2001 Review: In Wireless, Few Winners

Author of Its Own Ruin; Biographer of Its Competitors'

Most tech companies in 2001 could blame the massive IT spending slowdown for wrecking their businesses. Handheld maker Palm PALM, which lives in the consumer-oriented PDA domain, couldn't do that.

Palm had to ruin its business all by itself.

Early in 2001, Palm did just that, locking itself into expensive component contracts, then bungling the rollout of its new m500 family of handhelds by announcing the new models but not having them ready for months.

Since March, Palm has scrambled to clear out products any way possible. Unfortunately, that involved reducing prices dramatically, which spurred a price war with alumni-run competitor Handspring HAND. This moved handhelds off the shelves -- but at the expense of revenue. Palm will bring in an estimated $982 million in revenue in fiscal 2002, a far cry from the $1.6 billion it reaped in fiscal 2001.

Finally, the PDA makers' declining returns laid waste to both companies' share prices, as Palm's stock plunged 84% on the year and Handspring's sank 81%.

Hands Down Handheld makers' revenue decline
Company/Period	2Q	3Q	4Q*	1Q**
Palm	$522M	$471M	$165M	$214M
Handspring	$116M	$124M	$61M	$61M
Source: Company press releases. *Estimate. **Fiscal 2002 estimate.

Never Saw a Pro Forma Adjustment It Didn't Like

Motorola MOT didn't let 2001's massive restructuring effort or a dip into the red after decades of profitability change its combative attitude toward Wall Street.

Special Indeed Special charges at Motorola
Year/Period	Q1	Q2	Q3	Q4
2000	$39M	$355M	$144M	$68M
2001	$279M	$496M	$2B	t.b.a.
Source: Company press releases

The communications company increased its use of black magic this year in a string of analyst-vexing, hazy quarterly reports. Motorola's favorite device: a large, allegedly nonrecurring charge that it excludes from its profit and loss calculations.

Other companies provide data about the year-ago quarter for comparison of revenue or earnings; Motorola offers up for review the year-ago charges it deducted to make its earnings (or losses, in 2001) look better. Motorola subtracted charges in 2001 of $2.78 billion that would have detracted from its bottom line, dwarfing even 2000's hefty $605 million in charges.

Wall Street Winces

Big Funds Come Up Big

Restoration Hardware Shakes Off the Dust

Five Stocks That Came Out of Nowhere

Stocks Stuck in the Back Seat

Four CEOs Who Slipped Through the Net

Biotech Talks Turkey

Enron Avalanche Frosts the Accountants

JDS Uniphase and Other People's Money

Slipping in the Oil Patch

The company used the $2.78 billion in charges mainly to write down the cost of layoffs (Motorola made plans to lay off 39,000 workers this year) and the decreased value of company investments.

Motorola has used the one-time ploy several times too many. At this point, its pro forma calculations of profits and losses are more a matter of whim than a reflection of any accounting reality.

Cutting Off Your Nose to Save Face

Dell DELL was one of the few tech winners in 2001, with a stock price increase of 67%. But those gains come at the expense of an entire industry's health.

The secret to Dell's progress has been a drastic strategy in which it slashed prices on PCs below its competitors' level of tolerance. Consumers dropped their jaws over sub-$1,000 computers in 2000; how could they have imagined they'd be treated to $600 computers in 2001?

Decline and Fall Change in third-quarter PC shipments*
Dell	10.8%
Compaq	-31.1
IBM	-17.2
Hewlett-Packard	-24.6
NEC	-27.5
Source: Gartner Dataquest (October 2001). *Against a year ago.

Dell used its legendary inventory and fulfillment efficiencies -- building machines just in time to ship to customers -- to maintain a sliver of margin far below levels at which Compaq CPQ and Hewlett-Packard HWP had to turn back for fear of losing money. Dell wrested the No. 1 spot in PC market share away from Compaq along the way, but its tactic crippled the sector and hobbled revenues.

Dell's sales have fallen, of course, but that decline is nothing compared with the missing revenues at Gateway GTW, Dell and Hewlett-Packard. This year Dell is victorious, but will there be anything left to cut for an encore in 2002?