines.
Profit from operations rose to $378 million, or 62 cents a share, from $326 million, or 54 cents, in the year-earlier period. A charge of $110 million, or 18 cents, to quit the DRAM (dynamic random-access memory) chip business resulted in net income of $268 million, or 44 cents.
The results were a good sign for the volatile high-tech sector in advance of a series of key earnings reports expected during the next two weeks.
Motorola beat the average Wall Street estimate of 58 cents from 24 analysts surveyed by IBES International Inc. Its effort to turn around its ailing chip business apparently began to take hold, while sales growth in its cellular and land-mobile divisions picked up.
“Everything seems to be coming together for Motorola,” said Brian Eisenbarth, an analyst at Collins & Co. “It looks like they’re starting to come out of the woods.”
Revenue at the Schaumburg-based company climbed 10%, to $7.52 billion from $6.83 billion.
Motorola shares rose $2.13 to a record high of $82.50 before results were released.
“They are actually executing at this point,” said Marc Cabi, an analyst at Deutsche Morgan Grenfell Inc. “Order growth in cellular appears to indicate the second half will be even better.”
The company said it may take further charges in the second half, although it didn’t elaborate. Analysts said that exiting or cutting back operations at under-performing divisions, such as DRAM, would have a positive effect.
“It will mean a smaller Motorola but a more profitable and faster-growth-rate Motorola,” said Albert Lin, an analyst at SoundView Financial Group.
Motorola’s focus is likely to shift to its more profitable wireless phone equipment division from its computer-related products divisions, said Jeffrey Hines, an analyst at NatWest Securities Ltd.
“In areas where Motorola can’t be dominant, just about anything’s fair game for redeployment of assets,” he said. “They will continue to look at areas that just aren’t part of the core strategy.”
Motorola’s revenue increase includes a 22% jump in sales of land-mobile products to $1.2 billion. Sales in the cellular unit rose 6% to $2.8 billion.
Sales in its semiconductor segment rose 3% to $2 billion and orders increased 36%. Without the DRAM charge, operating profit in the chip division would have increased, Motorola said. The chip business was unprofitable in the second half of last year, analysts said.
Sales in land-mobile were boosted in part by higher revenue from Nextel Communications Inc. Motorola makes equipment for Nextel’s new digital network that provides wireless voice, data and radio dispatch services over a small phone.
“One of the big surprises on the upside was land-mobile. That’s a big positive,” Lin said. Land-mobile includes two-way radios and wireless phones that are used by Nextel.
Earlier Tuesday, Nextel outpaced expectations by saying it had added 201,500 customers to its digital wireless service in the second quarter, an increase of 64% from the first quarter. Analysts were expecting 150,000 to 180,000 new customers.
The wireless phone company said it now has about 624,400 customers on its new digital network.
NatWest estimates that 85% of Motorola’s profit in the first quarter came from its wireless business, compared with 59% in 1995, Hines said.
“Everyone was looking for a return to growth,” Hines said. “They did that, and they did it better than anyone expected.”
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