We’ve been hearing anecdotal evidence for some time that Motorola Inc’s cellular telephones were disappointingly unreliable compared with those from its Nordic rivals, and any shortcomings appear to have come home to roost in the company’s fourth quarter 1995 earnings report. Net profits for the quarter slumped 15% to $432m or 72 cents a share, on sales up 13% at $7,300m, a sharp deceleration given that sales for the full year were up 22%. The news sent the markets into a tizwas over all cellular hardware stocks and technology stocks in general. The average analyst surveyed by Zacks Investment Research estimated Motorola would earn 90 cents a share for the quarter while the First Call poll turned up 88 cents. The results were announced after the formal market close but the shares fell 5.8%, dropping $11.25 at $45 in after-hours trading. The company said sales of cellular phones declined 5% in the final quarter compared with the fourth quarter of 1994, and prices for them fell 15% to 20% during the year. Profit margins in the quarter declined to 5.9% from 8% a year ago. Wireless markets in the more developed economies continue to experience pricing pressures, which have had a negative impact on net earnings in 1995, said Motorola chief executive Gary Tooker.
Negative impact
These conditions may continue to result in lower sales growth and difficult earnings comparisons for the next few quarters. He added that investments in technology and production capacity also had a negative impact on net earnings, but are setting the stage for long-term growth. President Christopher Galvin said, As we stated at the end of the third quarter of 1995, fourth-quarter results would be adversely affected in their comparison with a year ago because last year’s results benefited from a build-up of excess cellular phone inventories in the U.S. distribution channels. In addition, continued pressure on average selling prices and costs associated with the introduction of new technologies have also had a negative impact on earnings. Aside from the cellular business, Semiconductor Products Sector sales rose 23% to $8,500m during the year, while orders rose 22%. The unit remained capacity constrained for certain products and technologies at the end of 1995. Distribution, consumer and industrial orders were higher in the fourth quarter while personal computer, workstation and communications declined. Highest growth within product categories was seen for microprocessors, microcontrollers, sensors and fast static and dynamic random access memory chips. A major expansion in East Kilbride, Scotland, brought additional capacity for microcontrollers used in applications such as Smart Cards. Construction began on the submicron, 8 wafer fabrication facility located in Tianjin, China. Messaging, Information and Media sector segment sales rose 23% to $3,700m for the year while orders increased 36%. Under agreements with four major cable television companies, Motorola will supply CyberSurfr modems for cable subscribers to access the Internet. Land Mobile Products sector segment sales rose 6% to $3,600m while orders rose 2%; and Automotive group sales rose 15% but orders fell 11% and operating profit fell. Sales in the Government & Space technology group rose 51% but orders fell 17% compared with 1994.