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Motorola posts profits and denies rumour
Wednesday, October 16 2002
by Matthew Clark

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Amid speculation about a disposal of its semiconductor unit, wireless communications pioneer Motorola says it is profitable after 18 months of losses.

The Illinois giant said on Tuesday that after six straight money-losing quarters, its bottom line was once again black with USD111 million in third quarter net profits, equating to profits of USD0.05 per share. This figure compared with a loss of USD1.41 billion, or USD0.64 a share, a year earlier.

Third quarter 2002 operating earnings, which exclude certain exceptional costs, were USD0.06 a share, beating the consensus estimate of analysts interviewed by Thomson First Call by a penny. Sales, however, missed Wall Street's targets slightly, with revenues for the quarter dipping 14 percent year-on-year to USD6.37 billion.

The company's results, released late on Tuesday, included a special charge of USD30 million related to cost-reduction activities and asset impairments. Nonetheless, such cuts were what drove the company back to profitability, Motorola said, claiming that a slew of cost controls put in place during its two-year restructuring made Tuesday's numbers possible.

"Our improvement in profitability in the third quarter is a solid indication that our focus on customers, coupled with the aggressive and timely restructuring of the company that began two years ago, is bearing results in a difficult economic environment," said Motorola's President and Chief Operating Officer Mike Zafirovsk. "All of our businesses are continuing to implement their restructuring and cost reduction actions... as well as remaining highly focused on balance sheet performance and cash flow."

The company's mobile phone business led the way in terms of profitability, posting earnings of USD241 million for the quarter. That business, which holds 18 percent of the global mobile phone market, saw sales slump mildly (2 percent), with revenues of USD2.6 billion. The company's wireless networking equipment unit posted losses of USD22 million on a 42 percent fall-off in sales.

The company's second most profitable business, semiconductors, was the target of tremendous media speculation on Wednesday morning after a report in the Financial Times said that Motorola was in talks with French-Italian company ST Microelectronics to sell the unit. Motorola has denied such talks are underway, but a merger would create the world's second-biggest chipmaker after Intel with annual sales of over USD11 billion.

The two companies have worked together already to catch up to Intel after inking a USD1.5 billion R&D partnership, which includes Philips, to build a new joint venture facility in France. In Ireland, Motorola employs around 50 workers at a chip design centre in Cork; these workers would likely move to ST if such a merger occurred. That centre, which was founded in 1998 and focuses on RF and mixed signal subsystems of wireless handsets, has expanded in size after receiving IDA support in April.

In total, Motorola has 640 employees in Ireland, with around 550 at a software development centre in Cork and a further 40 in Dublin working in the company's mobile phone division. Over the last 18 months, Motorola has cut global employee numbers from 150,000 to around 100,000. In June, 7,000 more global job cuts were announced.

Looking forward in its results, Motorola pulled back on its previous forecast for a global economic rebound. "Whereas Motorola has been predicting a solidifying of the second-half world economic conditions and a strengthening in 2003, it appears now that selected examples of corporate malfeasance coupled with a diverse set of economic and political variables may have an affect on the trend line of the global economic recovery," Zafirovsk said.

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