NEW YORK-Despite its investments in the troubled Iridium L.L.C. satellite carrier, Motorola Inc., Schaumburg, Ill., reported strong third-quarter results Oct. 12 that reflected growth in its wireless handset business.
Including one-time charges, the company earned $91 million, or 14 cents per share, up from $27 million, or 4 cents per share, during the third quarter of 1998. These special items relate primarily to Motorola’s sale since early 1998 of several business units, the largest being its Semiconductor Component Group, a transaction completed in August.
Excluding special items, third-quarter earnings would have been $332 million, or 53 cents per share, up from $40 million, or 7 cents per share, in the same quarter of 1998.
“These strong improvements in our financial operating performance are a result of significant sales growth in digital wireless phones and a focused repositioning and restructuring of our semiconductor and digital communications businesses over the last year,” Robert L. Growney, Motorola’s president and chief operating officer, said.
Networking, computing, wireless communications and transportation drove semiconductor segment sales up 11 percent to $1.6 billion, orders up by 24 percent to $1.8 billion and operating profits to $60 million, compared with an operating loss of $184 million during the third quarter of 1998, the company said.
Christopher Galvin, chairman and chief executive officer, said Motorola anticipates earning $8.5 billion, or 80 cents per share, excluding special items, during the fourth quarter of this year.
So far, Motorola has written off-by setting aside cash reserves-about $1.8 billion of its $2.3 billion investment in Iridium, said Edward Gams, director of investor relations.
“If there is not significant progress toward financial restructuring of Iridium by the end of the year, Motorola anticipates taking a special charge to increase our reserves related to the (remaining) $510 million exposure,” he said.
Motorola’s preliminary agreement to serve as prime construction contractor for the Teledesic L.L.C. “Internet in the Sky” system is contingent on the results of a final technical review period, which has been extended to Nov. 1, the equipment vendor said in its earnings release.
Asked during a conference call how Teledesic can guard against the time-to-market advantage of terrestrial Global System for Mobile communications carriers, Galvin offered this response: “There is an enormous amount of bandwidth built into the Teledesic network. The Teledesic team is evaluating the business model, which appears to be viable at this time.”
Down on terra firma, Motorola’s wireless device business, which it calls the Personal Communications Segment, is picking up steam. Compared with the year-ago quarter, sales rose 37 percent to $3.1 billion, orders increased 67 percent to $4.3 billion and operating profits were $140 million, vs. a $55 million loss.
Digital phone sales comprised 89 percent of the mix, and overall sales rose in all regions, led by Asia, and followed by the Americas and Europe. The most rapid growth occurred in GSM phones in Europe and Code Division Multiple Access phones in Asia and the Americas, the company said.
Sales of Time Division Multiple Access handsets declined, “primarily due to the fact that Motorola’s first dual-mode, dual-band TDMA phones began shipping at the end of the third quarter,” Gams said.
Sales of integrated Digital Enhanced Network phones doubled over the year-ago quarter, he added.
The paging sector is the notable exception to the good news in Motorola’s wireless device sales “due to weakness in all regions, especially Asia,” the company said.
Gams also said Motorola is examining how to “deal with the full profitability of the paging business … (and has) begun to take strategic initiatives within [our] paging infrastructure business.”
The hopeful signs are that Motorola’s operating losses in this area are declining and that paging carriers are starting to stabilize prices, he added.
Overall infrastructure sales for Motorola’s Network Systems Segment declined 17 percent to $1.6 billion compared with the same quarter a year ago, while operating profits dropped to $186 million from $337 million. Orders increased slightly, by 1 percent, to $1.5 billion.
Much of the decline was related to operating losses in the company’s satellite communications business and expanded investment in research and development. Additionally, two big carrier customers in Japan, DDI Corp. and IDO, completed their initial CDMA network buildout last year, Galvin said.
GSM network contracts rose, primarily due to contracts in Germany, Kuwait and Oman.
In the local multipoint distribution services area, Gams said Spectrapoint Wireless, Motorola’s joint venture with Cisco Systems Inc., is engaged in pilot projects with several carriers, including, Australia Associated Press and Telegraph, American Wireless and Nextlink Communications Inc.
CNET, France Telecom’s research and development laboratory, completed successful mobile data trials with Motorola over a General Packet Radio Services network. RadioMobile of the Czech Republic contracted with Motorola for a GPRS system deployment.
In an era of carrier consolidation and converged services, Galvin also said Motorola is focusing its efforts on “providing end-to-end solutions to carriers that increasingly are offering broadband, wireless and traditional wireline.”
With that in mind, Motorola agreed in September on a plan to acquire General Instrument Corp., which provides integrated and interactive broadband access solutions to the cable TV industry.
