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Troubles in Asia Force Motorola to Lower Guidance

The company says cell-phone sales in the region are being hurt by SARS and excess inventory.

Updated from 7:40 a.m. EDT



took down its sales and earnings guidance for the second quarter, in part because of lower cell-phone sales in Asia, which have been hurt by SARS and excess inventory in the region.

The company now expects second-quarter sales of $6 billion to $6.2 billion, down from its prior guidance of $6.4 billion to $6.6 billion. Excluding items, Motorola expects to roughly break even for the quarter. When calculated according to generally accepted accounting principles, the company believes it will earn around 2 cents.

Previously, Motorola projected earnings of 3 cents to 5 cents excluding items and a GAAP profit of 1 cent to 3 cents a share.

Sales and earnings estimates for the full year will be lowered because of the decrease in guidance for the second quarter and because the issues affecting the second quarter are now expected to also hit the third quarter and possibly the fourth quarter.

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Motorola plans to revise its full-year forecast when it announces its actual financial results for the second quarter in mid-July.

On average, analysts polled by Thomson First Call expect Motorola to earn 4 cents in the second quarter and 31 cents for the year. Wall Street is looking for sales of $6.4 billion in the quarter and $26.9 billion for 2003.

Motorola said its personal communications segment's second-quarter sales of cell phones in Asia have been lower than expected, but the division's results in North America, Latin America and Europe are meeting the company's original forecasts. The SARS outbreak has had a "more pronounced impact" on consumer purchases in Asia than Motorola had assumed in its previous guidance.

The company's semiconductor products segment is also being slowed by the same issues in Asia. Sales of wireless handset components to the personal communications segment and other wireless customers have come in lower than expected, as buyers adjust their inventories to respond to the decline in Asian sales.

Additionally, in late May, Motorola's semiconductor manufacturing facility in Sendai, Japan, was damaged by an earthquake, temporarily disrupting manufacturing operations and resulting in repair and cleaning costs in the second quarter.

Motorola said in a press release that once SARS is under control, it believes consumer buying patterns will return to normal.

On Friday, traders were

speculating that Motorola might cut its guidance. Monday morning, the company's stock was down 39 cents to $8.50 in Instinet premarket trading.