Motorola Reports $174 Million 4Q Profit

Telecom company parlays improvements in cell-phone business to second straight profitable quarter.

InformationWeek Staff, Contributor

January 22, 2003

3 Min Read

CHICAGO (AP) -- Motorola Inc. is moving slowly back into profitability, parlaying improvements in its cell-phone business into back-to-back modest quarterly gains after nearly $6 billion in losses in 2001 and the first half of 2002.

But the telecommunications company concedes that a weak first quarter looms and says its turnaround hinges on a resurgence in the still-shaky global economy.

As Motorola reported a $174 million net profit for the fourth quarter on Tuesday, CEO Christopher Galvin pinned the company's hopes for strong recovery on a second-half economic comeback.

"The world economies are today showing some underlying signs of a rebound, which, if not significantly disrupted by world events, could have a favorable impact on our markets as customers move toward renewing their capital spending," Galvin said.

The world's No. 2 cell-phone company touted its second straight quarterly profit as the latest evidence the restructuring it began in the second half of 2000 is paying off.

Wall Street appeared to agree, although Motorola's expectations for as little as $6 billion in sales in the current quarter--20% lower than the fourth quarter--generated some concern.

"Motorola has turned the ship around, but the sea in which they are sailing continues to be very choppy," said analyst Vivian Mamelak of Arnhold and S. Bleichroeder. "We'll see if they can continue to take share in handsets. And we'll see where they can continue to cut costs in semiconductors."

Morningstar analyst Todd Bernier said Motorola's stronger-than-expected fourth-quarter sales of $7.5 billion were a plus, but questioned the company's prediction of a 3% sales increase in 2003 despite a slow start.

"Basically, Chris Galvin is calling a second-half rebound. I don't know where the evidence is in the economy to support that," he said.

Despite beating Wall Street's expectations for the fourth quarter, Motorola wound up with a $2.5 billion net loss for the year, making 2002 its second-worst ever following the $3.9 billion loss it suffered in 2001.

Net earnings for the fourth quarter amounted to 8 cents a share, compared with a loss of $1.2 billion, or 55 cents a share, for the same period a year earlier.

Excluding the latest restructuring charges of $125 million, earnings were 13 cents a share, or 3 cents better than the consensus estimate of analysts surveyed by Thomson First Call.

Revenue of $7.5 billion represented a 3% increase from a year earlier.

Motorola said operating profits rose in the quarter in five of its six businesses, all but wireless network equipment, in what Galvin referred to as the "middle phase of our turnaround."

The Schaumburg, Ill., company said sales in its cell-phone unit rose 11% to $3.3 billion, reflecting particular success for its less-expensive models, although orders declined by 3% amid a substantial industry backlog.

It claimed to have improved market share to approximately 19% in the quarter, chipping away at Nokia's global lead and tying the Finnish company for the lead in the United States, the second-biggest handset market.

The semiconductor unit boosted sales by 15% to $1.3 billion and orders climbed 18% to $1.2 billion, although operating earnings were a slim $18 million.

Motorola has said the fourth-quarter charges would essentially complete its restructuring. Since August 2000, it has slashed its workforce by nearly 40% from a peak of 150,000. It expects to have 93,000 employees by mid-2003.

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