Motorola to cut 7,000 jobs, take $3.5 billion charges

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.