Rockwell’s 2nd-Quarter Profit Dips 42%
Rockwell International Corp., confirming that a computer modem price war has taken a toll on profits, reported a 42% decline in net income for its fiscal second quarter.
The electronics concern earned $109 million, or 53 cents a share, in the three months ended March 31, down from $189 million--including a one-time gain of $34 million from discontinued operations--or 85 cents a share a year earlier.
Its second-quarter sales totaled $1.94 billion, up 2% from $1.9 billion.
Last month, Rockwell warned that its second-quarter profit would be substantially below analysts’ expectations of about 75 cents a share. The announcement sent the company’s shares tumbling 10% in New York Stock Exchange trading to $54.44, and they’ve traded in that range ever since.
On Monday, Rockwell’s stock closed at $55 a share, down 56 cents.
The Costa Mesa company has been plagued by industrywide problems as it continues its transition from an aerospace contractor to a maker of semiconductors that go into computer modems, factory automation systems and avionics.
The modem semiconductor business has been beset by slowing sales as Rockwell and its rivals battled over industry platforms. Though a standard was set in February, deep price cuts continued to hurt profits.
Rockwell’s semiconductor unit lost $27 million in the second quarter, compared with a profit of $71 million a year earlier, while sales fell 15% to $315 million from $369 million.
The company’s automation unit, its largest, also registered lackluster results. Its earnings fell to $147 million from $149 million, as sales edged up to $1.13 billion from $1.11 billion.
“These results are disappointing and well below our targets,” said Don H. Davis, Rockwell’s chief executive.
But he said sales of the company’s wireless communications and digital “infotainment” products are increasing “as our continuing heavy investments in non-modem product lines enhance our market presence.”
The operating profit at Rockwell’s avionics and communications unit was $77 million, up 35% from $57 million in the fiscal second quarter of 1997. Sales rose 19% to $496 million from $416 million. That business has benefited from strong demand for commercial aircraft and the acquisition of an in-flight entertainment provider from Hughes Electronics Corp.
Davis believes that Rockwell’s semiconductor systems business should return to profitability in the second half of fiscal 1998 as increased sales more than offset continuing pressure on prices.
Full-year earnings are expected to be about the same as last year’s $2.89 a share, he said. However, reaching that level depends on improvement in the semiconductor business and in automation markets, developments that some analysts say are doubtful.
For the six months ended March 31, Rockwell reported a profit of $198 million, or 98 cents a share, down 46% from earnings of $368 million, or $1.69 a share, a year before. Sales were up 4%, to $3.92 billion from $3.75 billion.
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Sales Slump
Rockwell’s second-quarter net income fell 42% from a year ago, due to slowing sales and falling prices for comptuer modem semiconductors. Fiscal quarterly sales and net income:
Fiscal quarterly sales in millions
2nd quarter 1998: $1,941
Net income in millions
2nd quarter 1998: $109
Source: Bloomberg News
