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Motorola's 1Q Performance Impresses Wall Street

Profits more than tripled and revenue was nearly $2 billion more than forecast.
CHICAGO (AP) -- Motorola Inc. stunned Wall Street and shareholders with its strongest quarter in years, riding the success of its new cell phones and other products to a sales resurgence that spurred an after-hours run on its stock.

After failing to deliver on past predictions of a comeback, Motorola finally posted some eye-opening numbers Tuesday, more than tripling its first-quarter profits to $609 million and reporting revenues nearly $2 billion higher than forecast.

The earnings report drove Motorola shares up more than 20 percent to $19.51 in unusually heavy after-hours trading after briefly topping $20--a level not seen since early 2001.

New CEO Ed Zander, the former Sun Microsystems president who took charge of the Schaumburg, Ill., company Jan. 5, benefited from momentum that began building late last year under his predecessor, Christopher Galvin. Motorola's recovery also coincides with sharply improved outlooks for the wireless infrastructure and semiconductor markets it is dependent upon.

The company outlined another big quarter ahead as its camera phones and other recently introduced handsets catch hold, generating what it said could be another sales gain of as much as 40 percent over the previous year's quarter. Motorola also cited improved execution in delivering the new products.

"The numbers speak for themselves," Zander said, declining to characterize the quarter as signaling a long-term turnaround. "We celebrated for about an hour" after the final first-quarter numbers were known, he said. "But we still have a lot of work to do."

The company's main competitor in cell phones, its No. 1 business, is Finland's Nokia, which recently lowered forecasts for the second quarter amid increased competition from its American and Asian rivals.

Motorola's recent success has whacked 7 or 8 percentage points off Nokia's lead in the global cell-phone market, according to SoundView Technology Corp., an Old Greenwich, Conn.-based stock research firm which pegs Motorola's share at 17 percent and Nokia at 30 percent or 31 percent. That's down from a 35-17 gap at the end of 2003.

SoundView analyst Matt Hoffman called Motorola's sudden gains "shocking" but said strong customer demand suggests they result from much more than just the delayed benefit of products that were intended to hit the market months earlier.

"There's no reason that this won't continue into the second quarter," Hoffman said.

Net earnings for the three months ended April 3 were $609 million, or 25 cents a share, compared with $169 million, or 7 cents a share, for the same period in 2003. Operating earnings were 19 cents a share, well above the 7-cent consensus estimate of analysts surveyed by Thomson First Call.

Revenues jumped to $8.6 billion from $6 billion a year earlier--easily exceeding Wall Street's estimate of $6.75 billion.

Sales from the cell-phone unit were $4.1 billion, up 67 percent. Shipments rose 15 percent and the company said its market share improved, especially in Europe, as it benefited from 25 new handsets and the delayed release of new camera phones.

The company's No. 2 business, semiconductors, also saw a surge in sales--up 21 percent to $1.4 billion. The chip unit is being spun off into a separate company later this year, to be called Freescale Semiconductor Inc., based in Austin, Texas.

Zander told analysts that results started running far ahead of expectations in February but Motorola adhered to its policy to give guidance only at the beginning of a quarter, leading to the market surprise.