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Shelley Souza, Optionetics.com
October 10, 2001

Last week, investor and analyst eyes were on Motorola (MOT) with one question in mind: how was Motorola planning its recovery? It was a question of whether it was time to invest in Motorola again—after its significant downturn, along with the rest of the semiconductor companies and technology as a whole. Motorola’s mobile phone unit was keeping the revenues up even as sales in the chip unit fell (see Tech World: Motorola’s Recovery Plan, 10/03/01; and Index Intelligence: SPX—Market Earnings Outlook, 10/10/01, Frederic Ruffy).

Today, the company announced a further 7,000 job cuts including layoffs, reducing around 26 percent of their total work force, which was 147,000 before the first wave of redundancies that cost 32,000 jobs. CEO Robert Growney indicated to analysts when Motorola announced earnings this morning that there could be more cutbacks in jobs. “Motorola will continue to take appropriate cost-reduction actions,” he said.  Today’s reduction—4,000 jobs—came from business that Motorola has sold; 3,000 were lay-offs.

While analysts were disappointed with the warning of losses for the fourth quarter, they blamed economic conditions at large rather than specifics related the company’s business practices. Motorola confirmed that it would lose money for the fourth quarter in a row. They project a loss of 4 cents to 5 cents, where analysts had hoped for a profit of 1 cent. However, Motorola confirmed that their mobile phone unit brought in a gain of 17 percent—2 percent higher than a year ago.

Although traders sold off the stock ahead of the meeting today, it closed fractionally up at $16.91, with a gain of 1.4%. Some analysts feel that the handset industry might finally be turning around. This unit accounts for 36% of Motorola’s business revenues. However, one analyst, Vivian Mamelak of Arnhold and S. Bleichroeder, told the press, “There are a lot of adjustments that get them to profitability that don't make sense to me. There are still a lot of unknowns.” With mixed assessments on the table about Motorola’s recovery plan, investors who are interested in the company for long-term investing should look carefully at the accounting principles the company is using to project future revenues. Many technology companies use pro forma models that allow them to project profitable scenarios. Mamelak suggests a scenario that requires more adjustments than normal.

As always, trade carefully.


Shelley Souza
Senior Writer & Trading Strategist
Optionetics.com ~ Your Options Education Site
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