Profit caution sinks Motorola shares
Lower margins on wireless phones cited
By Janet Haney & Jeffry Bartash,
Last Update: 10:09 AM ET Apr 11, 2000 Silicon Stocks
SCHAUMBURG, Ill. (CBS.MW) -- Shares of Motorola retreated by 17 percent Tuesday after the high-tech giant warned that its wireless phone business is likely to face pressure on profit margins for the rest of the year.
Motorola (MOT: news, msgs) shares dropped 25, or 17 percent, to 126 in recent action, with 6.2 million shares changing hands. Its shares closed at 151 on Monday.
Motorola said a shift away from more expensive wireless phones to cheaper models, along with shortages of key components, reduced margins in its personal communications business.
Shares of Motorola over the past year
As a result, the company said it expects to earn 67 cents in the second quarter and $3.14 for the year, down from the 70-cent and $3.18 consensus estimates of analysts surveyed by First Call.
The subdued outlook for the key wireless phone business drew the most attention from Wall Street analysts during a conference call Tuesday morning. That overshadowed projections by Motorola executives of sharply higher shipments of cable set-top boxes and high-speed cable modems, two other fast-growing business segments.
By the numbers
After the close Monday, Motorola reported first-quarter earnings of $449 million, or 59 cents a share, excluding special items. Analysts surveyed by First Call projected the high-tech giant would earn 58 cents for the quarter. Sales jumped 19 percent.
Motorola earned $184 million, or 26 cents a share, in the year-ago quarter. In the fourth quarter, the company earned 82 cents a share. See full story.
In its first quarter of 2000, Motorola said it incurred special items resulting in a pre-tax charge of $2 million, which was comprised of $100 million in costs related to the merger and absorption of General Instrument. See press release
Today on CBS MarketWatch
Nasdaq drops in early trade
Motorola profit gives caution
Renegade: Updates from NAB in Las Vegas
Biogen misses quarterly estimates
Yahoo Japan, Softbank, JTB to sell e-travel
More top stories...
CBS MarketWatch Columns
04/11/2000 9:54:44 AM ET
Sales for the first quarter totaled $8.8 billion, up from the prior year's first-quarter revenue of $7.3 billion in revenue. Including sales from businesses sold in 1999, Motorola said its sales grew 13 percent from $7.7 billion a year earlier. The company's 1999 results were restated to reflect a merger with General Instrument, which closed on Jan. 5.
Shares of the stock are set to split 3-for-1, with a pay date of June 1, for shareholders as of May 19.
Breakin' it down
In its personal communications segment, which includes pagers, digital and cellular phones, Motorola's sales rose 24 percent from the year-ago first quarter to $3.2 billion and orders vaulted 20 percent higher to $3.2 billion. Yet operating profits dropped to $49 million vs. $83 million a year ago, as a result of a shift by purchasers toward low-tier products. Shortages of key wireless phone parts also hurt profits.
While the parts shortage should lessen significantly in the second quarter, wireless phone buyers are likely to continue to favor more basic wireless phones, said Merle Gilmore, president of Motorola's Communications Enterprise segment. In particular, consumers have been buying lots of prepaid packages that offer phones and a set number of minutes for a special price.
"There are some remaining challenges in this business," Gilmore told analysts.
The shift toward lower-end phones raises questions about Motorola's timing on the on the production of more devices capable of browsing the Internet. The market for such phones is expected to be huge, but it's unclear when it will begin to take off.
The weakness in wireless phone margins overshadowed strength in the company's broadband communications unit. Sales increased 15 percent to $678 million, while orders climbed 46 percent to $880 million.
Because of strong consumer demand for advanced cable services, Motorola plans to boost production and shipments of interactive settop boxes. In 2000, the company now plans to ship 5 million units, up from previous estimates of 4 million to 4.5 million, said Ed Breen, president of the broadband communications sector.
The company also raised its estimate of high-speed cable modem shipments to 2.5 million to 3 million.
Sales were also strong in the company's network systems segment, which grew by 11 percent vs. the year-earlier period to $1.8 billion. Orders also totaled $1.8 billion. Orders slipped in Asia, while sales rose in that continent.
"The real upside surprise was here in the network systems segment, which was about 20 percent better than we expected," Pete Peterson, an analyst at Prudential Volpe Technology, said following the release of the results.
Chip segment sales spiked 24 percent to $1.9 billion, while orders reached $2 billion.