October 30, 2008 / 11:19 AM / 11 years ago

Motorola eyes phone weakness, job cuts

NEW YORK (Reuters) - Motorola Inc MOT.N warned its fourth-quarter results would miss expectations and said its struggling mobile phone business would weaken further in 2009, forcing the company to delay its plan to spin off the unit and cut 3,000 jobs.

A Motorola logo is seen on their building at an industrial estate in Singapore April 3, 2008. REUTERS/Vivek Prakash

Shares of Motorola fell by as much as 8 percent, even as Co-Chief Executive Sanjay Jha announced cost cutting plans and a focus on fewer cell phone technologies.

“The reality is there is no quick fix here,” the newly hired Jha, who also heads Motorola’s mobile devices division, told analysts on a conference call.

He forecast a decline in fourth quarter phone sales and a widening loss due to a limited line-up of both cheap and advanced phones, the strongest growth segments. Jha warned that declines would continue in the first half of 2009, grim news for a company that has already been struggling for two years.

Jha outlined a plan to save $800 million in costs in 2009, by cutting 3,000 jobs, or 4.5 percent of the company’s workforce, and narrowing Motorola’s focus to its strongest regions such as North America.

Analysts approved of the plan but questioned if it was too late for the company, which ceded its third place in the mobile phone market to Sony Ericsson in the quarter. It had lost second place to Samsung Electronics (005930.KS) in 2007.

“Near term, the situation in mobile devices may deteriorate further as Motorola is sorely lacking a compelling product portfolio in entry level and smartphones,” said RBC Capital analyst Mark Sue.

Motorola said it was no longer targeting the third quarter of 2009 for spinning off its mobile devices division, citing the macro-economic environment, stresses in the financial markets and changes underway in the unit itself. It said the spin off would instead take place after 2009.

“It’s got to be a little disappointing that it takes another year,” said Morgan, Keegan & Co analyst Tavis, noting though that a delay made sense as the unit was struggling. “You’ve really got to get this thing back to profitability.”

Shares fell 6 percent, or 35 cents, to $5.11 on the New York Stock Exchange. Shares have fallen more than 70 percent in the last year.

It shipped 25.4 million handsets in the quarter compared with 37.2 million phones a year earlier. Sony Ericsson, a venture of Sony Corp (6758.T) and Ericsson (ERICb.ST), sold 25.7 million phones in the quarter.

Motorola’s mobile unit revenue fell 31 percent to $3.1 billion, and its operating loss widened to $840 million from $248 million.

Motorola faces stiff competition from bigger established rivals Nokia NOK1V.HE and Samsung as well as Apple Inc’s (AAPL.O) popular iPhone.


The company, which has been criticized for working with too many different cell phone operating systems, said it would focus on three major systems including Google’s (GOOG.O) Android and Microsoft’s (MSFT.O) Windows Mobile.

But Jha said Motorola’s first Android-based phone would not be available until the 2009 holiday shopping season. He said that phone sales in the first half of 2009 would be hurt as Motorola canceled some phones based on Symbian software.

The company still plans to sell phones in regions such as Europe but its main focus would be in North America, Latin America and parts of Asia such as China. He said India would not be as big a focus as China due to lower profit margins.

“You don’t normally hear such candor” from a company’s top management, said Charter Equity Research analyst Ed Snyder. “The question is, is it too late? Nobody knows. I think they’ll do the best they can,” Snyder said. “Can the company get through the next year and get to the end of this game.”

The Schaumburg, Illinois-based company, which has been hit with a string of disappointments since late 2006, posted a net loss of $397 million, or 18 cents a share compared with a profit of $40 million or 3 cents a share a year ago.

The latest quarter included charges of 23 cents a share for items such as asset impairments and business reorganization.

Before charges, Motorola earned 5 cents per share compared with average analyst estimates of 2 cents a share, according to Reuters Estimates.

Its revenue fell 15 percent to $7.48 billion, below the average analyst estimate of $7.8 billion.

Motorola forecast fourth-quarter earnings per share from continuing operations of 2 cents to 4 cents, before any reorganization chargers, compared with expectations for 7 cents per share, according to Reuters Estimates.

It forecast and full year earnings per share in a range of 5 cents to 7 cents, excluding any reorganization charges, compared with analyst expectations for full year earnings per share of 6 cents.

Reporting by Sinead Carew; Editing by Derek Caney

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