Update: Motorola Dismisses Reports of Liquidity Crisis

Updated from 3:53 p.m. ET

Shares of Motorola(MOT) were punished in Friday's session after a published report said the company was running the risk of a liquidity crunch, forcing the high-tech bellwether to issue a statement and try to calm rattled investors.

The stock ended New York Stock Exchange trading at $11.50, down $3.45, or 23.1% on the day, after falling as low as $10.50.

"We're beginning to think the unthinkable about Motorola,'' said Carol Levenson, author of the Gimme Credit bond newsletter in Chicago, according to a Bloomberg report. "Motorola's liquidity has rapidly moved into crisis mode.''

The report also raised questions about the company's ability to raise cash because of its substantial short-term debt and possible ratings changes in the near future. Moody's and Standard & Poor's both have credit reviews underway.

Motorola issued a statement Friday afternoon, strongly denying that it's facing a liquidity problem. The Schaumburg, Ill., company said it currently has $4.5 billion in cash and cash equivalents and added that it is "financially sound." Motorola also said its commercial paper outstanding has been reduced to $3.1 billion from $4.1 billion at the end of the first quarter.

A New York-based investment firm agreed that the Bloomberg report was overreaching, adding that Motorola's semiconductor and chips units are strong, along with its network equipment business. The firm, which hasn't done underwriting and doesn't maintain a rating on the company, said its handset business may be weak now but will be all right in the longer term.

Motorola's financial well being, while challenged, is not quite as grave as the market would suggest, said another Wall Street analyst who has a buy on the stock. Motorola holds about $4 billion in securities investments and will likely sell more of its stake in Nextel (NXTL) since it recently characterized those holdings as nonstrategic assets, said the analyst, whose firm has no underwriting ties to Motorola.

The wireless service provider's cash position suggests the company doesn't have a short-term liquidity problem. But Motorola does have negative cash flow from operations and still has a long way to go before it can turn in significantly improved results in its business.

"They are going to be saddled with a whole lot of debt, but it's not quite as dire as it's been portrayed," said the analyst. "We really don't think they are the next Xerox (XRX) or Lucent (LU)."

Motorola, which has cut 22,000 jobs since December, warned in February of a possible first-quarter loss. Wall Street is expecting the company to post a loss of 7 cents a share in the first quarter. The company earned 20 cents in the year-ago period.

Friday morning, Credit Suisse First Boston said it doesn't expect Motorola to miss the firm's already lowered earnings and revenue estimates when the company reports financial results next week. CSFB has already twice lowered its projections for Motorola and now expects the company to lose 7 cents a share on revenue of $7.66 billion.

Still, the firm, which maintained a buy rating on the stock, also said "we do not see a major catalyst until the second half of this year, at the earliest, and expect downward pressure on '01 and '02 numbers."

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