Analysts don't trust Mototola's forecast

Motorola Inc said last month that it will earn US$0.15 a share this year, before certain items. Many investors and analysts, stung by a series of missed targets, don't trust the forecast for a second.

Twenty-three 25 analysts polled by Thomson Financial/First Call expect the second-largest maker of mobile phones to miss the forecast. Their average estimate is for a profit of US$0.04 a share, and the low predicts a loss of US$0.22. Motorola lost about 32 cents a share last year, a First Call survey said, the first annual loss from operations since 1930.

Since the fourth quarter of 2000, Motorola has said on eight occasions that results in a given quarter or year will lag analysts' forecasts. Only four North American companies have done that more often. That's led to investor frustration with the performance of Chief Executive Christopher Galvin, who hasn't trimmed jobs and costs fast enough to preserve profit.

"Fool me once, shame on you; fool me twice, shame on me," Fifth Third Bancorp fund manager Steve Mygrant said of the disparity between Motorola's and analysts' forecasts. Motorola shares make up about US$6 million of Cincinnati-based Fifth Third's US$31 billion in equity holdings, he said.

Shares Schaumburg, Illinois-based Motorola dropped 26 percent last year, ending lower than the closing price in 1993.

Analysts their estimates for Motorola's 2002 profit partly because the company forecast a first-quarter loss of US$0.11 to US$0.14 a share, compared with a Dec. 18 average estimate of US$0.03, while the full-year profit estimate already averaged US$0.15, First Call research director Chuck Hill said.

That shows analysts were loath to boost quarterly estimates for the rest of the year to produce a sum of US$0.15, he said.

Such a difference between a company's and analysts' forecasts is ``not unheard of, but we don't see enough of it,'' Hill said.

Motorola a 2001 profit of US$1.20 a share in October 2000.

The average revenue estimate for this year is US$27.8 billion, First Call said, indicating analysts expect the company to achieve its sales forecast of US$26.5 billion to US$28 billion yet miss the profit target.

Last month, Motorola said it will eliminate about 9,400 more jobs, or 8.5 percent of the workforce, in the following year, saving US$865 million in pretax profit.

That won't get Motorola to the profit target of US$0.15 a share, though. The company said it still has to find US$755 million to US$1.36 billion in estimated "manufacturing margin improvement and other cost savings for 2002 not yet announced," according to a company chart. Motorola didn't include the figures in its Dec. 18 press release or conference call.

"Given the revenue guidance that the company provided, I just don't think that the company is going to be able to generate the results," Fifth Third's Mygrant said.

Motorola Scott Wyman said the efficiencies include higher margins in the phone and chip businesses. He declined to identify the "further cost reductions" Motorola will make.

Tom Carpenter of Hilliard Lyons Inc, one of the two analysts with a 2002 profit estimate of US$0.15 a share, said the forecast is contingent on a rebound in the semiconductor unit. The division, saddled with plants that cost too much to run, had a third-quarter pretax loss of US$487 million as revenue dropped 48 percent to US$1.08 billion. Motorola plans to close several factories next year and boost revenue from more profitable licensing of chip designs.

"If they can stop the loss in that division, that can be a big swing in earnings," said Carpenter, who has a "hold" rating on the stock and doesn't personally own the shares.

Investors the company may not be able to wring enough profit out of its two largest units, cell phones and mobile-phone network equipment, given possible pricing pressure from No. 1 phone maker Nokia Oyj and Motorola's failure to win many orders for new network gear.

"There's some concern that handsets may not be quite as strong as people might have hoped," said Walter Casey, analyst at Banc One Investment Advisors, which owned 5.28 million Motorola shares as of September. "Their wireless infrastructure business, I think, is weak."

The company has not "been able to come up with a comprehensive plan of attack here to improve things," Casey said.

Trusco Capital Partners technology analyst Christian Koch said that while the Motorola V.60 clamshell phone he recently bought for US$350 is "the best phone I've ever owned," his firm doesn't own any Motorola shares and won't buy any because "Nokia has a much lower manufacturing cost."