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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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MARCH 18, 2003 SPECIAL REPORT: THE SQUEEZE ON WIRELESS Why Investors Aren't Dialing Motorola Even though the No. 2 handset maker broke a string of losses, Wall Street is more focused on its inability to get sales rising smartly
Yet the communications giant got no love from investors as a result and seems unlikely to anytime soon as it approaches the end of what's proving to be a lackluster first quarter. The stock has barely budged from this year's $8 floor -- even given the surge in the stock market in recent days. Motorola shares closed on Mar. 17 at $8.53, up only 49 cents, or 6%, from its Mar. 12 close, while the tech-heavy Nasdaq index has risen 9% over that time. "Motorola is positioning itself for a strong comeback when the industry snaps back," says Jeff Kagan, an independent telecom industry analyst in Atlanta. "It's just hard to tell right now because growth in the industry has almost flattened out. There's a light at the end of the tunnel, but it's not this quarter." TOO MUCH INVENTORY. Motorola will need to post a decent showing for the first quarter to win back credibility with investors, and that's going to be a high hurdle. Investors are focused mainly on its handset business, which delivered 40% of sales in 2002. Market trends there are proving weaker than hoped as consumer spending slows and competition heats up, especially from China. The average selling price of mobile phones is down, and excess inventory has built up. "That inventory needs to be cleared before companies can sell new handsets," says Ben Wood, senior mobile communications analyst at Gartner Dataquest. According to Gartner's data, Motorola had 15.3% worldwide market share in 2002, up from 14.8% in 2001. But it didn't take any share away from Nokia (NOK ), which commanded 35.8% market share in 2002 and 35% in 2001. Nor did it claim any from No. 3 Samsung, which claimed 9.8% of the market, up from 7.1% in 2001 (share gains for the top four suppliers came from weakness at small and regional manufacturers). "Motorola is in a strong No. 2 position," says Wood, "but it needs to be looking over its shoulder at Samsung." To stay a solid second, Wood thinks Motorola, which is promising lots of innovative new handsets this year, will need to make sure that it delivers them on time to its customers -- wireless network operators, especially in Europe, the Middle East, and Africa. While concerned that Motorola may have lost market share at key customer Verizon this year, RBC Capital Markets analyst T. Michael Walkley says he believes the handset division will be able to meet its first-quarter estimates. UNEXCITING CHIPS. Meantime, Motorola is combating ongoing weakness in the wireless infrastructure industry as the planned buildout of third-generation wireless systems, known as 3G, has been delayed. That division accounted for 17% of Motorola's 2002 sales. Nokia warned on Mar. 11 that its first-quarter sales would be disappointing because of weakness at its network-equipment division. And Ericsson (ERICY ) is in the midst of installing a new management team to implement a massive restructuring plan that will confront ongoing weakness in infrastructure sales. Motorola's third major division makes semiconductors (18% of 2002 sales), including communications chips sold to other cell-phone manufacturers, and is considered by analysts to be stable but unexciting. At a Mar. 11 investor conference, Rob Shaddock, a general manager in Motorola's personal communications division, boasted that the company had top market share in handsets in greater China and North America (Gartner shows it basically neck-in-neck with Nokia there). While Shaddock conceded that selling prices had slipped a bit as competition in China has become more intense, he said inventory levels were "normal." (Motorola declined an interview request, citing its "quiet period" before its quarter ends.)
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