Motorola fell short of analysts' reduced estimates in its first quarter Tuesday and posted its first operating loss in more than 15 years.
In the quarter, it posted a loss of $206m (£144m), or 9 cents a share, on sales of $7.8bn.
The maker of semiconductors and wireless telephone handsets twice lowered sales and earnings estimates in the quarter, but still was unable to hit the revised targets. First Call consensus pegged the semiconductor and wireless telephone handset maker for a loss of only 7 cents a share on sales of $7.96bn. Motorola shares closed up $1.50 to $13 ahead of the earnings report before falling to $12.04 in after-hours trading. The $7.8bn in sales represents an 11 percent decline from the year-ago quarter when it earned $481 million, or 21 cents a share, on sales of $8.8bn. Analysts originally pegged company for a profit of 12 cents a share.
"Although cash flow from businesses, including net proceeds from investments, was positive in the first quarter, this quarter was a difficult one," said chief operating officer Robert Growney in a statement. "Order growth weakened across all of the company's business segments. We believe this change in customer requirements is part of a major global pattern affecting many technology companies."
Motorola executives will provide more details on their first-quarter results and outlook during a conference call Wednesday morning. On Friday, Motorola shares plunged 23 percent on concern's about the company's ability to raise cash due to its heavy short-term debt load and credit-rating reviews under way by both Moody's and Standard & Poor's.
Motorola executives were quick to refute the rumours, calling any inference of a liquidity problem "erroneous." Motorola countered in its earnings release and added that it has "expanded financing relationships" and "undertaken aggressive cost-cutting measures" to offset any balance sheet worries. Indeed, Motorola ended the quarter with a little more than $4bn in cash, up from $3.3bn on Dec. 31.
Merrill Lynch analyst Michael Ching noted the company improved its cash position, but it wasn't through operations. Indeed, Motorola's said "cash flow from businesses, including net proceeds from investments, was positive in the first quarter." So far this year, Motorola has announced plans to lay off roughly 14,000 employees across all its business units in effort to cut costs and streamline its operating efficiency.
Before the earnings report, UBS Warburg analyst Jeffrey Schlesinger predicted Motorola would lose only 8 cents a share on sales of $7.95bn. He added that further layoffs and asset sales would likely be announced in future quarters. "Frankly, we expect to see more corporate downsizing in the near future, which we would view as a positive in light of industry and company fundamentals," he wrote in a research report.
Paul Sagawa, an analyst at Bernstein, pegged Motorola for a loss of 8 cents a share on sales of $7.8bn. "We see little chance of upside surprise as the company continues to struggle amidst an environment of sagging consumer spending and a dramatic reduction in carrier spending," he said ahead of the earnings report. "We foresee no near-term danger of insolvency, however we have little faith that management is making sufficient progress in dealing with key issues across the business segments."
Viewed as something of a bellwether for the technology industry because of its early reporting date, Motorola's performance in the first quarter shows just how dramatic the decline in information technology spending was during the first three months of 2001.
- Motorola's semiconductor sales fell 22 percent from the year-ago quarter to $1.5 billion. This unit absorbed an operating loss of $131 million in the quarter, a dramatic decline from a profit of $128 million in the first quarter of 2000.
- Personal communications sales dropped 29 percent from the year-ago quarter to $2.3 billion, resulting in a loss of $402 million. In the year-ago period, this unit posted a $53 million profit.
- Global telecommunications equipment sales fell 5 percent to $1.7 billion from the year-ago quarter. Operating income from this segment slumped to $54 million from $281 million.
- Commercial, government and industrial systems sales were a bit better as sales improved 5 percent to $1.1 billion. This group checked in with a profit of $56 million, down from $96 million in the same period last year.
- Broadband communications sales shot up 21 percent to $818 million and profits jumped to $130 million from $99 million in the year-ago quarter.
Motorola executives said orders were down "very significantly" in the Americas and Europe, down "significantly" in Asia-Pacific region and up "slightly" in Japan.
Among major markets, orders were down "very significantly" in wireless, standard embedded solutions and networking/computing, down "significantly" in imaging/entertainment and slightly lower for transportation.
Through Friday, Motorola said it had more than $4.5bn in cash and cash equivalents. Outstanding commercial paper had been reduced to $3.1bn helped by the sale of assets and a term loan.
Looking ahead, chief executive officer Christopher Galvin could offer only a vague outlook in the prepared release. "We see a continuing downturn in the US economy beginning to spill over to the rest of the world," he said in the release. "The high-tech sector, which has been hard hit, is already in a recession. These issues, plus interest rate policy or energy prices, cannot be controlled by Motorola."
Company executives are expected to provide more detailed information during Wednesday's conference call. First Call consensus expects Motorola to earn 14 cents a share in the fiscal year on sales of $36.4bn. Last quarter, Motorola met analysts' reduced estimates when it posted a profit of $355m, or 15 cents a share, on sales of $10.1bn. Its shares rallied up to a 52-week high of $52.65 last April before falling to a low of $10.50 last week.
Fifteen of the 25 analysts tracking the stock rate it either a "hold" or a "sell."
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