Motorola Receives the Wake-Up Call
Looks like it’s back to the future for Motorola Inc.
After taking a painful drubbing the last two years, Motorola is resuming its role as a leading--and growing--provider of advanced mobile telephones, wireless networks, semiconductors, pagers and two-way radios. Certainly investors think so, judging by the surge in Motorola’s stock.
Shares of the Schaumburg, Ill.-based giant have jumped 60% since late October, reversing the steep decline they suffered between mid-1997 and mid-’98. Motorola closedWednesday at $83.13 a share, up 19 cents for the day, in composite trading on the New York Stock Exchange.
“They’re pretty far along the road toward recovery,” said analyst Mark McKechnie of NationsBanc Montgomery Securities in San Francisco. “I’m confident that over the next few quarters we’ll continue to see improvement.”
Motorola posted fourth-quarter 1998 earnings that were higher than Wall Street expected, and then reprised the feat Tuesday by announcing first-quarter 1999 earnings of 28 cents per diluted share, well above the 24 cents analysts had forecast.
The company’s chip business--the world’s third-largest behind leader Intel Corp. and Japan’s NEC--is rebounding sharply in tandem with the entire semiconductor field.
Motorola’s wireless-phone business and related infrastructure systems also appear back on track now that Motorola is catching up with rivals Nokia and Ericsson in the burgeoning market for leading-edge digital phones.
“They have definitely righted the ship regarding mobile phones, and we’re continuing to see their market share increase,” said Matt Hoffman, a senior analyst at the research firm Dataquest Inc.
Motorola, with annual sales of about $30 billion, also is seeing the payoff from a massive restructuring in 1998 that included slashing 24,000 jobs, or 16% of its global work force, and the sale of less-profitable semiconductor lines.
The result: Wall Street looks for Motorola to earn $1.93 a share this year, up from just 58 cents last year (excluding one-time items), according to a survey of analysts by Zacks Investment Research Inc.
All of which is sweet music to Motorola’s chief executive, Christopher Galvin, and its president, Robert Growney, who came under intense pressure last year when Motorola’s woes worsened.
Growney, in fact, told analysts Wednesday that their consensus forecast of Motorola’s earnings for the current quarter “is at the low end of the range of our possible performance,” which gave further support to Motorola’s shares.
“It’s remarkable what a rising stock price will do for management’s credibility,” said Eric Zimits, an analyst at the investment firm Hambrecht & Quist in San Francisco. “And I think every successful quarter will help the company regain more credibility.”
Motorola is certainly familiar with wrenching transformations abetted by rapidly changing technologies. Under Galvin’s grandfather, it began in the 1930s as a maker of car radios, then produced walkie-talkies during World War II. Motorola also once made color televisions before turning most of its attention to wireless communications and semiconductors under Galvin’s father, Robert Galvin.
To be sure, Motorola hasn’t regained all of its former glory, when it was revered as a model of innovation, growth and excellent management that also made its stock a Wall Street favorite. Between 1990 and 1996, for instance, Motorola’s stock nearly quadrupled in price, while the benchmark Standard & Poor’s 500 index nearly doubled.
Asia’s economic and currency woes continue to limit demand there for Motorola’s goods. Price cutting, slow growth and ferocious competition in segments of its pager and two-way radio business are also hurting results.
Pager sales “were significantly lower” in this year’s first quarter, the company said Tuesday.
Also, the Motorola-backed Iridium global satellite communications network, which aims to provide wireless phone service anywhere on Earth, has suffered glitches and slow sales since opening for business last year.
Growney said a decision on whether Motorola will plow more money into Iridium--the company already has invested more than $250 million and guaranteed Iridium bank loans totaling three times that much--has not yet been decided.
But in the red-hot market for wireless phones, Motorola is back in the race. The company, which had dominated the market for the older analog phones, fell behind its rivals in rolling out digital models but is now closing the gap. “They were definitely behind in digital cell-phone products,” McKechnie said. “They fixed a lot of the things that were broken.”
Still, Motorola’s slip carried a price. Although Motorola’s sales of wireless phones jumped 28% last year to 32.3 million units, that was well below the industry’s 51% surge and the smallest increase among the major players, Dataquest said.
The company’s market share, meanwhile, dropped to 19.8% last year from 23.5% in 1997, enabling Nokia to take over the lead with 22.9% of the market, according to Dataquest. Ericsson was third at 14.6%.
Now Motorola’s market share is climbing again, and the company--which was known in electronics circles for often being arrogant amid its prosperity--has definitely been humbled by its experience, analysts said.
“It’s hard to be arrogant when you miss the market so badly,” Dataquest analyst Hoffman said. “This change was good for them.”
* APPLE’S EARNINGS: Computer maker continues its healthy growth. C2
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Motorola’s Momentum
Motorola’s stock is surging again partly because the electronics giant, which had stumbled badly in the market for wireless phones, is rebounding with new digital products.
STOCK PRICE
Monthly closes and latest on the NYSE: Wednesday: $83.13, up 19 cents
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MARKET SHARE
Motorola’s worldwide market share for mobile phones: 19.8%
Sources: Bloomberg News, Dataquest
