Motorola dropped a bomb on Wall Street yesterday warning that sales and earnings in its second fiscal quarter will fall well shy of analysts estimates. Not only will Motorola report a loss in the quarter but it also plans to cut 15,000 jobs in the next 12 months.
Company officials said declining sales of its semiconductors to Asian manufacturers as well as pricing pressure in the chip market crippled sales in the quarter. Analysts expected Motorola to return a profit of 20 cents a share in the quarter.
Now, Motorola will initiate a series of manufacturing consolidations, cost reductions and restructuring steps to get back on its feet. Special charges, totalling approximately $1.95bn (£1.17bn) pre-tax, will be recorded in the second quarter.
"In the fourth quarter of last year our forecast for 1998 called for higher sales growth and improved profitability, but that has not materialised," said chief operating officer Robert Growney in a prepared release. "It is clearly time to accelerate the implementation of our renewal plan. We are determined to return our financial results to an acceptable level as soon as possible."
Motorola shares added 11/16 to 50 5/8 ahead of the earnings warning. Immediately after the earnings warning was issued, shares fell to 49 in after-hours trading.
"While we very much regret the impact this will have on certain of our employees, we must adjust our production capacity to the reality of current business conditions and reduce costs to improve overall financial performance," said chief executive Christopher Galvin. "We will do all of this while continuing to invest in our long-term growth opportunities, which are many.''
Analysts said Motorola has always been one of the technology companies with the highest exposure to Asia. Yesterday's announcement will undoubtedly resonate with investors today.
"Obviously, it's very negative," said Phillip Scheltewi, an analyst at Loomis, Seyles in the U.S. "The environment is not right for bottom fishing at this time. I'm sure a lot of people are going to take a look at Galvin's performance. We've known Motorola would be in trouble for some time now."
Last quarter, Motorola returned a profit of $180m (£110m), or 30 cents a share, on sales of $6.88bn (£4.22bn). In the second quarter of 1997, it made $268m (£164.4m), or 44 cents a share, on sales of $7.52bn (£4.6bn).
Twenty of the 34 institutional investment firms following the stock already had a "hold" rating on the stock.