CNET también está disponible en español.

Ir a español

Don't show this again


Motorola CEO warns of 1970s flashback

As if the bell-bottoms and disco revivals weren't scary enough, Motorola executives predict an even more alarming retro trend: a return to the 1970s economy.

As if the bell-bottoms and disco revivals weren't scary enough, Motorola executives today predicted an even more alarming retro trend: a return to the 1970s economy.

Motorola CEO Chris Galvin said in a conference call today that the technology sector is in a recession and "reflects the boom and bust of the high-tech cycles of (19)84-85 or perhaps even the (19)74-75 time frame."

Motorola on Tuesday reported its first operating loss in 15 years, falling short of analysts' expectations despite twice lowering estimates during the quarter.

The comparison to the '70s--a period that many of today's tech investors may not even remember--is considered to be a stretch by many analysts and economists. In the early '70s, the stock market and economy fell on high inflation and interest rates, an energy crisis and the demise of the Nifty Fifty stocks--50 bellwether stocks that soared only to tank later.

Although some analysts acknowledge there are similarities to the '70s, many disagree. In a recent research note, Tobias Levkovich at Salomon Smith Barney pointed out that inflation is "quite muted" and interest rates are much lower.

"The real issue of the past few years was the unrealistic expectations of the (tech, Internet and telecommunications) names, which have now come home to roost," he said.

Motorola on Tuesday said it lost $206 million, or 9 cents per share, on sales of $7.8 billion. Analysts were expecting the firm to come in at around 7 cents for the loss, and were looking for revenues of around $7.96 billion, according to First Call.

Looking ahead, Motorola officials tried to rebuild investor confidence. The company said it expects sales to increase somewhat in the second quarter of 2001 vs. the first quarter. Motorola said it would report a loss in the second quarter, which would likely be a few cents higher than the 9 cents loss it reported in the first quarter.

Motorola said it expects sales to increase gradually, with a return to profitability in the second half of the year. Annual sales are expected to be lower than last year, when Motorola posted revenues of $37.6 billion. Annual earnings per share should be "modestly" higher than 2000, when it earned 84 cents per share.

Hit hard
Analysts were expecting the company to report sales of about $36.5 billion for the year, with earnings coming in at 13 cents per share. For the second quarter, analysts were looking for a loss of 2 cents on sales of $8.7 billion, according to First Call.

Motorola makes wireless handsets and semiconductors. It has been hit hard by the economic slowdown, as have its competitors Nokia and Ericsson. Sluggish sales have prompted the company to lay off 12,000 workers since December.

That sort of news prompted analysts to raise flags about the company's long-term health. Motorola's shares plunged last week after reports that Moody's and Standard & Poor's were reviewing the company's credit rating.

The company said Tuesday that it has "expanded financing relationships" and "undertaken aggressive cost-cutting measures" to offset any balance-sheet worries. At the end of the quarter, Motorola had slightly more than $4 billion in cash on hand, up from $3.3 billion on Dec. 31.

Motorola CEO Galvin said the company has begun working with JP Morgan, Citicorp, and Goldman Sachs "on this balance-sheet issue. If the orders are not coming in given what's going take costs out," he said.

Executives said they would consider selling nonessential businesses in an effort to trim costs.

Motorola Chief Operating Officer Robert Growney said Wednesday that the company was continuing to lower its levels of commercial paper, or short-term debt issued by banks and other lenders. He said the company's total short-term debt was around $4.9 billion, and that it had total domestic and nondomestic credit facilities of $3.9 billion.

Growney also said the company plans to lower its level of investments this year. Motorola sold about $1 billion of investments in the quarter, although it had acquisitions of around $750 million.

But that may not be enough to assuage analysts' concerns.

Bernstein analyst Paul Sagawa said that while he didn't see any likelihood of insolvency in the near term, "we have little faith that management is making sufficient progress in dealing with key issues across the business segments."