RealTime IT News

Motorola Curbs Estimates, Sells Cellular Outfits

In a testament to crawling semiconductor sales, Motorola Inc. Thursday said it will not achieve its earlier guidance for sales and earnings in the fourth quarter of 2000.

Overall, operating profits will not meet earlier estimates in the semiconductor and personal communications, or cell phone, segments. The firm said it overshot the demand for semiconductors. Motorola had also anticipated benefiting from cost cuts in wireless cell phones, but this never happened.

Now the company pegs sales for the fourth quarter of 2000 to be $10 billion with earnings per share put at 15 cents, both down from the October numbers of $10.5 billion and earnings per share of 27 cents.

In addition to its estimated financial shortcomings Motorola said it plans to outsource its cell phone production, effectively cleaving 2,870 workers from its payroll.

The company reported Wednesday that Toronto-based Celestica Inc. will take over its factories in Dublin, Ireland and Mount Pleasant, Iowa, hiring about 1,200 of the Motorola employees displaced by the shift. About 350 more of the lost jobs will be absorbed by Motorola at other facilities.

Some 1,400 Motorola jobs in Dublin will be eliminated in the move, and Celestica will offer new jobs to about 650 people there. In Iowa, Motorola will trim 670 jobs and Celestica will offer 550 jobs to those employees.

But don't misinterpret this as a mad dash to stem the cell phone tide, which has been great to the company: Motorola is not doing away with cell phone production, but said it would not rule out future outsourcing deals.

Motorola said Thursday it continues to expect robust growth in the global wireless telephone market, with unit sales in the range of $525 to $575 million in 2001, up from an estimated 420 million units this year, and expects to fully participate in that growth. Despite Nokia's industry-leading 35 percent of the mobile phone sales, Motorola can stand to profit well.

"Even though it is necessary to reduce our expectations for sales and earnings in the short term, 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 communication solutions -- for wireless, broadband and Internet markets," said Robert L. Growney, president and chief operating officer.

However people choose to look at them, Motorola is an attractive buy, according to Individual Investor.com's Will Frankenhoff. He said that despite failing to regain market share from Nokia Corp. and lowering guidance on handset margins from 10 percent to 6.4 percent, the valuation disparity between Motorola (trading at $16.63 in Thursday morning) and rivals Nokia ($50 per share) and Ericsson ($13 per share) is unreasonable.

Frankehoff said Motorola should appeal to long-term investors, especially if Motorla reports more consistent results.