Motorola Expects Loss, to Cut 7,000 Jobs

Mobile phone giant Motorola Inc. said Wednesday that it will slash an additional 7,000 jobs, raising its total cuts this year to 39,000, or a quarter of its work force.

The mobile phone and chip maker also said it will record a loss for the fourth quarter of 4 or 5 cents a share. Analysts had been expecting the Schaumburg, Ill.-based company to post a profit of 1 cent.

That means that 2001 will be the first unprofitable year for Motorola in nearly half a century. Before this year, the company hadn’t had an unprofitable quarter for 15 years.

In a conference call with analysts, Motorola Chief Operating Officer Robert Growney blamed the latest downward revision on the after-effects of the World Trade Center attacks.

“Uncertainties have been introduced into the world’s economic outlook as a result of both the terrorist attacks of Sept. 11 and the resulting retaliation by the United States and its many allies,” Growney said. “As a result, our guidance for the fourth quarter has become more conservative.”

But Wall Street seemed to take Motorola’s bad news in stride. Motorola closed up 19 cents at $16.91 on the New York Stock Exchange.

Analysts, too, seem generally unperturbed.

“Motorola is actually getting better quarter by quarter; it’s just slow and painful,” said Ed Snyder of J.P. Morgan. “They have a classic problem: One division’s improvements is offset by the others’ decline.”

The cell phone division, which makes up about a third of Motorola’s revenue, is doing relatively well in a weak market. But semiconductors and telecommunication equipment, in an even worse environment, are not. Motorola warned Wednesday that its semiconductor business will not recover until next year.

“So when does everything line up?” Snyder asked. His guess: “Not in a big way until the second quarter of next year.”

Other analysts seemed slightly less hopeful.

“We now believe 2002 will be more challenging than previously expected given continued weaknesses in semiconductor, broadband and infrastructure groups,” Credit Suisse First Boston analyst Tim Long wrote in a report.

Long cut his estimate for Motorola’s 2002 revenue from $31.7 billion to $30.5 billion, and earnings from 20 cents to 5 cents a share.

For cell phone sales, this has been a year of constantly diminishing expectations. At the beginning of the year, when the extent of the downturn was still unclear, industrywide cell phone shipments were estimated to be at least 30% over last year’s total of 410 million units.

In the spring, Motorola said cell phone sales probably would be below 500 million units.

Now that the downturn is not only a reality but greatly compounded by the threat of terrorism, Motorola is estimating 2001 shipments industrywide of between 380 million and 400 million units. For next year, it is forecasting 420 million to 460 million units.

The reasons for the abrupt fall-off go far beyond the economy, said Alan Reiter of Wireless Internet & Mobile Computing, a consulting firm.

“People have little incentive to upgrade to the fancier handsets with sophisticated wireless data applications because they don’t see them as being terribly exciting,” Reiter said. Meanwhile, the truly innovative so-called next-generation services have been delayed.

Furthermore, in a number of countries in Europe as well as Japan, cell phone penetration has reached about 50%.

“The market is now a replacement market,” Reiter said. “Add all this together and you get a slump.”

In Motorola’s third-quarter earnings report on Tuesday, the company said that its wireless sales fell only 16%, and that the division returned to profitability ahead of schedule. Motorola, which is second in mobile sales only to Finland’s Nokia, improved its share of the worldwide market to between 17% and 18%.

Snyder, the Morgan analyst, said he would be surprised by any more job cuts at Motorola.

“They’ve kind of cut to the bone,” he said, adding that the layoffs were part of the company’s forced evolution.

“They’re a heavily engineering-oriented company, or were,” he said. “They tended to design everything from scratch. You need a lot of people for that. If you’re transitioning to a model where you share designs among different players, you need less of everything.”

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Reuters was used in compiling this report.