Motorola posts growth, falls short

Motorola announces its second consecutive quarter of year-to-year earnings growth. But its fourth-quarter performance still fell short of analysts' expectations.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read
Wrapping up its year-long restructuring plan, Motorola (MOT) has yet to prove its recovery is a done deal..

This was reflected in the company's fourth-quarter results yesterday. Motorola's earnings fell slightly short of Wall Street's expectations as economic upheaval in Asia put pressure on sales, orders, pricing, and profits. Motorola at a glance The company's recovery is expected to face continued pressure from Asia during the first half of the year, executives said.

"[Motorola] is in a bit of a fragile state," said Eric Zimits, an analyst with Hambretch & Quist. "It has started to show some momentum, but there are a lot of things that can upset its restructuring, like the worldwide economic turmoil being seen in Asia."

Analysts note, however, that the economic effects of Asia are not as bad as originally feared by Wall Street. Such sentiments apparently eased investor concerns as Motorola's stock rose slightly during morning trading from its close of 54-1/2 yesterday.

"Their results are a sign that the restructuring has been successful," said Alex Cena, an analyst with Bear Stearns. "But more importantly, it shows that, while Asia was weak, it was not a disaster."

During the past year, Motorola has shed unprofitable operations, such as its Dynamic Random Access Memory (DRAM) unit and its analog modem business. The company's computer group also dragged it down this year, as Motorola was forced to exit the Macintosh cloning business when Apple declined to issue new licenses for its latest operating system.

Nonetheless, Motorola posted two consecutive quarters of year-to-year earnings growth, and three consecutive quarters of year-over-year revenue growth in the fourth quarter.

Net profits for the quarter reached $321 million, compared with $238 million a year ago. Excluding restructuring charges, the company would have posted profits of $393 million, or 65 cents a share.

But analysts had expected slightly more from Motorola, looking for earnings of 68 cents a share, according to First Call.

The company's revenues, meanwhile, rose to $8.3 billion during the quarter ending December 31, 1997, up from $7.7 billion the previous year.

"A number of important strategic decisions have been implemented which should have a positive impact on the corporation's long-term profitability," Robert Growney, Motorola's president and chief operating officer, said in a statement. "In the short term, however, these decisions necessitated special charges, which resulted in minimal earnings growth in 1997."

Motorola reported revenues for the year of $29.8 billion, up 7 percent from a year ago. Net profits reached $1.18 billion, up from $1.15 billion a year ago. The company, however, took $306 million in special charges during the year, largely due to its restructuring.

Analysts said the company posted good revenues during the quarter and demonstrated some forward movement on several fronts.

Semiconductor sales, for example, helped boost Motorola during the fourth quarter, rising 11 percent to $2.1 billion. The segment posted an operating profit, compared with the loss it posted a year ago. Chip orders also were up--10 percent for the quarter--driven by European demand.

While the communications, industrial, automotive, consumer, and distribution industries had the highest demand this quarter, the computer industry had a low volume of orders. As a result, Motorola's computer group sales dropped 27 percent during the quarter, and orders dropped 16 percent, compared with last year. Last year's results, however, were boosted by sales of Motorola's StarMax Mac clones.

Despite the drop in computer sales, Motorola's embedded computer product business had a 26 percent increase in sales and a 30 percent increase in orders. The unit also posted an operating profit, compared with a year-ago loss.

Not only did Motorola mark the year with restructuring, but it also greeted 1997 with a new management team in place.

Christopher Galvin took the company's helm as its new chief executive last January. Additionally, the company started out with a number of new top executives, including Growney in the president and COO role.

"I would not be surprised to see some additional fine tuning in 1998," Zimits said.