Moto: Black Numbers, Black Outlook
However, CEO Chris Galvin is not claiming the company is out of the woods just yet. The company, best known for its mobile handset, microprocessor, and CDMA infrastructure lines of business, predicts a slow, rocky road ahead, with growth "over the next several years." Motorola had previously expected a turnaround in the second half of 2003.
The company has cut deeply into its cost base, so even though revenues were down from the $7.4 billion recorded in the equivalent quarter last year, the bottom line was black this time around, compared with the third-quarter 2001 loss of $1.4 billion. Nomura Holdings Inc. wireless infrastructure analyst Richard Windsor describes the latest numbers as "good in this market."
One of the main challenges for Motorola is the CDMA network infrastructure business. Although this sector made an operating profit in the quarter of $5 million on sales of $1 billion (if one-off costs are ignored), it is facing what analysts politely describe as a "very weak end market." More importantly, Motorola is expected "to continue to lose share" in infrastructure, according to a research note from Salomon Smith Barney.
This decline shows in its comparative figures. Infrastructure sales for the third quarter of 2002 were already down 42 percent on the year-ago period, and orders fell by 44 percent. Nomura's Windsor agrees the kit segment is "taking quite a hammering," but he finds "the development of the margins is encouraging." He expects Motorola to stay in the CDMA business -- and believes it should, "if it wants to have any growth at all."
While Motorola appears to be dealing with the macro economy pretty well, it still has major issues to resolve internally, Windsor tells Unstrung. Its "strategy is a bit loose. For example, it doesn't have an operating system for its handsets, which Nokia Corp. [NYSE: NOK] does. This can reduce costs significantly." There are also suggestions in the market that the different divisions within Motorola do not work together as closely as they might.
But even if its chipsets folk are not totally in sync with the handset mob, the personal communications business (that's the mobile phones) held up well in the quarter. It had operating earnings of $241 million on sales of $2.6 billion. Last year, it made a loss of $233 million on similar sales. However, Windsor believes it "has probably achieved close to its maximum potential. It will be difficult to increase average selling price and market share."
On the basis of its own press statement, Motorola doesn't seem to have made much of an impact on the European handset market, despite being the first to go into 3G handset production, and its overall market share is still around 18 percent, trailing way behind Nokia's. Its proudest boast is that it has market leadership in China, though the demand there is mainly for low-end models. It also claims "leading brand recognition" in the U.S. Windsor says that if Motorola is to do well in Asia it will have to slug it out against Samsung Electronics Co. Ltd. (Korea: SEC), which could be a tough fight.
— Ouida Taaffe, special to Unstrung