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Thu, Jul 17, 2003 - Page 12 News List

Motorola remains profitable, despite chill in Asian sales


Motorola Inc, the world's No. 2 mobile-telephone maker, posted a second-quarter profit of US$119 million. Revenue fell 10 percent as demand slumped in Asia and the company said sales and profit may fall this quarter.

Net income in the second quarter was US$0.05 a share, compared with a net loss of US$2.32 billion, or US$1.02 a share, in the year-earlier period, when the company wrote down the value of some assets, Motorola said. Sales declined to US$6.16 billion.

Chief executive Chris Galvin said inventory in China remains high because increased competition and a drop in demand kept Motorola's mobile phones stuck in warehouses. Sales of semiconductor chips, used to run the phones, are also in decline and the unit will likely lose money this quarter, Motorola said.

"It's a difficult time for them because there's no clear part of their business that's doing well," said Alex Peters, who manages the Franklin Global Communications Fund at Franklin Resources Inc, which owned 1.14 million shares of Motorola according to Bloomberg Data.

Phone revenue in the second quarter fell 13 percent as shipments dropped 5 percent. Sales at the semiconductor unit, Motor-ola's second-largest business, dropped 11 percent. Revenue from the cable equipment unit, which sells set-top boxes, slumped 26 percent.

Motorola shares rose US$0.28, or 3 percent, to US$9.78 in New York Stock Exchange composite trading. They have risen 29 percent this year. They fell to US$9.70 in after market trading.

The company said net income in the third-quarter will probably be break-even to US$0.02 a share, below analysts' estimates. Sales will be US$6.3 billion to US$6.5 billion, as much as 4 percent below last year.

Galvin said the company would make no forecast for this year, after the company last month indicated it would. In April, the company forecast sales of as much as US$28 billion and net income in a range of US$0.35 to US$0.40.

The company in April forecast about 430 million wireless phones will be sold industrywide this year, the low end of a previous estimate.

Sales at the company's mobile-phone division fell to US$2.33 billion from US$2.68 billion in the second quarter of last year.

Phone shipments fell to 15.8 million units from the year-earlier quarter. Phone sales in the current quarter will be up "substantially" from the second quarter and "slightly" from the third quarter a year ago, chief operating officer Mike Zafirovski said on a conference call.

The company will release 15 new phones in the third quarter, 14 of which will have color screens, and eight of which will have integrated cameras. Motorola said it will start selling 16 new phones in the year's fourth quarter.

Inventory levels remain high in China, Galvin said on the conference call. He said some "normalcy" is returning to the Chinese market.

"China is a big problem for their handset business," said John Krause, an analyst at Thrivent Financial for Lutherans, which manages US$57 billion in assets, including 2.9 million Motorola shares.

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