Motorola Is Doing The Right Thing

One chronic complaint about U. S. manufacturers is that they spend too much time worrying about quarterly earnings and not enough on research and development. Well, you can't say that about Motorola. It spent heavily on R&D for cellular-communications equipment in the fourth quarter of 1990, even as demand turned sour. But Wall Street didn't applaud. When the first inkling surfaced that earnings would come in below expectations, the stock plunged. It ended the year at 52--down 40% from its midyear high of 87 1/2.

Now, the stock has climbed above 60, and some savvy high-tech watchers believe it has only begun to move. "Motorola will be one of the great growth stories of the 1990s," says Andrew Kessler, who follows high-tech stocks for Morgan Stanley. "It's going to get a nice piece of the communications pie."

The company is a pioneer in a number of cutting-edge innovations, including its CT-2 limited-range phone system and a satellite-based phone system that's under development. Motorola is also a major manufacturer of semiconductors. With capital spending on an uptrend, demand for computer chips should rise.

As Motorola's innovations begin to bear fruit on the bottom line, Kessler sees 1991 earnings reaching $4.25 a share, vs. $3.80 in 1990. He thinks earnings should advance at a pace of 16% to 18% a year--with the share price hitting $75 to $80 over the next 12 to 18 months.