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Strong Cell Phone Sales Boost Motorola's Profit

A bond downgrade by Moody's prompts the company to move up its reporting of upbeat results by a day.

October 14, 2003|From Reuters

Motorola Inc., the world's No. 2 mobile phone maker, posted a quarterly profit Monday that was twice Wall Street estimates, saying its performance was due to surprisingly strong demand. The company also forecast stronger-than-expected sales in its current fourth quarter and said earnings could top analysts' estimates.

Shares of Motorola rose in heavy trading as optimism on the results outweighed concerns over a bond-rating downgrade Friday by Moody's. Motorola closed Monday up 8 cents at $13.87 on the New York Stock Exchange, after trading as high as $14.40.

Motorola, which moved up its reporting date by a day after the Moody's downgrade, reported a third-quarter profit of $116 million, or 5 cents a share, compared with $111 million, or 5 cents, last year.

Excluding one-time items, the Schaumburg, Ill.-based company posted a profit of 6 cents a share, double what analysts had expected on average, a Reuters survey found.

Sales for the quarter rose almost 5% to $6.83 billion. Analysts had expected $6.44 billion, according to Reuters.

Analysts were satisfied with the third-quarter results but were wary about the outlook for the cell phone unit for the fourth quarter -- traditionally the industry's strongest season.

"This is the same company that reported strong [cell phone order] numbers on the surface last year this time and then managed to come out about a quarter later and say there was too much inventory," said Alex Vallecillo, senior portfolio manager of Armada Funds.

Moody's analyst Paul Hsi, who had said Motorola faced tough challenges to boost sales and earnings when he cut Motorola's unsecured debt to one notch above junk on Friday, said the results and the company's outlook did not change his opinion.

"The overall business environment seems to have stabilized and the tax and low interest rate economic stimulus appears to be enhancing the prospect for slow but emerging growth," Motorola Chairman and Chief Executive Christopher Galvin said.

Galvin said last month that he was resigning because of disagreements over strategy with the board but would remain until a successor was named. The company also said last week that it planned to spin off its money-losing semiconductor unit, a move sought for years by many analysts and investors.

Motorola and its rivals, including No. 1 cell phone maker Nokia of Finland, have suffered a slowdown in demand for mobile phones and wireless network equipment in recent years.

Competition also has intensified, particularly from South Korea's Samsung Electronics Co.

Motorola said it expected fourth-quarter earnings of 8 cents to 12 cents a share on sales of $7.5 billion to $7.8 billion. Excluding one-time items, it expects earnings of 11 cents to 15 cents a share.

Analysts had been expecting fourth-quarter earnings, before one-time items, of 12 cents on sales of $7.43 billion, Reuters found.

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