Updated from 11:33 a.m. EDT
plummeted in early trading Tuesday after the company said it would not meet Wall Street's expectations for the second quarter as sales of cheaper phones are cutting profit margins.
The Schaumburg, Ill.-based telecommunications equipment company told analysts in a conference call that it expected to post second-quarter earnings of 67 cents per share, 3 cents short of analysts' estimates. Motorola said it expected revenues of $9.5 billion for the quarter, and full-year revenues of $39.8 billion and earnings per share of $3.14. Analysts surveyed by
First Call/Thomson Financial
project full-year earnings of $3.18.
Motorola dropped 25, or 17%, to 124 1/4 in midday trading. (Motorola closed down 26 3/4, or 18%, at 123 1/2).
The profit warning comes on the heels of a strong first quarter for the company, the world's second-largest maker of cellular phones. On Monday night, the company said that its first-quarter earnings more than
doubled, to $144 million, or 59 cents per share.
"The Street really has missed the forest for the trees here," said Pete Peterson, analyst with
Prudential Volpe Technology
in San Francisco.
Motorola beat Wall Street's revenue projections, demonstrated strong growth in its semiconductor and network systems segments, and its cell phone sales for the first quarter rose 8% over the fourth quarter, a number Peterson calls "extraordinary."
The first quarter typically is the weakest sales period in the space, and the fourth quarter is typically the strongest, so to show strong sequential sales growth "is a bullish indicator," said Peterson, who upgraded his rating on Motorola to a strong buy from accumulate on Tuesday's stock action. His firm underwrote a debt offering for Motorola about four years ago. "Add a little higher margin to these numbers and it's a stellar quarter," Peterson said.
Motorola has seen its margins squeezed because it was forced into buying components in the middle of the quarter at a much higher price, said Marc Cabi, analyst with
Credit Suisse First Boston
in San Francisco. "If you depend on the spot market, as Motorola did, you're going to be paying a premium price in this tight market," Cabi said.
forecast sales much more aggressively for the year -- roughly 10% higher than Motorola's sales projections -- and as a result probably bought components accordingly, Cabi said. As a result, Nokia will probably not see the same margin squeeze as Motorola, he said.
That said, once Motorola works through the component issue over the next quarter or so, it has enough new products in the pipeline to position it well heading into the fourth quarter, the key sales period for companies in the cell phone space, Cabi noted. He rates the stock a hold. CSFB has not done any underwriting for the company.