Motorola Inc. said Thursday that it will eliminate 15,000 jobs--or 10% of its work force--as part of a restructuring that will force the company to take a $1.95-billion pretax charge in the second quarter.
The Asian economic crisis and Motorola's own missteps in the digital cellular phone market are hurting the once high-flying company, forcing it to exit underperforming businesses. The company's troubles, which have sent shares plunging 42% since July, may cause it to report disappointing results for the third time in the last year.
"In the fourth quarter of last year, our forecast for 1998 called for higher sales growth and improved profitability, but that has not materialized," Motorola President Robert L. Growney said. "It is clearly time to accelerate the implementation of our renewal plan."
He said the company's goal is to save $750 million annually once all the changes are made.
Motorola, based in the Chicago suburb of Schaumburg, has about 150,000 employees worldwide. The labor reduction will take place over 12 months by attrition and layoffs, company spokesman David Rudd said.
Chief Executive Christopher Galvin said consolidation will take place throughout the company, with emphasis on semiconductor products and messaging, information and media segments.
"We expect improved business results from the renewal of the company's communications equipment businesses, a process that began in April," Galvin said.
Motorola has seen its fortunes decline dramatically since 1995, according to analyst Douglas Christopher of Crowell Weedon & Co. in Los Angeles. The company's problems stem largely from lagging demand and the falling price paid for its semiconductors, which account for 20% of Motorola's business.
Motorola also is being hurt by increased competition for cellular phones and equipment from Lucent Technologies, Sweden's LM Ericsson, Finland's Nokia and Canada's Northern Telecom. Motorola has seen its market share in wireless systems drop from 25% to 15% in the last couple of years.
Motorola also has been hurt by a lagging transition from analog handsets to digital. The company is only in the initial stages of producing and introducing new digital handsets, far behind competitors Nokia and Ericsson.
Christopher noted that Motorola has failed to deliver their products to market in a timely manner and has been plagued by product delays.
"The thing is, you got to have products that are selling," he said. "Maybe consolidation will help them get products to market that will sell."
The company made the announcement after the close of U.S. trading. On Thursday, Motorola shares gained 69 cents to close at $51.50 on the New York Stock Exchange. The stock has been trading just above its 52-week low of $50.63.
Analysts had expected Motorola to report a second-quarter profit of 20 cents a share, down from 62 cents a year ago, according to the First Call consensus estimate.
Motorola plans to exit nonstrategic, poorly performing businesses and to write down assets that have become impaired, either as a result of current business conditions or business portfolio decisions, the company said. It also plans to consolidate manufacturing operations throughout the company.
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