The semiconductor industry has long been one of Wall Street's fast-growth darlings. But today, as chipmakers crawl out of a slump, a few beasts have emerged along with the beauties.
The drastically contrasting performance of two major semiconductor manufacturers - Intel Corp. and Motorola Inc. - spotlights a whipsaw volatility that has jarred the high-tech industry since electrons first slipped across a silicon wafer.
Intel, the world's biggest chipmaker, on Monday announced that its third-quarter revenue and earnings per share rocketed to new records, soaring 23 percent and 41 percent, respectively, over the previous year.
Just a week earlier, though, Motorola reported a 58 percent plunge in profits for the third quarter, due primarily to what it calls "the recession in the semiconductor industry."
The signature semiconductors made by the two companies differ in sophistication and price, with Intel maintaining a near-monopoly hold on the microprocessors that run the vast majority of today's personal computers. Still, the night-and-day contrast in performance of the two companies illustrates how the industry's ups and downs often move with the blurring violence of a roller-coaster ride.
See-saw chip stocks
As at many high-tech companies, the stock prices at Intel, Motorola, and other semiconductor makers surged during the first several months of 1995 before falling toward year's end. Excess capacity, cutthroat pricing, and soft demand hobbled performance.
During the past four months, the Technology Index at the Chicago Board Options Exchange - tracking 30 major stocks - has seesawed. On Monday it closed at a record high, recovering some 40 percent from a 52-week low set in July. Investors expect a turnaround for the high-tech sector and have dismissed warnings by several companies that third-quarter earnings would be below analysts' estimates. (Intel's third-quarter performance far exceeded analysts forecasts and its shares now trade near a record high.)
Motorola, a leading provider of wireless communications as well as semiconductors, has slid into a trough as it confronts flaccid demand and tries to capitalize on several new, ambitious products. Prior to this year, the Schaumburg, Ill., company had logged a decade of consecutive increases in quarterly earnings.
Growth in the worldwide semiconductor market has plunged from 37 percent last year to an estimated contraction of 9 percent this year, according to Dataquest in San Jose, Calif. At Motorola, chips sales in the third quarter shrank 19 percent. Consequently, the share semiconductors contribute to Motorola's profits has shrunk from 40 percent last year to an estimated 20 percent in 1996, industry analysts say.
Motorola's cellular slide
Motorola has also endured a downturn in the market for mobile phones, where it is the world's leading producer. The market has matured and become increasingly competitive after swift expansion from 23 million cellular-phone subscribers worldwide in 1992 to more than 85 million today. Motorola has been criticized for allowing its 40 percent share of the world market erode to 32 percent.
"Motorola phones were the defining product, but they lost the design edge they had and they did not continue pushing innovation," says David Goodtree, an analyst at Forrester Research Inc. in Cambridge, Mass.
"They were so busy in 1994 and 1995, with sales increasing 100 percent annually, and they weren't as quick as their rivals to bring out new models," says Charles Brunie, chairman emeritus of Oppenheimer Capital in New York. Motorola is laying off employees and taking other cost-cutting steps that it says will result in a charge this quarter totaling "tens of millions" of dollars.
Despite recent setbacks, Motorola still is a formidable force in other promising areas of communications. It is a leader in developing cable modems, which make possible high-speed Internet access. The market for cable modems should explode from a few thousand today to 5.2 million in 2000, according to Forrester Research.
Dominance in pagers
Also, Motorola has grabbed the dominant position in pagers. The pager market has grown from 36 million worldwide users in 1992 to more than 95 million today. "Motorola is pretty much carving out the market in paging," according to Mr. Goodtree. "It could define the paging standard for the next 30 years."
To an extent, unfortunate coincidence has as much to do with Motorola's travails as missteps by management, say analysts. The company confronts "an unfortunate timing of events, where the wireless industry has turned down as the general [chip] industry market also turned down," says Gary Grandbois, chief analyst at Dataquest's semiconductors worldwide program.
"Certainly these trends have hit it very hard, but we don't see a cloudy future," Mr. Grandbois says. Motorola "will turn around and do very well."