Motorola Says It Will Return to Net Profits - TheStreet

With the bulk of steep restructuring charges behind them (so they say),

Motorola

(MOT)

executives told analysts this morning the company plans to report actual positive earnings, for a change, for the next two quarters and through next year.

Even as it hinted at continuing reductions that will occur through mid-2003, Motorola said it expects sequentially flat earnings of 2 cents a share, on sales of $6.7 billion in the third quarter and 10 cents a share, on sales of $7.5 billion in the fourth. Excluding a $215 million charge, the company said it expects to report operating earnings of 5 cents a share and 14 cents respectively.

Consensus estimates compiled by Thomson Financial/First Call are for a profit of 4 cents a share on sales of $6.96 billion for the third quarter.

Barring any more unforeseen items, Motorola is hoping to hit consensus estimates of 45 cents a share EPS on sales of $29 billion in 2003, in line with consensus estimates. The target represents a slight improvement over projected sales for 2002 and essentially flat compared to 2001 sales, despite a dramatically streamlined operation.

Investors looked past Motorola's biggest postcharge losses ever and cheered the company's outlook in the morning session, sending shares up 92 cents, or 6.33%, to $15.45, taking part in a marketwide rally buoyed by a succession of encouraging earnings report across the tech sector.

Competitor

Nokia

(NOK) - Get Report

shares gained 87 cents, or 6.40% to $14.46.

Qualcomm

(QCOM) - Get Report

gained $1.16, or 3.89% to $31. Cell-phone component makers also saw a rise on upbeat earnings reports.

RF Micro Devices

(RFMD)

, which reported positive earnings on reduced estimates last night, was up 12 cents, or 1.32% to $9.22.

Triquint

(TQNT)

added 4 cents, or 0.57% to $7.25. Even

Intel

(INTC) - Get Report

, which missed profit targets and announced layoffs but gave upbeat guidance, rallied $1.18, or 6.45%, to $19.54.

We'll See

Not everyone in the financial community was as ebullient, though. Deutsche Bank wireless equipment analyst Brian Modoff poked holes in the company's earnings report in a note to clients entitled, "What's A Few Billion Among Friends?" "With $3.4 billion in special one-time charges that are not captured in pro forma results, we discount the significance of the company reporting positive earnings," he wrote.

While conceding that the numbers looked slightly better than expected, Modoff called management comments fairly standard formula: "They guided down the top line and guided up the bottom line," he said. Remember, "The bottom line is pro forma."

In the call, executives said they are guiding down its annual handset volume shipment forecasts to 400 million units, from earlier guidance of 420 million units, and in line with its larger competitor, Nokia. The company is expecting a questionably robust sales boost expectation in shipment in the fourth quarter of about 118 million units.

For years the company has operated one of the most debt-laden and operationally cantankerous wireless equipment companies in the industry. The company has sought to redouble efforts on its handset divisions in recent months, culminating in a portfolio of new devices set to launch in the second half, helping it capture an additional 1% in market share, now at 18%, remaining a distant second to Nokia for now.

Concerns over its second-quarter order shortage were addressed, raising questions about the overall slowdown in the market for wireless devices. While sales were up 5% year-over-year to $2.6 billion, orders for the just-passed quarter were $2.5 billion, down 11% from a year ago.

Motorola's executive vice president of its personal communications segment, Mike Zafirovski, was quick to head off critics. "This will not have any negative impact on short- or long-term results," he told investors this morning, pointing out its new supply chain management efficiencies and its work with carriers to reduce backlog. "It's a much more cost-efficient way to run a short cycle shipments."

Perhaps the most blistering downturn at the company remains its telecom infrastructure equipment sector, which saw sales plummet 25% to $1.2 billion from the year-ago quarter. Orders dropped 47% to $1.1 billion. The company blamed the blistering shortfall on wireless providers hitting the brakes on capex. Guidance on the unit looked even worse, with revenue sequentially flat and a year-over-year sales drop of over 50%, with a projected operating margin of break-even, compared to a profit in the third quarter last year.

Hit by Semi

The drastically curtailed semiconductor business -- the source of much of its asset writedowns this quarter -- was also one of the company's most maligned units, which saw its sales drop 3% year-over-year to $1.2 billion, while orders were up 25% to $1.3 billion, a sign, the company said, that the global semiconductor industry is showing signs of gradual recovery. Still, the unit was one of the hardest hit, reporting an operating loss of $1.3 billion including charges, compared to a loss of $444 million in the same period last year.

To turn the business around, the company is hoping to share the burden with other chip ventures, including the creation of a five-year joint venture with

Philips

(PHG) - Get Report

and

STMicroelectronics

(STM) - Get Report

, which will help reduce Motorola's own capital expenditures and other expenses.

It plans to outsource much of its chipmaking activities to the world's largest chip foundry,

Taiwan Semiconductor

(TSM) - Get Report

, as well as create another new venture with

Infineon Technologies

(IFX)

and

Agere

(AGRA)

to develop digital signal processor cores for communications and consumer electronics.