Rockwell Warns Earnings to Be Far Short of Forecasts
Feeling the bite of a price war in computer modems, Rockwell International Corp. said Wednesday that its fiscal second-quarter earnings will fall at least 25% below analysts’ expectations because of drooping sales.
The company said profits will be about 53 cents a share, or about $106 million. Wall Street analysts were expecting earnings in the range of 75 cents. A year ago, Rockwell reported a second-quarter profit of $189 million, or 71 cents a share, before extraordinary items.
Rockwell officials declined to comment beyond a news release.
The company, which has spent the last couple years shedding its aerospace past, has staked its future on making modem chip sets and other electronic products.
“All the PC suppliers are having trouble,” said Bruce Raabe, an analyst at Collins & Co. in Larkspur. “Modems are a commodity product.”
Indeed, Rockwell’s main competitor, 3Com Corp., said in December that its fiscal second-quarter profits fell 91% because of slower-than-expected modem sales. And on Wednesday, the Santa Clara-based company fired 380 workers from its modem plants in Chicago.
The industrywide troubles date back to nearly a year ago, when modem manufacturers began selling high-speed devices that weren’t compatible with each other.
Sales were slow because 56K modems that used 3Com’s technology would not work with modems incorporating Rockwell’s technology. Consumers, unsure which platform would survive, hesitated to buy either one.
In February, an international governing body drafted a technology standard that gained the support of both companies. Rockwell officials said at the time that once the new modem products were available, the public would begin buying them in earnest.
Instead, the opposite is happening.
“Sales growth of modem chip sets is slowing,” said Ernie Raper, an analyst at VisionQuest.
Yet it is steadily falling prices that has hurt Rockwell more than decreasing sales, Raper said. Prices for 56K chip sets from Rockwell and others fell to $99, from about $170 last year.
Rockwell said it expects to earn about $2.89 a share in fiscal 1998, the same amount it earned in 1997. Rockwell also said it will take a $10-million restructuring charge in its semiconductor systems division, which makes the chip sets.
The earnings warning was announced after the markets closed. Rockwell’s stock rose $1.13 a share, to $60.50, on the New York Stock Exchange. The company is scheduled to report final quarterly results April 20.
Bloomberg News contributed to this report.
