September 11, 1997 4:45 PM PDT

Motorola posts $95 million charge

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Motorola (MOT) said today that it would post a special $95 million charge in the third quarter as a result of its exit from the Mac clone business and weakness in the paging market.

The company's stock dropped about 10 percent, or 7-3/8, to close at 67.

The company's decision to leave the Mac clone business, announced today by its Computer Group division, was made because of its inability to reach an acceptable long-term licensing agreement with Apple Computer (AAPL) for the Mac OS operating system. (See related story)

The Motorola division now intends to concentrate on "embedded-chip" products, or non-PC devices, and technical systems markets.

"They made a decision to phase out of licensing...That is their decision and we have made our decision," said Joe Guglielmi, vice president and general manager of the Computer Group. "We believed that there was opportunity in the Mac clone market and were pouring millions into R&D...Obviously, we're disappointed. Apple will now have to bring all advances on their own."

Analysts expected the company to report profits of 60 cents a share for the third quarter, but the one-time charge will negatively impact earnings. Third-quarter results also are expected to be negatively impacted by weakness in the world's two largest markets for paging products.

During the third quarter last year, Motorola reported revenue of $6.5 billion and a net income of $206 million, or 34 cents a share.

In China, the paging market is experiencing a larger-than-normal seasonal downturn. And paging operators in the United States continue to tightly control inventories to improve their financial positions and cash flow. These factors could continue into the fourth quarter, the company said.

As previously disclosed, results also will reflect the impact of increased expense in recognition of Motorola's share of Iridium LLC's net losses, as well as increased expenses in the commercialization of the flat-panel display business. The combined impact of these two programs is expected to result in about $20 million worth of expenses.

Earnings are expected to be released October 6 after the markets close.

Guglielmi warned that it is too soon to speculate on layoffs that could result from the decision to move away from the clone market. "Most will find good, solid work in MCG," he said. "The major effect will be in the outlying sales offices where they are supporting the channels."

Motorola announced earlier in the quarter that it also would exit the dynamic random access memory market to cut underperforming business lines.

 

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