Ben Klayman and Yukari Iwatani
CHICAGO: Motorola Inc. said on Thursday it will cut 7,000 more jobs and take
charges totaling about $3.5 billion, essentially ending its massive downsizing,
as it contends with sharply reduced spending in the depressed technology and
telecommunications sectors.
Since August 2000, the chipmaker and world's second largest mobile phone
maker has slashed its work force by more than one-third from its peak level of
150,000.
"What we're doing here is taking the company back to about its 1995
size, before the era of the excesses of the dot-com and telecom booms,"
Motorola chairman and chief executive Christopher Galvin told analysts on a
conference call.
Motorola's stock closed up 41 cents, or almost three per cent, at $14.45 in
Thursday trading on the New York Stock Exchange. It has declined almost four per
cent since the first of the year, compared with a 48.8 per cent drop in the
industry proxy Standard & Poor's telecommunications equipment index in the
same period.
The company said the charges, to be taken mostly in the second quarter, will
reduce this year's net income by $1.10 a share, but it still sees a profit
before special charges of at least 4 cents a share. Motorola posted a net loss
of $1.78 a share last year. It said 2002 sales could decline by as much as 10
percent from last year.
Analysts said the charges and job cuts were bigger than expected. "It's
marginally positive because it talks about bigger cost cuts than we'd
expected," JP Morgan analyst Ed Snyder said.
The latest cuts will reduce employment by seven per cent from the previous
target to 93,000, hitting all of its businesses and its corporate headquarters.
Motorola said in March it intended to reduce the total to 100,000 from 107,000
employees by year-end.
Motorola president Ed Breen said the restructuring will be
"substantially completed" after these actions.
Focus on semiconductors
Analysts said the latest actions would help the company return to
profitability after losing $3.9 billion last year after one-time items. Motorola
previously said it would take a large charge to finish its restructuring.
JP Morgan's Snyder said the latest actions would likely target the
money-losing semiconductor business. Motorola said Wednesday it would shift more
of that unit's work to contract manufacturer Taiwan Semiconductor Manufacturing
Co. Ltd.
He was disappointed the company did not address plans for its money-losing
wireless infrastructure business, which makes equipment for wireless carriers.
"Infrastructure has continued to be in a way a noose around Motorola's
neck," said Jane Zweig, CEO of wireless consulting firm The Shosteck Group.
"They're trying to sensibly figure out what to do with it."
Motorola said last month it wanted to find a partner for that business. On
Thursday, it said about 3,000 of the latest cuts would come from that unit.
Galvin said near-term growth would be moderate due to the weak overall
market. "The investment era of the late 1990s won't repeat itself perhaps
in our working lifetimes because so many of the highly touted business models
probably didn't exist to begin with," he said.
Excluding charges, Motorola reaffirmed its operating earnings forecasts for
the second quarter and full year, and said it expects to make a profit in the
third and fourth quarters.
Motorola said it is confident it will meet or slightly beat its expectations
of a second-quarter loss of 4 cents a share, excluding special items, and will
meet or slightly exceed its expectations for $6.4 billion in sales. It is
scheduled to report those results July 16.
The company said it had made payments under its prior restructuring actions
and paid a significant escrow deposit for litigation related to Iridium, its
failed satellite-phone company. Including those cash payments, totaling more
than $500 million, Motorola still expects positive operating cash flow in the
second quarter.
Motorola still expects a full-year profit of at least 4 cents a share,
excluding special items, with sales declining by 5 per cent to 10 per cent from
$29.5 billion last year.
Among the charges, Motorola said about $1.9 billion will be for
restructuring, including the new job cuts. Another $1.1 billion will be to lower
market valuations of investments and other assets, the largest of that related
to its 15 per cent stake in wireless provider Nextel Communications Inc.
The company also said it will write off $530 million in long-term financing
receivables, including the remainder of a loan to Turkish cellular service
operator Telsim, which remains in default. Motorola, along with bigger rival
Nokia of Finland, has sued Telsim in US federal court, seeking to recover its
original $2 billion loan.
The rest of the charges are expected to be taken in the third and fourth
quarters, the company said, adding that less than 20 per cent of the total
charges will be "cash-related."
Motorola said the latest actions will save $100 million for the rest of the
year and $700 million annually before taxes afterward. It expects to end the
second quarter with about $6 billion in cash and equivalents and $1.5 billion in
short-term debt, including $500 million in commercial paper.
(C) Reuters Limited.