Motorola Inc. mixed memory with some cheer in its first-quarter results last week as it reported its first loss in 16 years amid hopes of a rebound in the second half of this year.
The phone maker declared that the economy is in a recession reminiscent of the 1974-75 and 1984-85 cycles, a subtle hint that the bad times are here even if they may not hold the industry hostage for too long.
Without stirring any negative excitements in the stock market, the company recorded a loss of $533 million, or 24 cents per share, in contrast with earnings of $448 million, or 20 cents per share, for the same quarter a year ago.
The company said it expects a “gradual upturn in sales and profits in the second half of the year.”
Excluding one-time items, the company lost $206 million, or 9 cents per share, for the quarter. It reported sales of $7.8 billion in the first quarter, an 11-percent drop from last year’s $8.8 billion.
Orders for cell phones and pagers fell 10 percent. Cell-phone sales amounted to $2.3 billion, or a 29-percent drop, according to the report. It said new cell-phone orders dwindled to $2.8 billion, a 10-percent drop.
The company anticipates deeper losses of a few more cents in the second quarter.
Gloomy as the picture is, it was worse than analysts projected for the company.
In its semiconductor unit, it posted a 22-percent fall in sales to $1.5 billion, but it expects those figures to drop even further in the second quarter. It expects the picture to look up in the third and fourth quarters.
“The quarter was a difficult one. Order growth weakened across all of the company’s business segments,” remarked Robert L. Growney, Motorola’s president and chief operating officer.
“We believe this change in customer requirements is part of a major global pattern affecting many technology companies,” following a pattern of executives chalking up their companies sour fortunes to a larger economic slowdown.
Although the company’s shares have wallowed in negative territory for most of the year with layoffs and profit warnings, last week’s report did not inflict much damage, its stock enjoying some of the upticks of the Nasdaq community.
Motorola has grappled with its high-end cell phones as orders have fallen behind expectations. The company also has laid off 26,000 workers and promised to lay off more workers as part of its strategy to climb back to profitability.
But Motorola is not an island in issuing profit warnings, as others like Nokia Corp., L.M. Ericsson and Nortel Networks Corp. have hinted at the slide in the market, a foretaste of the first-quarter reports they are expected to unveil later this month. Analyst firm Wit SoundView, however, expects Nokia’s report to be less glum than the rest of the competition.
Motorola looks forward to next year when it expects cell-phone sales to be between 425 million and 475 million, albeit below earlier estimates of 550 million.
As a move to sharpen its focus on profit, the company is contemplating selling of some of its businesses. Growney said his company is evaluating selling off some of its units, which include personal communications, broadband communications, global telecom solutions, integrated electronic systems, and commercial, government and industrial systems.
Some market watchers think the auto-electronics IESS division may be the first to go, with the potential of raking in up to $6 billion. Observers believe the phone and semiconductor sectors will be immune from consideration. Other cell-phone makers have been plagued by the market downturn and have contemplated selling these divisions off, and smaller companies like Sagem and Phillips are contemplating doing away with them. Ericsson outsourced its handset unit to Flextronics earlier this year.
Motorola denied two weeks ago that it had liquidity problems. The company said it had a little more than $4 billion in cash at the end of the quarter, up from $3.3 billion on Dec. 31.
Robert Galvin, chairman of Motorola’s executive committee, said the company’s total short-term debt was $4.9 billion, with total domestic and non-domestic credit facilities of $3.9 billion.
Investment firm UBS Warburg does not see the sanguine picture that Motorola sees.
“While the balance sheet showed improvement in terms of inventory and receivables, the capital structure of the company continues to weaken,” wrote Jeffrey Schlessinger of UBS Warburg. “We do not believe that these results in conjunction with a cautious outlook will be sufficient to prevent the downgrade of the company’s commercial paper in the coming weeks.”
