Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=113879
Story Retrieval Date: 5/19/2013 10:22:00 PM CST
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Motorola stock dives on big loss, dividend halt
by Ashley Bates
Feb 03, 2009
Ashley Bates /MEDILL
A sharp decline in mobile telephone sales contributed to Motorola's staggering fourth quarter loss.
The tough economic climate and besieged mobile telephone business drove Motorola’s poor performance, which the company had forecast in previous public announcements. Samuel Wilson, a senior analyst at JMP Securities, said that Motorola’s sweeping cutbacks had offered clear indications of trouble.
“All last quarter, they telegraphed through continuous layoffs that there are a lot of problems at the company,” he said. “How would you like to work for a company that froze its pension fund, canceled its 401(k) match, is having large scale layoffs, and no salary increases? I’m sure it’s not a cheery place.”
The Schaumburg-based company lost $1.57 per diluted share in the fourth quarter ended Dec. 31. This compared with earnings of $100 million, or 4 cents per diluted share, in the same period the previous year.
Analysts polled by Thomson Reuters had expected Motorola to break even on an operating basis—an accurate prediction, but a few one-time charges, including goodwill impairment and an increase in a deferred tax valuation, added up to $1.56 per share. Without these expenses, the company would have lost only 1 cent per diluted share.
Motorola’s revenue dropped 26 percent to $7.14 billion from $9.65 billion a year earlier. This was primarily due to a staggering 51 percent decline in sales of the company’s mobile devices.
Motorola consequently plans to restrict its mobile device investments to higher-end smart phones and focus its efforts on more successful ventures, including broadband, video and communications equipment.
Greg Brown, co-CEO of Motorola, summed up the company’s predicament in a conference call.
“We have a whole portfolio of businesses here,” he said. “Home and networks mobility and enterprise mobility continue to generate cash. Mobile devices continue to burn it.”
Brown did not explain the sudden dismissal of Chief Financial Officer Paul Liska, saying only that “the business environment has changed, and given the environmental changes, we thought [replacing Liska] was appropriate at this time.” Edward Fitzpatrick, a senior vice president, is serving as acting CFO while Motorola searches for a replacement.
In the most recent quarter Motorola’s cash from operating activities was $201 million, down sharply from $470 million a year ago. Brown suggested that the decision to suspend dividends was partially driven by concerns that cash flow could get even worse.
“[Eliminating dividends] is just being prudent,” he said. “Given the uncertainty that we have in the external environment, the preservation of cash is an absolute priority….We don’t know what we don’t know.”
Company officials anticipated a loss of 10 to 12 cents per share in the current quarter. Wall Street analysts predict a loss of 5 cents, according to Reuters Estimates.
Mark McKechnie, an analyst at American Technology Research, said in an interview that Motorola’s past guidance has been conservative and reliable.
“It is usually pretty decent,” he said. This year's guidance he termed "pretty pessimistic and I think it’s probably pretty accurate.”
Motorola stock closed at $4.03, down 51 cents.
