Chip Markets Recovering? Motorola Shrugs

Wondering when the chip industry will return to health? Don't ask Motorola (MOT). It doesn't have a clue.

The maker of cell phones and semiconductors conceded Thursday morning that it had no idea when its semiconductor business will be profitable again. Executives said that their semi business won't return to profitability until sales volumes recover. And the company won't even hazard a guess as to when that might be.

Still, Motorola led a rally in the chip sector Thursday morning, as investors noted the lack of additional bad news from the company's earnings report and conference call. Microsoft's (MSFT) upbeat comments Wednesday evening relieved worried tech investors, and Motorola's comments, conservative as they were, fed the notion that perhaps the worst is over.

Motorola said third-quarter chip sales would be flat with to slightly below second-quarter levels, and that sales growth is "hopefully" in the cards in the fourth quarter. But "we're not prepared at this point to predict at what quarter semiconductors will return to profitability," investor relations spokesman Ed Gams said. Motorola makes chips for use in handsets and in wireless infrastructure, networking applications and other end markets.

The semiconductor industry has gone into a tailspin the past few quarters, as falling spending on products such as cell phones, PCs and other computers created inventory gluts that led to a vast oversupply of chips. Motorola expects industrywide global chip sales to fall 15% to 20% this year, in a stark reversal of last year's 37% jump.

Of course, Motorola also is dealing with problems unrelated to the cyclical downturn. The company has cut 24,000 jobs and made several missteps in the wireless handset business. CEO Chris Galvin boasted during the call that he eliminated 100 managers in a companywide sweep.

Motorola's 16% sequential decline in semi sales during the second quarter puts it in line with what other telecom-related companies were expecting. For instance, Texas Instruments (TXN), the largest supplier of cell-phone chips, has said it expects revenue will have fallen 20% in the second quarter from the first. It is due to report earnings on July 23.

Motorola noted that wireless chip sales increased 9% in the second quarter and transportation chip sales rose 1%. But other business saw sales drops: Standard embedded solutions sales were down 30%, as were those in network and computing. Image and entertainment chip sales fell about 8%.

Now it's time for the other semiconductor companies, starting with Advanced Micro Devices (AMD) Thursday afternoon, to say if they have more than just a suspicion of how those markets will fare in the second half.

Motorola shares rose $2, or 13%, to $17.67 and Texas Instruments added $1.97, or 6.6%, to $32.02. Communications chip maker Applied Micro Circuits (AMCC) jumped 88 cents, or 6%, to $15.50 and rival Broadcom (BRCM) rose $1.50, or 4%, to $39.85.

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