Too Much of a Good Thing: Motorola Hit Hard by Component Shortage

The chip shortage that wireless-phone maker Nokia (NOK Quote) disclosed two weeks ago is now hitting Motorola (MOT Quote). But there's a major difference: Nokia seems to be able to withstand the heat, while Motorola is melting.

"In a tight market, it comes down to a company's ability to manage inventory," says Bear Stearns equity analyst Wojtek Uzdelewicz. Motorola is less a victim of a tight components market than it is of poor inventory management, he says, echoing the sentiments of several other analysts. Citing the component shortage, the loss of a major order and other factors, Salomon Smith Barney downgraded Motorola today to outperform from buy and cut its price target on the stock from 200 to 120. The shares sold off sharply, closing at 87 11/16, down 16 13/16 or 16% from its Tuesday close of 104 1/2.

The risks to mobile-phone makers came into sharp focus a couple of weeks ago when Solectron (SLR Quote), the world's largest contract electronics manufacturer, announced that it probably will miss third-quarter revenue expectations because component supplies, including those for mobile phones, are the tightest they've been in five years. ...