The year is ending on a bleak note for Motorola Inc. after it cut its fourth-quarter sales and earnings expectations, causing its stock to hit a new 52-week low and sending a tremor throughout the market to other telecom and technology companies.
The No. 2 mobile-phone maker said its fourth-quarter sales will drop to $10 billion with per-share earnings of 15 cents opposed to its October estimates of $10.5 billion and per-share earnings of 27 cents per share. Motorola’s 52-week high was $61.50.
The company withdrew its earlier guidance because its operating profits fell short in the semi-conductor and Personal Communications areas. The shortfall was attributed to delays in meeting expected cost reductions in wireless phone production as well as lukewarm market atmosphere in the semiconductor business worldwide.
Nokia has overtaken Motorola in internal manufacturing and marketing, including in the cell-phone business.
Motorola’s predictions for 2001 are expected to be cautious as first-quarter sales estimates will be $8.8 billion, with a 12-cents earnings per share. The full-year expectations will be announced once it completes its normal planning process by mid-January, although analysts anticipate those estimates to be lower than last October’s, which was $44 billion in sales and earnings per share of $1.20.
This unflattering picture emerges in the context of Motorola’s efforts to expand the company’s horizon with innovations and partnerships, including outsourcing.
In line with its strategy to trim its business, Motorola Inc. has agreed to sell its manufacturing operations in Dublin, Ireland, and Mount Pleasant, Iowa, to Celestica Inc.
Motorola said it also will outsource the manufacturing of some cellular handsets, messaging devices, two-way radio products and accessories to the company. “Motorola must remain nimble in order to stay ahead of the marketplace and grow our position as a technology leader,” said Christopher G. Galvin, Motorola’s chairman and chief executive officer.
Celestica, a Toronto-based electronics manufacturing services company with worldwide reach, provides services including design, prototyping, assembly, testing, product assurance, supply chain management, worldwide distribution and after-sales service.
Earlier in the year, Motorola outsourced the manufacturing of some of its products, network equipment and set-top boxes to Flextronics International Ltd.
In spite of the setback, the company is still happy with its prospects.
“We continue to believe that tremendous long-term opportunity exists at three levels of the value chain-embedded chips, embedded electronic systems and end-to-end integrated communications solutions for wireless, broadband and Internet markets,” said Robert L. Growney, the company’s president and chief operating officer.
Standard and Poor’s response was ambivalent as it affirmed its A+ corporate credit and other ratings, while revising its outlook from stable to negative. It said Motorola’s product line shortfall, intense competition and economic weakness in many of its target markets have put pressure on its sales growth for several years.
The company’s 1999 operating margins were 14 percent, with a below-10 percent return on capital. With a below-30 percent of capital, its cash balances totaled $3 billion on Sept. 30, 2000.
Nokia, in spite of its premier status in the sector, was not immune to Motorola’s stock misfortune. Its shares dropped $1.06, or 3 percent, to $49.68 on the NYSE last Thursday.
The No. 3 handset manufacturer, Sweden’s Ericsson, fell 43 cents to $12.93, a 2.4 percent dip.
Despite the news, Motorola’s continued optimism was reflected in its description of the market as robust, and its forecast that cell phones will reach 420 million and leap to between 525 and 575 million next year.
