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Motorola slides on production warning

Shares of the world's second-largest cellular phone maker slide as the company warns it will produce fewer handsets than expected this year.

    Shares of Motorola slipped lower this morning after the world's second-largest cellular phone maker warned it would produce fewer handsets than expected this year.

    Motorola stock fell to as low as $33.50 today from $36.63. At 1 p.m. PST, shares edged up to $36, down 63 cents, at the close of regular trading.

    Lehman Brothers analyst Tim Luke said Motorola told its suppliers it would produce 80 million to 85 million handsets in 2000, compared with its previous goal of 100 million units.

    Motorola, however, stressed that it was not changing its forecast and would meet its year-end goal.

    "There was a components shortage last year, and the 100 million number was a reach-out goal that was communicated to the suppliers at the end of last year to avoid a shortage if industry demand was there," said company spokesman George Grimsrud.

    In a report this morning, Luke noted that the lower production levels to some extent reflect the company's focus on improving its cell phone operating margins to 10 percent in the fourth quarter.

    "Motorola now appears to be emphasizing improved margins and profitability over higher unit shipments and market share gains," Luke wrote.

    Motorola's warning reverberated through the wireless sector, hitting rival cellular phone makers as well as wireless components suppliers. Nokia shed more than 8 percent, and Ericsson dropped nearly 5 percent.

    Just last week, Nokia shares fell sharply after the company warned that third-quarter sales will be lower than expected.

    Earlier this week, Motorola held its annual analysts' meeting that moved five analysts to issue bullish reports on the wireless communications company. At the time, Banc of America Securities analyst Mark McKechnie wrote in a report that he believed Motorola was "getting it together" in handsets.

    Lehman Brothers' Luke agrees with McKechnie's earlier assessment.

    "(This) revised guidance for the handset suppliers is firmly in line with the targets outlined at this week's analyst meeting and with our own estimates," he wrote.

    Luke is retaining his estimates for Motorola's global handset demand of 423 million, in line with the company's own estimate of between 425 million and 450 million.