Two major equipment vendors, one in the United States and the other in Europe, continued to walk on clay feet last week.
Motorola Inc. announced a second-quarter loss while Marconi plc’s stock fell, triggering speculations of a takeover, lawsuits from investors and anger among unions.
However, Motorola snagged a six-year contract to supply equipment and services to upgrade and expand Sprint PCS’ wireless network.
In its second-quarter report, Motorola said it posted a net loss of $759 million, or 35 cents a share, in contrast to earnings of $204 million, or 9 cents a share, for the same period a year ago. The vendor said it lost $232 million, or 11 cents a share, excluding acquisition expenses and other one-time items. At the same time last year, its operating earnings were $551 million, or 25 cents a share.
Its revenue slumped 19 percent to $7.5 billion from $9.3 billion, with cell-phone sales dropping 25 percent to $2.5 billion and semiconductor sales falling 38 percent to $1.3 billion.
Although the company’s fortunes sagged because of the poor sales of wireless phones and chips, Motorola expects a better outlook in the next quarter. It said it sees sales increasing gradually by about 5 percent to about $7.9 billion.
The company’s results this year are the worst in 15 years and its first operating loss in that timeframe. In the first quarter this year, it recorded a loss of $533 million.
Motorola’s miscues began in 1996 when it was too slow to roll out digital phones while its competitors were ahead of the market. The company last year reversed the situation by churning out high-end phones ahead of the market, leading to high inventory levels and diminishing orders.
“The actions we have taken to improve the performance of the wireless telephone segment of our business are beginning to show positive results with new products and orders,” said Robert Growney, president and chief operating officer of Motorola.
The company, which employs 147,000 workers, has cut 26,000 workers since 1998. In spite of the optimism, analysts said the company lost more in the second quarter than in the first, and they are wary of the optimism in the near future. Compared to Nokia Corp., its market share of the handset market dropped with 14 percent from 33 percent, while Nokia soared from 22 percent to 35 percent.
“Despite the economy, our new products are again capturing the imagination of service providers and consumers,” said Christopher Galvin, Motorola’s chairman and chief executive.
The company’s deal with Sprint PCS is valued at $200 million in the next two years. Under the deal, Sprint will buy Motorola’s base station hardware and software, smart-antenna technology, new vocoders and CDMA 1x enhancements to support 3G services.
The system is expected to ensure higher speeds, which will enable consumers to download music and data to portable wireless devices such as phones, laptops and personal digital assistants directly from the Internet.
Marconi update
Marconi stood as the Teflon of the European equipment space until a couple of weeks ago when it cut in half its profit forecast for this year and cut 4,000 jobs. This took investors by storm and sent its stock into a sudden plummet. Chief Executive George Simpson acknowledged that his company was vulnerable for a takeover, although he said “there are no talks with competitors at the present time.” He noted that with the company’s share price now low, “I know we are vulnerable.”
Industry speculations hint that Alcatel, Cisco Systems Inc., Nortel Networks and Lucent Technologies Inc. may be eyeing the company.
In addition, two U.S. class-action law firms filed lawsuits on behalf of Marconi’s investors in the District Court for the Western District of Pennsylvania for “materially false and misleading” statements about the company’s growth prospects. Marconi also is facing trouble with its unions. “Our members are angry that their jobs have been put in jeopardy by a failed management strategy,” said Roger Lyons, general secretary of the Manufacturing Science Finance union.
