Motorola Inc. and Nokia Corp. revealed early last week that their second-quarter report cards would be less than stellar. Add Texas Instruments to the list.
All three companies offered common excuses-a soft economy and the SARS epidemic. Their lowered forecasts underlined the importance of China as a piece of the industry rebound.
Motorola Inc., however, adds excess inventories and a May earthquake in Japan to its quarterly troubles. The Schaumburg, Ill.-based company insists it will break even.
“Handset product transition issues at Motorola are likely exacerbating its problem in the China market and this could continue until new product ramps in the second half of 3Q ’03,” wrote Jeffrey Schlesinger of UBS Warburg in a research note, saying it is not a surprise “given the exposure of the company’s handset business to China, the negative effects of SARS in the region on handset demand and excess handset inventory developing in that market.”
Sales for the quarter will be in the range of $6 billion to $6.2 billion in contrast with the previously anticipated $6.4 billion to $6.6 billion range.
SARS has frustrated the U.S.-based phone maker, which has staked its rebound on the Chinese market. Part of the challenge is to hold off the resurgence of local rivals, including Capitel, ZTE, Eastern Communications and Huawei, from eating into its market share.
Motorola already has lost market share during the past year. It recently cut its yearly handset sales estimate to $11.2 billion from $11.7 billion for the Chinese market.
The SARS outbreak led to the temporary closure of some operations around Beijing, highlighting the blight of the disease on Motorola’s business. Investment-banking firm RCB Capital Markets said the epidemic may lap up $500 million from the company’s revenues for the year.
“We believe Motorola recently scaled back its production of low-end phones for the China market due to SARS, exacerbating excess handset inventory levels,” commented RCB.
Motorola also noted that it will spend money for repair and cleanup of a Japan-based semiconductor plant in the aftermath of the May earthquake.
Investors have expressed impatience with the company, which has not lived up to expectations, and some have even called for a leadership change, a call that threatens the reign of Chief Executive Officer Christopher Galvin.
Nokia Corp. has shown it is not immune to the multiple problems of SARS, the weak dollar and a soft market as it projected its handset sales for the second quarter will fall either below or at the low end of expectations. The upside, though, is that the much-besieged infrastructure market provided a rise in fortunes for the Finnish company.
“In mobile phones, second-quarter sales growth is expected to be positive, but at the low end or below the guided range of 4 percent to 12 percent year on year, with sales growth slightly less for the Nokia Group,” said the company, although the sales surpassed the first quarter.
“Sales reflect continued economic weakness in Europe and the U.S. and the impact of SARS on consumer behavior, especially in China,” said Nokia.
The company said it will break even in its infrastructure division, excluding the projected restructuring charge of between $408.8 million and $467.2 million. But this does not detract from the essential weakness of the sector.
“Second-quarter sales at Nokia Networks are estimated to decrease by 0 to 5 percent year on year, as operators in all major regions continue to decrease their investments,” said the vendor.
Analysts have said that Nokia will be hurt by the weakness of the dollar, especially in the Chinese market, because all its contracts are based on euros.
“Nokia did not explain why the quarter was so much better than expected, but it did say that they have not seen anything in the end-market that would lead them to change their guidance for a 15-percent decline in the mobile infrastructure market this year,” wrote Schlesinger in another note.
Nokia’s infrastructure news helped the stock fortunes of competitors Alcatel Corp. and L.M. Ericsson as their share prices jumped early the day of the announcement. Nokia is the world’s leader in handset sales, while Ericsson still takes the lead in the gear market.
Chip maker TI reduced its second-quarter sales forecast to a 5-percent rise instead of a 7-percent increase, with a total restructuring charge of $55 million instead of $40 million. The chip maker now projects sales of $2.19 million in the quarter with earnings per share of 6 cents.
TI has cut 250 jobs in its Japanese operations. The company’s announcement also cites SARS as one of the quarter’s drawbacks.
“As we noted in our April conference call, some inventory of wireless semiconductors was built in Asian markets, particularly China, toward the end of the first quarter,” commented Tom Engibous, TI’s chairman, president and chief executive officer. “That inventory, which would have been successfully worked through under normal conditions, instead stalled as demand has weakened in those markets.”
