Despite Motorola Inc.’s initial $10.62 loss on Wall Street after posting a 16 percent plunge in fourth quarter earnings, its stock started to forge a quick recovery. But while Wall Street may be forgiving Motorola, there are significant signs that cellular phone manufacturing is only going to become more competitive.
Motorola’s fourth quarter earnings dropped 16 percent to $432 million, or 72 cents per share, a loss ascribed to declining cellular sales the company predicted. Fourth-quarter earnings for 1994 reached $515 million, or 86 cents per share.
Motorola released its report after the market closed Jan. 8. Wall Street responded and the stock opened the next day at $45.63, down $10.62 from $56.25. However, by last Thursday’s close, the stock had rebounded by about half to close at $50.13.
Following Motorola’s initial stock drop, analysts predicted stock price declines for related equipment manufacturers. But the effects were minimal. The day after Motorola’s announcement, Nokia Corp. closed at $34.50, down 50 cents, L.M. Ericsson dropped 6 cents to $18.25 and NEC Corp. fell 75 cents to $62.50.
Motorola expected profits in the fourth quarter would be adversely affected when compared with the same period of 1994, when the company benefited from a build-up of excess cellular phone inventories in its U.S. distribution channels, said Christopher Galvin, president and chief operating officer of Motorola.
Cellular phone orders declined in the fourth quarter, corresponding with moderate growth of the U.S. subscriber base and declining average cellular phone prices, the company noted. However, cellular phone orders internationally increased in the quarter.
“Continued pressure on average selling prices and costs associated with the introduction of new technologies have also had a negative impact on earnings,” Galvin said.
The company’s efforts to meet aggressive price competition aim to keep Motorola’s number-one spot in terms of market share, said George Grimsrud, manager of financial communications for Motorola.
Herschel Shosteck, president of Wheaton, Md.-based Herschel Shosteck Associates Ltd., pointed out Motorola’s end-user handset sales actually increased in fourth quarter, while profits reflect only distribution sales, affected by the 1994 surplus.
Cellular handset pricing has declined, said Shosteck, as companies like Nokia and NEC gain market share. “Nokia believes by year end 2000, there will only be two manufacturers of terminals in the world … They want to be one of them,” stated Shosteck. As such, Nokia has lowered prices and increased its market share. So Motorola in turn has dropped its prices to avert losing its market stronghold.
Shosteck predicts 1996 will be the first year the U.S. wireless market will grow less than 40 percent. But internationally, he expects the wireless market to grow 40 percent-compounded annually-through 2000. So despite jitters expressed on Wall Street concerning technology stocks, Shosteck sees promise in international markets for cellular equipment giants Motorola, Nokia and Ericsson.
Shosteck suggests Wall Street is overlooking the fact other telecom companies have experienced such ebbs in growth. Nokia and Ericsson experienced upsets several years ago, for example. Shosteck noted Motorola has sunk an enormous amount of money into development, including Code Division Multiple Access, WiLL, the company’s wireless local loop technology and fixed assets.
Motorola’s 1995 year-end earnings showed a 14 percent increase to $1.78 billion, equaling $2.93 per common share, compared with 1994 profits of $1.56 billion, or $2.65 per share. Per-share profit increased about 11 percent.
Fourth-quarter sales reached $7.3 billion, up 13 percent from $6.5 billion a year ago. For the year, sales totaled $27 billion, an increase of 22 percent from $22.2 billion in 1994.
Demand for cellular infrastructure also was strong in international markets said Motorola, pointing to two supply contracts in China, together valued at more than $268 million.
In the Messaging, Information and Media sector, which includes Motorola’s Paging Products Group, sales rose 23 percent to $3.7 billion and orders increased 36 percent. In the Land Mobile Products sector, sales rose 6 percent to $3.6 billion, orders increased 2 percent and operating profits were higher, reported Motorola.
Semiconductor sales rose 23 percent to $8.5 billion and orders increased 22 percent.
