Chip Companies Gear Up for Profit
Motorola Inc. said Wednesday that it expects a profit this year after losing nearly $4 billion last year, the latest sign that brisk spending on personal gadgetry may be stabilizing the battered tech sector and setting the stage for a modest recovery.
“We expect to be profitable in the third quarter 2002 and for the full year 2002,” Ed Breen, president and chief operating officer of the Schaumburg, Ill., company, said at a Bear, Stearns & Co. conference in New York.
The comments from the world’s second-largest cell phone manufacturer follow a steady stream of upbeat news by chip companies, including Fairchild Semiconductors Corp., National Semiconductor Corp., Applied Materials Inc. and Microchip Technology Inc.
A significant exception to the sunny forecasts, however, was Intel Corp.’s surprise warning last Thursday that the sales are likely to be lower than expected in the second quarter, from $6.2 billion to $6.5 billion, down from previous projections of $6.4 billion to $7 billion.
The conflicting data reflect Intel’s dependence on personal computer sales. About 60% of Intel’s revenue comes from desktop PCs, while 20% comes from server computers, according to Mark Edelstone, a semiconductor analyst with Morgan Stanley Dean Witter.
Although consumer electronic sales are strong, PC sales lag as companies wait to spend money until a broader economic recovery begins. Consumers also have held back spending on PCs, making do with their current machines.
“PCs are going to be late in responding to the recovery,” said Roger Kay, director of client computing at IDC in Framingham, Mass. Kay projects PC sales will inch up 4.7% this year with a return to double-digit growth in 2003.
“Intel’s a very large company, but 80% of its business is PC- and server-related,” said David Wu, vice president of research at Wedbush Morgan Securities. “The other guys have a very broad customer base beyond PCs.”
Chip companies that sell products in several sectors will do better in a mixed recovery, Wu said.
Motorola’s Breen said the company is seeing improvements in all their business segments. The company gets 53% of its revenue from selling cellular handsets and cell phone equipment, 15% from semiconductors, 14% from two-way radios, and the remainder from batteries, cable modems and television set-top boxes.
Breen said he expects Motorola to increase its global market share for cell phones to 18% in the second quarter from 17% in the first quarter amid a flat market.
Much of the bottom line improvement comes from an effort to reduce costs.
The company expects to have 100,000 employees worldwide by the end of this year, down from a peak of 150,000 in August 2000, said Scott Wyman, a company spokesman.
Motorola’s expected profit will not include one-time costs related to job cuts and other charges, which could bring the company’s overall bottom line into the red.
Still, Breen’s comments buoyed Wall Street, which pushed Motorola’s stock up 8.7%, or $1.25, to $15.66 on the New York Stock Exchange.
Shares in Fairchild Semiconductor, which sees a stronger-than-expected 3% to 5% increase in sales from new orders, increased 65 cents, or 2.7%, to $25.20. Intel shares gained $1.36, or 6.7%, to $21.58, both on the NYSE.
