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Motorola to Cut 3,000 jobs, CEO Says

October 31, 2008
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Motorola Inc. will cut 3,000 jobs, or about 5 percent of its workforce, co-CEO Greg Brown told Crain's Chicago Business on Thursday, October 30, after the company reported earnings.

News of the layoffs comes as Schaumburg, Illinois, based-Motorola tries to trim $800 million in costs next year, including $600 million from its money-losing phone business.

About 2,000 of the job cuts will come from its mobile-devices business, which continues to see sales shrink. Its market share slipped below 9 percent in the third quarter, Strategy Analytics said, and Motorola fell to No. 4 behind Sony Ericsson, Samsung Electronics and Nokia Oyj in worldwide mobile phone sales. Motorola had been No. 2 until a year ago.

Motorola also announced that it was delaying the planned breakup of the company because of credit-market turmoil and a decision to overhaul its phone lineup that would cause the slumping business to shrink even more.

The company had been expecting to split itself into two public companies by next October. It offered no new target date but says it still plans to pursue a spinoff.

Thursday, the company reported a net loss of $397 million, or 18 cents a share, compared with a profit of $40 million, or 3 cents a share, in the year-earlier quarter. The latest quarter included charges of 23 cents a share for items such as asset impairments and business reorganization. Revenue fell 15 percent, to $7.48 billion.

Motorola's stock closed down 27 cents, or almost 5 percent, at $5.19 Thursday.

Sanjay Jha, who joined Motorola as CEO of its handset business in August, has decided to simplify the company's expensive and unwieldy product strategy by slashing the number of software and chip families in the company's phones.

Brown said that he and Jha made the decision to delay the breakup of the company, but it was approved by the board of directors. However, he says there was no discussion of abandoning the spinoff, which some analysts have suggested.

"It was more about timing," said Brown, adding that investors he's spoken with have supported the delay.

"Investors realize importance of stability and cash and earnings," Brown said. "The overall sentiment from investors is one of pragmatism and understanding."

It will be hard to spin off the handset division as long as it's losing money, and Jha declined to predict when the division will stop losing money.

Jha said the company would cut the number of software platforms by half to just three: Microsoft's Windows, the new Google-led Android system and P2K, which Motorola developed several years ago. And it plans to use chips from Qualcomm and Texas Instruments and move away from its former in-house chip unit, Freescale Semiconductor.

As part of the software changes, the company will open a development center in Seattle, likely shifting some jobs out of state.

The streamlining was widely expected and has been advocated by analysts for years. But it will further delay Motorola's recovery and cause it to fall further behind competitors.

The company's market share will continue to slide because the company will have to scrap several new phones that were supposed to hit the market in 2009.

The company says its phone shipments will decline in the fourth quarter, which usually produces an increase because of holiday spending. Underscoring the company's competitive disadvantage, Motorola won't have any new smart phones, the hottest part of the market, on store shelves until the second half of 2009 to compete with Apple's iPhone and a host of other new products.

Filed by John Pletz of Crain’s Chicago Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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