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Motorola stumbles
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July 7, 1998: 8:32 p.m. ET
Communications giant plans further restructuring moves in coming days
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NEW YORK (CNNfn) - Motorola Inc. reported a sharp decline in second quarter operating profits Tuesday, reflecting weakness in the semiconductor market and slumping analog cellular phone sales.
Motorola, which is in the midst of a companywide reorganization, reported a second-quarter operating profit of $6 million or a penny a share, a 98 percent drop from the year ago quarter.
However, the results were slightly better than Wall Street's expectations of an operating loss of 4 cents a share. Last month, Motorola warned it could post an operating loss for the quarter due to pricing pressures in the semiconductor business. The company also said it plans to cut 15,000 jobs, or 10 percent of its work force.
Including a one-time charge of $1.98 billion, Motorola posted a net loss of $1.3 billion, or $2.22 a share for the quarter. That compares with a profit of $268 million, or 44 cents a share, in the year ago quarter when Motorola booked a $190 million charge to phase out of the dynamic random access memory (DRAM) business.
Revenues for the three months ended June 27 fell 7 percent to $7 billion.
In a statement, the Schaumburg, Ill.-based communications giant said Asia is likely to continue to hurt Motorola's bottom line for the remainder of the year. The company also indicated it plans to unveil further actions to reorganize its corporate management structure on a market-oriented focus rather than its current product-oriented discipline.
"In the next few days, we will announce a more collaborative and market-focused communications enterprise that links together all of Motorola's communications businesses," said Chief Executive Christopher B. Galvin, who was brought in to revive the ailing company in November 1996.
After gaining 1-7/16 to 55 in composite trading on Tuesday, the stock (MOT) climbed to 56-1/8 during the after-hours session.
Tribe at war?
Motorola's restructuring actions come as its share of the cellular phone market continues to slip in the face of competition from European manufacturers such as Nokia and Ericsson.
Even worse, Motorola's business lines such as paging and two-way radio have repeatedly locked horns in the past creating a so-called "warring tribes" mentality within the corporate walls.
"The 'warring tribes' mentality isn't working for them," said Mark McKechnie, analyst at NationsBanc Montgomery Securities.
"It's clearly that now is the time (to regroup) given that things are so bad. Now is the time to go about reorganizing in a way Galvin thinks is best," McKechnie said.
In its earnings statement, Galvin said the restructuring will realign its individual businesses in order for them to "more efficiently direct Motorola's diverse core competencies toward winning solutions, as the convergence of wireless technologies continues."
Motorola said cellular product sales for the quarter fell 1 percent to $2.78 billion and orders were down 11 percent. In the paging and other messaging information segment, sales fell 32 percent to $771 million, while orders tumbled 35 percent.
On June 4, Motorola unveiled a restructuring aimed at the semiconductor portion of its business. The actions were designed to generate more than $750 million in annual savings.
Asia may continue to hurt bottom line
Even without the one-time items, Motorola's results still represented a dramatic decline compared with the 1997 second quarter when operating profits amounted to $392 million, or 64 cents a share.
The company attributed the weakness primarily to the generally poor business conditions in the chip industry and the recessionary conditions troubling Asia.
"The currency-related impact on pricing and consumer confidence continues to affect the Asian region and Motorola ... the negative impact on our business is likely to continue for at least the remainder of the year," Galvin said.
For the first half of the year, the company reported a net loss of $1.15 billion, or $1.92 a diluted share, compared to a profit of $593 million, or 97 cents a diluted share, the year earlier. Sales fell to $13.9 billion from $14.2 billion.
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Motorola
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