In downgrading the company's Q1 forecast, Motorola president Robert L. Growney told financial analysts this morning that the semiconductor business has entered into a "free fall," and while he hopes for a second-half recovery, there are no clear signs yet of any improvements in the third or fourth quarter.

"Semiconductor--in the first quarter under its current order pattern--will be one of the businesses that will show a loss," said Motorola's president and chief operating officer, responding to analyst questions this morning.

Before the opening of the U.S. stock markets today, Motorola announced that it does not expect to reach its corporate-wide $8.8 billion sales target for the first quarter. It also expects to miss its estimate of 12 per share earnings. In January, Motorola posted sales of $10.1 billion and a net income of $135 million, or $0.06 per share, for the fourth quarter, including charges (see Jan. 10 story). Motorola's semiconductor sales were $1.9 billion in Q4 of 2000.

The Schaumburg-based company warned that it could report an operating loss if economic conditions continued to deteriorate and orders for all its products slow down.

The CEO told analysts that Motorola had backed down from its previous estimate of 525 million cellular phone handsets being shipped by the industry in 2001. "We are looking at a number that I think is below 500 million," he said.

The company is planning to announce the closing of more plants across its business units in response to poor market conditions, Growney said. The closing of six Motorola facilities have already been announced and four will be announced soon, he said. Three other facilities could also be impacted, Growney, who provided no details about the types of products being made in those plants.

The company suggested that more cuts could be made in its struggling Semiconductor Products Sector to reduce losses. Two weeks ago, Motorola's Semiconductor Products Sector in Austin, Tex., announced plans to reduce its workforce by 12%, or 4,000 jobs worldwide, in response to slowing chip sales. At the time the company also said it was making significant cuts in semiconductor capital spending (see Feb. 9 story).

The Motorola president said the chip business remains in a "free fall mode," but the company is hopeful of a market recovery in the third or fourth quarter this year. "We have not seen any signs of recovery," Growney told analysts this morning. The company continues to look for signs of improvements in the third or fourth quarter, "but nothing has shown up yet to suggest that," he admitted. "It is a hypothesis at this time. We know what we are looking for, but we haven't seen it yet."

Without issuing specific numbers, Growney said semiconductor orders were significantly lower than expected half way through the first quarter. Motorola's Semiconductor Products Sector posted sales of $1.9 billion in Q1 of 2000 and orders of $2.0 billion in the period. The Austin-based unit had an operating profit of $123 million in the first three months of 2000.

"As far as we are concern we are in a recession at this point, and it is a recession of confidence," he said during today's conference call. Growney said overbuilding that has taken place in various business sectors "but that's not what is producing our current market we believe." He also warned that the "recessive thinking" is "bleeding over very, very quickly into Europe and also into Asia Pacific."

While Motorola is considering additional actions to reduce losses in its semiconductor group, Growney said he is hesitant to make too many cuts because of the volatile nature of today's businesses. He partly blamed the Internet and the speed of information for making the business unpredictable.

"This has impact us all the way through what would be called 'the food chain,'" he said. The speed at which decisions are being made is impacting the industry in both up and down cycles, Growney added. "The e-business world has dramatically changed both the upside and downside response to changes in market conditions."

--J. Robert Lineback