Officials today said the breakeven point in the first half of 2003 would be maintained by continuing cost cuts and increasing annual chip revenues to at least $4.9 billion, which is about 13% higher than the semiconductor division's ran-rate in Q1. Motorola's chip sales in 2001 were $4.94 billion, a 37% decline from $7.88 billion in 2000.

"The semiconductor business is on our internal schedule with our 'asset light' strategy," said Edward Breen, president and chief operating officer of Motorola, during a conference call with analysts today. Breen also said Motorola remains on track to reach profitability corporate wide in the third quarter, assuming no unexpected economic setbacks or new major political problems in the world.

During the conference--following the release of Motorola's first-quarter results on Tuesday---Breen indicated that the Schaumburg, Ill.-based electronics giant was satisfied with the turnaround progress of its Semiconductor Products Sector. Last year, Motorola indicated that it would not rule out divesting itself of the chip division, if it could not turnaround the business.

The Illinois-based company is banking on a combination of additional cost cuts, new leading-edge products, and a steady recovery in IC markets to return its chip business to profitability between the second half of 2002 and first half of 2003. But when asked about the specific timing of chip profits, Breen spoke of a range of breakeven points lower vs. revenue levels.

"During this year we will have the breakeven down in the $5.3-to-5.4 billion range," he told analysts while answering questions today. "With additional actions we have been taking, we think ... sometime during the first half of next year--'03--the semiconductor sector will be breakeven slightly below $5 billion---kind of in the $4.9 billion range."

The Austin, Tex.-based Motorola Semiconductor Products Sector did show steady improvements in reducing losses in the first quarter despite a 2.7% sequential drop in sales to $1.09 billion. The semiconductor group narrowed its operating losses to $226 million, excluding special items, in the first quarter from a loss of $335 million in Q4 of 2001, and bookings for products jumped 30% from the prior three-month period to $1.3 billion (see April 16 story).

During today's conference call, Motorola semiconductor president Fred Shlapak said, "We are well on our way towards achieving our goals of modest profitability by the fourth quarter of this year and of sustainable growth and profitability beyond 2002."

He said the semiconductor group is aiming to cut its employment under 24,000 by the end of 2002 from a headcount of 28,500 at the end of the first quarter. "We are on target to reduce 6,000 additional employees in 2002 as we announced in 2001," Shlapak said, referring to layoffs and cutbacks outlined in December.

As part of Motorola's 'asset light' semiconductor campaign, the company is moving ahead with plans to reduce its number of wafer fabs to 8 from 18 in 2000. Currently it is still operating 14 wafer fabs after ending production in the aging MOS 8 plant in Austin, and its Bipolar 6 facility in Toulouse, France, during January, according to Shlapak.

The Motorola chip president said the company was moving into the second phase of the asset light strategy with its agreement to partner with Royal Philips Electronics N.V. and STMicroelectronics in a five-year R&D alliance announced on Friday (see April 12 story). The partnership aims to develop multiple generations of CMOS technologies--90-nm to 32-nm--and a range of related processes, including 300-mm wafers fabrication, silicon-on-insulator (SOI) substrates, advanced copper interconnects, embedded DRAM, embedded SRAM, analog CMOS, and magnetic random-access memory (MRAM), Shlapak told analysts.

This alliance and plans for access to 300-mm pilot production in Crolles, France, will reduce Motorola's cost of maintaining its CMOS technology roadmap by two-thirds in the next five years, Shlapak said. "We expect to start to realize the benefits of this in late 2003," he added.

Capex at $250 million in 2002

He said Motorola has now set its capital spending for semiconductors at $250 million in 2002, up slightly from a $200 million target disclosed in January, but significantly less than $610 million in 2001 and $2.4 billion in 2000. Shlapak said Motorola is forecasting a modest recovery in chip markets during 2002, with worldwide sales rising 5-to-10% from 2001.

"As expected, the recovery is beginning slowly," he said, noting that the first quarter was the second sequential "recovery quarter" after the severe semiconductor downturn. Motorola's semiconductor book-to-bill was up at 1.18 in the first quarter with its $1.3 billion in orders being 18% higher than Q1 of last year.

Overall, Motorola is predicting its corporate-wide revenues in the current second quarter will increase 5-to-7% sequentially to $6.3-to-$6.4 billion compared to $6.0 billion in Q1, said Breen in the conference call. He said the corporation still expects to end the year profitable, excluding special charges.

"Barring any unforeseen economic or political disruptions, we continue to expect a decline in sales from ongoing operations for the full year 2002 of between 5-and-10%," Breen told analysts today. He added that the company is managing its costs on the lower end of that revenue range. Last year, Motorola's sales totaled $29.45 billion, a 19.9% decline from $36.76 billion in 2000.