Motorola Inc. announced Thursday that setbacks in several key business areas are likely to result in third-quarter earnings “significantly lower” than those expected by analysts and to negatively impact results for the fourth quarter as well.
Following the news, which was put out shortly after the New York Stock Exchange closed, shares of Motorola plummeted. Motorola stock fell $8.37, or 13 percent, to $66 in after-hours trading.
Motorola has shuttered its Macintosh-compatible computer business because Apple Computer Inc. will no longer license its operating system. The big Schaumburg-based electronics company said it will take a one-time charge of $95 million in the third quarter as a result.
It’s the second consecutive quarter Motorola has taken a big write-off. In the second quarter, the company took a $170 million pretax charge to exit the dynamic random access memory chip business. It also warned at that time it might take further charges in the second half of the year as the company continues its plans to review products and eliminate those that aren’t profitable.
“As we pointed out in our second-quarter report, Motorola is redirecting resources to develop programs with the greatest potential, and reviewing development programs and businesses that have not lived up to expectations,” Motorola Chief Executive Officer Christopher B. Galvin said in a statement. “That process is continuing, and may result in additional charges against earnings in the third and fourth quarters of the year. We are positioning the company for sustainable long-term growth and profitability.”
Motorola also said it expects its third- and fourth-quarter results to be hurt by softness for paging products in the U.S. and China, the two largest pager markets. China’s paging market is going through a larger-than-normal seasonal downturn, and U.S. paging operators continue to control inventories tightly in order to improve their financial positions and cash flow, the company said. These factors may continue into the fourth quarter.
Motorola said its results would further tumble after it realizes its share of losses for the Iridium LLC project, a low-Earth-orbit satellite communications system in which it has a 21 percent stake, and increased expenses related to its flat-panel display business. The combined impact of these two programs is expected to result in about $20 million of higher expenses in the third quarter, the company said.
Wall Street was expecting Motorola to report third-quarter profits of 60 cents per share, according to a survey of 27 analysts by First Call. In the year-earlier period, Motorola reported net income of $206 million, or 34 cents per share, on revenues of $6.5 billion.
Motorola’s Tempe, Ariz.-based Computer Group unit said Thursday it would exit its Macintosh operating system business after failing to reach a licensing agreement with Apple.
The two companies began negotiations in February and attempts to strike a deal continued through Wednesday.
At issue was whether existing licensing contracts allowed Mac cloners to ship personal computers with Apple’s latest operating system, the Mac OS 8.
Clone-makers believed the agreements covered future operating systems, including a new system Apple plans to introduce next year based on software it acquired in its purchase of Steve Jobs’ Next Software Inc.
Jobs, the Apple co-founder who has been leading the struggling computer-maker since the ouster of Gil Amelio from the chief executive post in July, decided to pull the plug on the licensing program.
Another issue was whether Apple would supply cloners with the software they need to build machines based on a new hardware design known as the Common Hardware Reference Platform, or CHRP. Motorola thought it had Apple’s support for CHRP designs and was all set to ship a CHRP-based Mac clone in mid-September.
“This announcement brings to an end our effort to reach agreement with Apple on terms that would have supported our continued Mac OS investments,” said Joe Guglielmi, corporate vice president and general manager of Motorola Computer Group. “Now that we have arrived at this juncture, we will concentrate our resources on emerging opportunities in the market and on strengthening our profitable embedded and technical systems business, where we remain market leaders.”
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