Don't unhook the life support! Motorola (MOT) is getting a little color back in its lips.
With less than two weeks until its second-quarter earnings report, the struggling communications giant is basking in a few rays of positive attention from Wall Street. The hope -- there are no second-quarter numbers yet -- that Motorola has turned the corner in just one of its business segments, the Personal Communications Sector group responsible for mobile phones, has the stock up almost 30% in the past two weeks.
are up 11% and 1%, respectively, in the same time frame.
Make no mistake, this is a terrible market for selling mobile phones. Conditions have deteriorated steadily since Motorola reported a 34% drop in PCS sales quarter over quarter on April 10. Nokia expects only very moderate improvement over 2000's 405 million phones shipped, now that carriers avoid subsidizing mobile-phone users' handsets and there is no compelling new technology to spur reluctant consumers to upgrade phones. Just the idea that Motorola could fix its PCS segment has investors bidding up its stock price, at a rate that leaves little room for upside when it reports earnings on July 11.
Bucking its recent reputation of being behind the curve, Motorola actually has a jump on the competition when it comes to the next technological advance, data-capable general packet radio service, or GPRS. Motorola offers the Timeport 260 as part of a family of five GPRS phones, and GPRS revenue is supposed to start ramping in the fourth quarter of 2001.
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analyst Per Lindberg advised clients that "Motorola will soon regain market share in handsets on the back of its new GSM portfolio," the global system for mobile communications developed for European roaming.
analyst Jeffrey Schlesinger reported recently that Motorola's cdmaOne products "are generating significant consumer interest" at
chimes in, arguing that Motorola-phone-loving China is one of the fastest growing mobile-phone markets at the moment. The same could be said for Korea, with its appetite for CDMA, or code division multiple access, phones.
Analyst Wojtek Uzdelewicz explains that about 50% of Motorola's PCS revenue came from the Asia/Pacific region in the first quarter, a geography that hasn't yet been hit as hard as the U.S. or Europe. These are the types of comments that get turnaround talk started.
analyst Todd Bernier puts the brakes on the momentum with a more sober view of Motorola's reality given Nokia's warning. "Bottom line, if a company with Nokia's fundamentals is not doing well and predicts lower subscriber levels, you can be sure Motorola is not going to swim against the tide." Despite the positive whisperings, Bernier advises against "hanging your hat" on a PCS group turnaround.
To be sure, Motorola has undergone massive turmoil in its mobile-phone segment, planning layoffs of one-third of its handset group workforce, hiring 24-year
veteran Mike Zafirovski to run the business, and subsequently announcing its intention to streamline its phone offerings to five designs from the more than 27 product lines with different component needs it offered in 2000.
On Monday after the market's close, Motorola made a bid to scale down a manufacturing commitment made with
last year. The deal would have given the contract manufacturer $30 billion in manufacturing business over five years. The two dissolved their partnership on Monday, with Flextronics agreeing to buy back $100 million in its stock from Motorola. Flextronics said in a press release it expects Motorola to be among its top five customers in 2001, nonetheless.
at the beginning of June that he expects the mobile-phone group to reach profitability in the second half of 2001. The second quarter's results will show how realistic that is. In late April, Motorola said it has worked off half of the 35 million phone excess that filled its shelves at the beginning of the year. It was hoping to ship the remainder in the second quarter.
Mobile phones have ruined the books of many mobile leaders in the past year and lumped $402 million in losses on Motorola in the first quarter. Ericsson first gave up on manufacturing its phones by outsourcing that function to Flextronics -- followed by the hope of spinning off the cash-draining arm into a joint venture with
that will start up in October.
announced that it would outsource its manufacturing to
. Motorola hopes to leave its rivals behind by reversing its decline and regaining market share while its rivals get punished. Its stock reflects investor hope that it'll be able to do so.