Motorola confesses to Q2 slump

Chip manufacturer blames poor sales figures on Asia and increased pressure on pricing. Lisa Barnett reports.

Motorola has warned that its Q2 result will be below analysteased pressure on pricing. Lisa Barnett reports. expectations, after reporting a sharp drop in earnings for Q1.

In its Q1 ended 31 March, Motorola's sales increased to $6.9 billion, compared with $6.6 billion last year - a rise of four per cent. However, the chip developer's earnings dropped sharply to $180 million, compared with $325 million for the same period last year.

The results were in line with Wall Street expectations as Motorola had previously issued a profit warning to analysts last month. Second quarter sales are expected to be as much as 45 per cent lower than last year's Q2 figures of $268 million.

Motorola CEO Christopher Galvin blamed worldwide pricing pressures and competition from Asia. He also admitted the company had reduced the growth expectation percentages of its semiconductor business.

In January, Motorola said it expected between 13 and 15 per cent growth for the industry's chip business during 1998, which had already been lowered from the previous figure of 15 and 17 per cent.

But last week Galvin conceded that forecasts for industry growth during the year had been further downgraded to between six and eight per cent.

In line with this reduction, Motorola has revised its semiconductor spending to $2 billion, down $500 million from its original budget.

Motorola is expected to embark on a number of cost-cutting exercises such as consolidating manufacturing operations, reducing staff or operating a shortened working week in some businesses.

The chip manufacturer's stock fell more than nine per cent last week, after the company released its financial figures.