Motorola has been downgraded by Standard & Poor's, which said Wednesday that low profits and a weak demand for its products are trends likely to continue. Motorola was also removed from S&P's CreditWatch list.
The financial research company said Motorola's (company
profile) sales growth has been affected by increased competition and weak markets in several of the company's main product lines, especially its semiconductor operations. Motorola MOT also has a large presence in the wireless-communication market, and its sales in that field have been slowed as the company attempts to shift its product line from analog to digital cellular handsets. Overall, Motorola's sales are pinned down by high product development costs, lower sales, and some product-line shortfalls, according to S&P.
However, the company has a broad product line and a substantial technology base, according to S&P, and the report also pointed to the company's cash reserves of $1.8 billion as a sign that the Schaumburg, Ill.-based company is relatively healthy overall. Although S&P gave the company a negative outlook, it also said Motorola is likely to see new product lines and resumed growth in the future.
S&P said Motorola's profitability of about 15 percent last year was near the bottom of its cyclical low point, comparable to levels several years ago and well below the 17 percent to 19 percent returns seen in 1993 through 1995. The company's bank loan, corporate credit, and senior unsecured ratings were all lowered from AA to AA-, and its subordinated debt rating dropped from AA- to A+. Its commercial-paper rating remained unchanged at A1+. The analysis firm said further declines in profit margins could lead to another downgrade.