Before the end of the year, Motorola's Semiconductor Products Sector in Austin hopes to see an end to its losses. The group had an operating loss of $381 million on shrinking sales of $1.3 billion in the second quarter. While releasing Q2 financial results, Motorola said its chip sales dropped 38% from a year ago and semiconductor orders were down 51% to $1.0 billion in the just-ended quarter from the same period last year (see July 11 story).

But the worst of the semiconductor downturn could be over, according to executives during a conference call with financial analysts today.

"As we go into the fourth quarter, hopefully we will see some recovery, and as the volume comes back to this industry and ourselves, then we'll enter into what I would call a 'profitable position' going forward," hedged Fred Shlapak, president of Motorola's Semiconductor Products Sector. Shlapak told analysts that Motorola's chip factories are now operating at 50-to-60% capacity utilization.

But adding more caution to Shlapak's response to questions about the potential for recovery, Motorola president Robert L. Growney said the company was not yet ready to predict "at which particular quarter semiconductors might return to profitability."

On Wednesday, Motorola posted a corporate-wide net loss of $759 million on sales of $7.5 billion in second quarter. In today's conference call, Motorola officials told analysts that the company expected overall revenues to grow 5% sequentially in the third quarter from Q2. The Schaumburg, Ill.-based communications and chip supplier said it now expects a loss of "several cents per share" in Q3 after pro forma adjustments compared to a loss of $0.11 in the just-ended quarter.

Motorola's troubled semiconductor sector appears to be turning the corner in one of the worst industry downturns ever. Shlapak told analysts that the semiconductor sector is ahead of its plans to reduce costs by $1 billion on an annual basis. The semiconductor unit also saw sequential sales growth during Q2 in two of its businesses--networking and transportation, he said.

"Factory shutdowns, intensive inventory management, and required time off yielded $96 million in savings during the second quarter on top of the $65 million realized in Q1," he said referring to a series of announced layoffs and other cost-cutting measures. He said the semiconductor group has nearly completed its announced workforce reduction of 4,000 jobs (see Feb. 9 story), and the chip business is further reducing its workforce through attrition.

"Our capital spending is focused only on the most mission critical equipment and projects," he said. Motorola's semiconductor capital spending plans for 2001 remains at $750 million--a reduced budget set earlier this year as part of cost-cutting measures. Motorola's semiconductor capital expenditures totaled $2.4 billion in 2000.

"The chip market continued to slow in the second quarter, which was the fourth consecutive quarter of weakness," he said. "Industry growth peaked a 50% rate in the second quarter last year but dropped to a negative 30% pace in this year's April-May timeframe."

Globally, industry sales through May were down 14% overall, he said. "We now estimate that worldwide semiconductor sales will fall 15-to-20% for the full year compared to last year," said Shlapak, adding that Motorola's forecast is in line with industry analysts projections.

"We continue to believe that the industry's recovery will begin in the second half of this year as customers work off excess inventories and more normal order patterns return," he added. "We also agree with numerous market analysts, who predict that going forward inventory levels will more realistically match expectations of end-market product demand."