updated 1/21/2004 8:18:44 AM ET 2004-01-21T13:18:44

Motorola Inc. nearly tripled its fourth-quarter earnings of a year ago, beating Wall Street’s estimates Tuesday with a $489 million profit and an unexpected increase in sales to cap off another year of mixed results.

The results signaled a mostly upbeat finish to Christopher Galvin’s disappointing seven-year run as head of the company. Galvin, grandson of company founder Paul Galvin, departed last month after failing to turn the wireless company around and was succeeded by former Sun Microsystems Inc. president Ed Zander.

But cell-phone sales fell 3 percent because of delays getting camera phones and other products to market — symptomatic of the glitches that have clouded Motorola’s results for years.

Zander, who took over two weeks ago, said the fourth-quarter results “provide further evidence that top-line growth has returned and that further improvement in profitability can be achieved.”

He signaled, however, that Motorola may be in for more, unspecified cost-cutting even after an extended restructuring that has seen it shake up its business units and slash its work force from a peak of 150,000 in 2000 to about 88,000 at the end of 2003.

“We’re going to continue to look at our cost structure,” Zander told analysts on a conference call. “I think there’s a lot of low-hanging fruit that we can go after in terms of our cost structure and our resources.”

Net earnings for the quarter amounted to 20 cents per share, up from $174 million, or 8 cents a share, a year earlier.

Excluding special items in both periods, operating earnings were 17 cents a share — 4 cents per share better than the consensus estimate of analysts surveyed by Thomson First Call.
Revenues were $8.02 billion, up 4 percent from $7.7 billion.

Sales in the cell-phone unit, Motorola’s top business, slipped to $3.3 billion in a quarter when camera phones were in big demand and the Schaumburg, Ill.-based company sought a lift from the 21 new phones it released in the second half of 2003.

“The decline in revenues was due to delays in introducing several new products,” said Mike Zafirovski, president and chief operating officer.

He said the delayed products have been shipping out since mid-December and meeting a positive reception from consumers.

Motorola officials also cited a 64 percent jump in orders for cell phones during the quarter, to $3.6 billion. But operating earnings from the unit fell to $127 million from $294 million a year earlier.

The company estimated first-quarter earnings of 5 cents to 7 cents a share and companywide sales of $6.8 billion — compared with Thomson First Call estimates of 5 cents a share and $6.3 billion in revenue.

The semiconductor unit, which Motorola is preparing to spin off as a publicly traded company, saw sales rise 2 percent and orders climb 14 percent — both to $1.4 billion — while operating earnings edged up to $25 million from $18 million.

Its networking equipment business also showed improvement, with an 11 percent increase in sales to $1.4 billion and operating earnings of $138 million on top of a loss a year earlier.

Morningstar analyst Todd Bernier said it was a good quarter for Motorola, especially for its semiconductor and networking equipment units. But he called the cell-phone results disappointing, particularly given a profit margin of less than 4 percent compared with over 20 percent for rival Nokia.

“For all the talk about how they’re having a recovery in that business, they keep dropping the ball,” Bernier said. “And it’s unacceptable that you miss the Christmas selling season” with key products, he added.

For the full year, net earnings were $893 million, or 38 cents a share, compared with a 2002 net loss of $2.48 billion, or $1.09 a share. Revenues declined to $27.1 billion from $27.3 billion.
Motorola shares traded 9 cents lower in after-hours trading after closing at a two-year high of $17.05 on the New York Stock Exchange, up 10 cents for the session, before the earnings report was released.

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