Motorola has first operating loss since 1986

You have to go back to 1986 for the last time Motorola had a quarterly

operating loss. But the company said the weakness in demand for chips and cell

phones caused it to suffer a $206 million loss in its ongoing operations. A year

ago, Motorola earned $481 million.

"Although cash flow from businesses, including net proceeds from

investments, was positive in the first quarter, this quarter was a difficult

one," said Robert Growney, president and chief operating officer.

"Order growth weakened across all of the company's business segments. We

believe this change in customer requirements is part of a major global pattern

affecting many technology companies."

Sales in the quarter fell 11 per cent to $7.8 billion from $8.8 billion.

Sales in Motorola’s Personal Communications unit, which includes cell phones

and pagers, fell 29 per cent to $2.3 billion. Orders dropped 10 per cent to $2.8

billion. The division had an operating loss of $402 million, compared with an

operating profit of $53 million a year earlier. It is Motorola's largest

business unit by sales.

Sales declined due to slowing demand for cell phones by service providers and

rising manufacturing costs as a percentage of sales. "We see a continuing

downturn in the US economy beginning to spill over to the rest of the world,''

said Motorola CEO and chairman Christopher Galvin.

The current slump is putting new pressure on Galvin, the grandson of Motorola

founder Paul Galvin. Galvin recently ordered a workforce reduction of 15 per

cent, plant closings and hired outside manufacturers to cut costs. It is not his

first crisis. In 1998, he helped Motorola recover from a slump in chip sales by

eliminating 15,000 workers, selling some businesses and paring the company's

chip product line. "The high-technology sector is already in a recession.

These issues, plus interest rate policy or energy prices, cannot be controlled

by Motorola," Galvin said this week.

Semiconductor sales declined 22 per cent to $1.5 billion, and orders plunged

47 per cent to $1.1 billion. The chip unit's operating loss was $131 million,

compared with a profit of $128 million a year ago.

The bright spot is the firm’s broadband communications business, which

includes digital cable TV set-top boxes and cable modems. It rose 21 per cent in

revenue to $818 million, while orders increased 3 per cent to $905 million.

Operating profits increased to $130 million from $99 million. As part of a

new round of cost-cutting measures, Motorola, despite a plea from British Prime

Minister Tony Blair, will close its cell phone factory at Bathgate near

Edinburgh in Scotland and fire the 3,200 people that work there.

Motorola is cutting some 22,000 jobs worldwide to cut costs and boost profit margins.