Motorola Cuts Its 4th-Quarter, 2000 Estimates, Surprising Analysts
Shares of Motorola Inc. slumped 19% on Wednesday after the company cut earnings estimates for the fourth quarter and full year, citing the weak euro, higher taxes and slower projected global growth in the mobile phone market.
In a conference call a day after reporting higher third-quarter earnings that met estimates, Motorola executives surprised analysts with its downgrade of expectations, particularly in the mobile phone unit.
Motorola stock closed off $4.81, or 18%, at $21.44, the second biggest percentage loser on the New York Stock Exchange. Earlier in the day, Motorola’s shares reached a nearly two-year low at $20.50.
The company’s lower outlook also sparked fears that the mobile phone industry as a whole was slowing down. American depositary receipts of Finnish rival Nokia, the world’s largest mobile phone maker, fell $2.13 to close at $32.88 on the NYSE.
Swedish phone maker Ericsson’s ADRs closed off 6 cents at $14.06 on Nasdaq.
Analysts pointed out that most of Motorola’s problems were specific to the company, but they expressed concern about its lowered forecast for worldwide industry cell phone unit sales.
“Three [of the reasons for the warning] are Motorola-specific and no relation to Nokia and Ericsson, but the reduction [in the] handset market could be relevant,” said Handelsbanken tech analyst Gunnar Andersson in Stockholm.
Late Tuesday, Motorola said its third-quarter operating earnings rose 66% to $598 million, or 26 cents a share. Revenue rose 17% to $9.5 billion, lower than the $10 billion expected because of weaker mobile phone sales, but analysts said the results generally were on target.
“The stock and the market’s reaction is worse than what’s really going on,” said Ed Snyder, telecommunications analyst with Chase H&Q.; “The quarter in operation performance was soft but not a debacle and not a disaster.”
Motorola said it expects fourth-quarter earnings of 27 cents a share, below analysts’ estimate of 37 cents according to First Call/Thomson Financial. It expects revenue of $10.5 billion for the quarter.
Although it had expected handset profit margins to reach 10% by the end of 2000, Motorola told analysts it now expects margins of 6.5%. The company reported a handset margin of 6% in the third quarter.
Analysts said they were particularly surprised by the sharp fall in handset margin outlook, noting that the effect of the euro does not completely account for the difference.
Motorola revised its full-year 2000 earnings estimate downward to 96 cents a share from its previous estimate of $1.05. It expects revenue of $38 billion, down from its previous estimate of $39.5 billion.
Motorola told analysts that consumers were adopting Internet-enabled phones at a slower rate than expected and some markets, such as Europe and Asia, were reaching high penetration rates.
Motorola said mobile service operators in some markets were also shifting their focus from market-share growth to short-term profit growth, offering fewer price incentives for the phones.
Motorola said the slower-than-expected growth of handset unit sales would affect sales of semiconductors, which are now expected to drop slightly in the fourth quarter compared with the third quarter. Motorola said the expected decline would prevent the segment from reaching a 10% operating margin in the fourth quarter.
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Market Hangs Up on Motorola
Wireless communications leader Motorola cut its fourth-quarter earnings estimate Wednesday, sending its stock downward.
Weekly closes and latest for Motorola on the NYSE
Wednesday: $21.44, down $4.81
Source: Bridge News
