Once Again, Motorola Doesn't Fail to Disappoint

Updated from 6:08 p.m. ET

Motorola (MOT Quote - Cramer on MOT - Stock Picks) is getting the hang of disappointment. The communications giant didn't give the Street what it was looking for after the market, reporting only $7.5 billion in revenue for the second quarter ended June 30, well below analyst consensus estimates of $7.9 billion, as gathered by Multex.com. The number represents a 19% drop-off from the second quarter of 2000's $9.3 billion in revenue.

The communications giant managed to nose above analysts' low-altitude expectations of a 12-cent-a-share loss by a penny, but any hope investors were maintaining for signs of life were dashed. The company's stock traded up 1.1% to $15.67 Wednesday as the market refused to sober up before the earnings news. Investors take note: business can't be good when the company adds a footnote to its earnings release that the translations for "very significant" and "significant" are a 50% and 25% move, respectively, and are mostly used to describe downward motion.

Let's count up the very significant bad news first. European handset sales and all major markets for Motorola's embedded systems fit the 50% year-over-year decline bill. Less drastic but still "significant," European mobile phone orders slumped, European wireless equipment sales and orders slid, and all forms of semiconductor business splattered.

Looking for hints of a Motorola handset business recovery? Revenue in its personal communications segment increased slightly in the midst of a prolonged lull in mobile phone sales, providing some substance to rumblings on the Street that Motorola's next-generation handsets have gained in popularity. The handset division's $2.5 billion in revenue -- up from the first quarter's $2.3 billion in sales -- could provide some encouragement. Orders inched up from $2.8 billion in last quarter to $2.9 billion in the one just finished. In an atypical "very significant" move to the upside, Asian handset orders fought off Motorola's gravitational pull and leapt skyward.

The semiconductor segment lived up to its maligned reputation by skidding to $1.3 billion in revenue, a 13% dip from the first quarter's $1.5 billion in revenue. Investors had low hopes for the division -- if no one's buying mobile phones, no one needs mobile-phone chips. Incredibly, in the course of a year, sales dropped off 38% to $1.3 billion and orders plummeted 51% to $1 billion. Motorola's wireless equipment business fared much better as sales remained steady from the first to second quarters at $1.7 billion. But that doesn't mean investors won't be nervous about an $800 million drop-off in orders, to $2 billion in the same period. Motorola kicks off the earnings season for the big wireless equipment and communications chipmakers, and investors should find little comfort in its results.

Motorola's CEO Chris Galvin emphasized the second-quarter's spruced-up balance sheet -- Motorola was severely thrashed after its first-quarter earnings wrap-up for not elaborating on its cash position.

"We know how to manage in a recessionary environment and all businesses in Motorola will continue to be very focused on maintaining a strong balance sheet and improving cash flow," Galvin said in a statement. Motorola brought its cash and equivalents up $400 million to $4.5 billion and collected on half a billion dollars in accounts receivable to get that number down to $4.995 billion. Motorola's creditors made it pay up as well, to the tune of $200 million, leaving Motorola's outstanding accounts payable at $2.76 billion.

After fattening up on communications chips in the first quarter, Motorola managed to get its inventory down from $4.5 billion in the first quarter to $3.8 billion in the second. The company's pro forma results excluded a $496 million write down for cost-cutting and "asset impairment." Investors should watch for Motorola's explanation of the write-down Thursday morning to see how much of that involves inventory.

Motorola will discuss its dismal performance and its third-quarter predictions before the market opens Thursday morning.