Rockwell Shares Fall 10% After Warning
Rockwell International Corp. shares fell 10% in heavy trading Thursday, a day after the semiconductor manufacturer warned that price cuts will result in disappointing fiscal second-quarter earnings.
Shares of the former defense and aerospace company fell $6.06 to $54.44 on volume of 4.6 million traded, more than seven times the three-month daily average volume. Earlier, the shares tumbled to $53.50, a seven-week low.
Rockwell’s move from aerospace to making modem semiconductors has been tougher than expected, as a squabble with 3Com Corp. about a technology standard delayed new products and price cuts escalated on existing ones. Rockwell shares dropped about 10% in the past year as investors questioned whether the maker of the space shuttle can compete in the computer business.
“The longer the stock price lags, the more pressure there is on management to do something,” said Patrick Dunkerley, an analyst at Securities Corp. of Iowa in Cedar Rapids.
Rockwell has a history of shedding businesses that don’t produce profit growth. It’s possible it could sell the semiconductor unit if the situation doesn’t improve, said Dunkerley, who rates Rockwell shares a “buy.”
Rockwell, based in Costa Mesa, said it is committed to each of its units--semiconductors, factory automation and avionics. Semiconductors accounted for about 20% of the company’s $7.76 billion in sales in fiscal 1997.
The modem business was a promising one when Rockwell entered the field, as droves of computer users hooked up to the Internet and online services.
Since then, sales have slowed as consumers awaited a standard to send and receive information at faster speeds. That forced Rockwell, 3Com and others to cut prices, leading to lower profit at Rockwell for the past two quarters.
Rockwell, 3Com and others agreed on a standard in February, reconciling Rockwell’s K56Flex technology and 3Com’s x2.
Rockwell expects to earn about 53 cents a share for the quarter ending this month, while analysts were looking for 75 cents. A year ago, the company earned $189 million, or 71 cents.
Though the standard is set, Rockwell said it expects no growth in earnings this fiscal year ending September, in part because prices for its newer modems are falling as well in the face of intense competition from rival 3Com.
Prices for 56K chip sets from Rockwell and others dropped to as little as $99 last year from about $170, according to market researcher VisionQuest in Moorpark.
Demand for modems is slowing as well, hurt by a slump in the PC market. Worldwide shipments of the modem chip sets that Rockwell makes rose to 68 million in 1997 from 59 million in 1996, a 16% growth rate, according to VisionQuest. That’s down from 44% in 1996.
