Cell Phone Sector Slowdown Hurts Motorola, Qualcomm

Motorola Inc. and Qualcomm Inc. were hurt Friday on Wall Street because of deepening slumps in the cellular phone sector.

Motorola, which also depends on the computer chip businesses, warned Friday that a big drop-off in orders and sales may result in its first quarterly operating loss in 16 years.

It was the second earnings warning in six weeks by the high-tech giant, whose troubles with falling cell phone profit have been significantly worsened by the U.S. economic slowdown.

“We have fairly extreme volatility right now,” said Robert Growney, the company’s president and chief operating officer. “Some of the businesses are in kind of free fall.”

The world’s No. 2 cell phone maker behind Nokia Corp. and No. 5 in semiconductors, Motorola said its two core businesses are taking the biggest hits. A “significant weakness” in orders is translating to lower sales and, barring a quick turnaround, will produce its first operating loss since the third quarter of 1985.

The global semiconductor market, booming until last summer, may finish down for the year, Growney said, and demand for wireless devices--primarily cell phones--is softening significantly in the key European market.

Motorola’s stock fell $1.04, or 6%, to $16.25 Friday on the New York Stock Exchange, just above its two-year low of $15.81.

The Schaumburg, Ill.-based company blamed the falloff in orders on industrywide conditions rather than on a loss of market share.

On Jan. 11, after reporting a 41% drop in fourth-quarter profit, Motorola warned of a substantial decline in sales this quarter and said investors shouldn’t expect a recovery until at least the second half of 2001.

Separately, Qualcomm shares fell sharply Friday after the mobile-phone chip maker said new wireless services may be delayed in Europe, a large customer forecast declining sales and an analyst downgraded the stock.

The stock dropped $5.13 to $61.81 on Nasdaq. Qualcomm shares declined 53% last year after surging 27-fold in 1999.

Qualcomm developed the mobile-phone technology known as code division multiple access that is widely used by U.S. and South Korean companies. An estimated 71 million people use CDMA phones.

Qualcomm’s CEO Irwin Jacobs said the release of so-called third-generation mobile phone technology in Europe may be delayed two years. The technology probably won’t be commercially viable until late 2004 or early 2005, he said.

San Diego-based Qualcomm says it holds most of the intellectual copyright for the two main third-generation standards, which will let mobile phones get advanced features such as video.

Qualcomm officials have said the company will benefit from royalties no matter which standard is used: the Wideband CDMA developed by Ericsson and Nokia, or the cdma2000 developed by Qualcomm.

Jacobs’ comments appeared the same day Motorola, a major Qualcomm customer, said it may have a first-quarter loss if orders continue to slow.