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Motorola stock gets frayed
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April 11, 2000: 8:02 p.m. ET
Shares fall 17 percent as firm says both 2Q and year to lag behind forecasts
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NEW YORK (CNNfn) - Shares of Motorola declined nearly 18 percent Tuesday after the company said it expects second-quarter and 2000 earnings to trail Wall Street estimates due to lower wireless phone profit margins.
Shares of the number two wireless phone provider plunged 27 to 124 on the Nasdaq.
 "The first quarter ... drove us deeper into lower and mid-tier phones than we were expecting," Merle Gilmore, senior vice president of communications, said in a news conference. "It was also affected by lingering component shortages that held down our unit volumes, and so therefore affected our manufacturing efficiencies. Also, some of these components shortages affected our mid- to high-tier products, so that was a negative shift for us.
"In addition, we ended up paying, in some cases, some fairly significant premiums in order to be able to secure components on what was effectively a spot market in some components," said Gilmore.
"We do expect the component shortages to ease, and essentially be behind us at the end of the second quarter, and we'll feel the effects of that easing in the second quarter, that will allow us to fully utilize our manufacturing capacity," Gilmore said.
"The big concern is the handset business," said Mona Eraiba, an analyst at Gruntal & Co. "The question in everybody's mind is: Is this a transitional issue or is this a prolonged problem?"
Eraiba said she sees Motorola's stock decline Tuesday as a buying opportunity. (273K WAV) or (273K AIFF)
The company also said it sees this year's sales jumping 24 percent over last year's figures and also revised its earnings-per-share outlook.
"We are slightly raising our prior guidance on earnings per share for 2000 to $3.14, which would represent a 67 percent increase, versus 1999's EPS on ongoing operations of $1.88," said Robert Growney, president and chief operating officer.
But Wall Street had predicted the company to report $3.18 a share for 2000 earnings.
Analyst Greg Geiling at JP Morgan downgraded Motorola's stock rating to a "long-term buy" from a "buy."
"We are downgrading our rating on Motorola ... as a result of a slower than anticipated expansion in operating margins in the personal communications systems sector," Geiling said in a research note. "The sector posted an extremely disappointing level of profitability in the first quarter and the outlook for a rapid recovery in sector profitability is in question. ...The mix shift toward lower-end products is likely to continue to strain margins in the near-terms."
Motorola CEO Growney tried to paint an upbeat picture for year 2000 results during the news conference Tuesday morning, after turning in first quarter results late Monday that beat Wall Street estimates by a penny.
"For the full year of 2000, we believe the corporation can achieve sales of $39.8 billion, which would represent an increase of about 24 percent, based upon ongoing operations," Growney said.
"For the second quarter of 2000, we expect each of our segments to achieve sequential sales growth from the first quarter, and the corporation to reach $9.5 billion in total sales," Growney said. "This would result in an increase of approximately 25 percent based on ongoing operations. That margin is expected to improve sequentially from 5.1 percent in the first quarter to 5.3 percent in the second quarter.
"Earnings per share for the second quarter are expected to reach 67 cents. Each of our major business segments is expected to improve its operating margins in the second quarter, versus the first quarter, with the exception of the network systems segment. Network systems will see a lower level of final acceptance revenue in the second quarter than it did in the first quarter," Growney said.
While Growney told analysts and reporters, ""Motorola is back on track, and we see continued strong performance coupled to significant market opportunity," First Call's consensus estimate pegs second quarter earnings per share 3 cents better than Growney's estimated 67 cents. 
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Motorola
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