MOT to Cut 7000 Jobs, Sees Lower 2002 Sales (trying investor patience<g>)
By Ben Klayman and Yukari Iwatani
CHICAGO (Reuters) - Wireless technology giant Motorola Inc. (NYSE:MOT - news) on Tuesday said it is cutting another 9,400 jobs in efforts to return to profitability, and sees lower revenues in 2002 because of reduced spending by its telecommunications customers.
The latest job cuts, to be completed over the next 12 months, brings the total announced by the world's second largest mobile phone maker this year to 48,400, including jobs shifted to other companies. That number is almost one third lower than its peak employment of about 150,000 people in August 2000.
The company, based in the Chicago suburb of Schaumburg, Illinois, said despite the expected sales decline from ongoing operations of 5 percent to 10 percent, its profits next year should be in line with analysts' estimates of 15 cents a share, according to Thomson Financial/First Call.
MOTOROLA LATEST HIT BY SPENDING SLOWDOWN
Motorola is the latest telecom equipment firm to be hit by the prolonged slump in capital spending by carriers challenged by a slowdown in demand. That has led most companies in the industry to slash jobs and reduce financial forecasts.
Only last week, equipment giant Lucent Technologies Inc. (NYSE:LU - news) warned that its fiscal first-quarter loss would be larger than Wall Street expectations and optical networking firm Ciena Corp. (Nasdaq:CIEN - news) said its first-quarter sales would fall 30 percent to 40 percent.
However, Nokia (news - web sites) Corp. (NOK1V.HE)(NYSE:NOK - news), the world's largest maker of mobile phones, said last month it expects group sales growth of about 15 percent next year as it benefits from sales of new Internet phones and gains market share.
Ericsson (news - web sites) (ERICb.ST)(Nasdaq:ERICY - news), the world's biggest producer of mobile networks, said in October it expects flat or falling network sales next year. It has linked its mobile phone business with Japan's Sony Corp (news - web sites). (6758.T) to survive the cut-throat competition.
On Tuesday, Motorola credited the expected 2002 profit to cost reductions, the job cuts, and improved gross profit margins in its mobile phone business.
The company also said it has identified more manufacturing plants in its money-losing semiconductor unit to close. The company declined to provide further details.
Analysts have called for Motorola to sell or spin off the semiconductor business, a move the company has resisted so far. Tuesday's announcement left some wondering whether that may change.
``All the shoes have dropped,'' J.P. Morgan H&Q analyst Ed Snyder said. ``To see that big of a revenue drop and still remain profitable means that something is going away, some loss making business is leaving. You can't get it but just cutting 9,400 employees.''
He said the cuts set the stage for incoming President Ed Breen, who assumes his new duties Jan. 1, to make hard decisions that might have been resisted before.
Breen already is setting the bar higher, as he said on a conference call with analysts that Motorola was targeting a long-term global market share for mobile phones of 25 percent. The company was at 15.7 percent in the third quarter, according to Gartner/Dataquest.
CUTS ARE NEEDED
Chairman Christopher Galvin said the cuts are necessary to help the company return to profits and added Motorola will have lower average debt in 2002 than this year.
``We are planning conservatively for year 2002,'' he said. ''We expect to take further actions in the first quarter of 2002 to improve profitability and further lower the company's break-even point.''
Justin McNichols, portfolio manager with San Francisco asset management firm Osborne Partners Capital Management, said the moves lower Motorola's break-even point to a level of $25 billion in annual revenues, compared with an expected $29 billion to $30 billion this year.
``What they've done is given themselves a cushion for 2002 so their revenue can probably be as low as $25 billion and still make money,'' he said.
Motorola expects to report its fourth straight quarterly loss in January, resulting in its first annual operating loss in at least 45 years. It posted more than $2.6 billion in net losses in the first three quarters of this year.
The company's stock is down to $16.40 in after-hours trade. Before the announcement was made, Motorola's stock closed up 34 cents, or 2 percent, at $16.61 in Tuesday trading on the New York Stock Exchange (news - web sites).
Motorola said the job cuts and plant closings will save it about $865 million in 2002 and about $1.1 billion a year after that. The charges related to the actions will mostly be taken in the fourth quarter, although some will be recorded in the first half of 2002.
The company said it expects to post a first-quarter operating loss of between 11 cents and 14 cents a share, higher than the 3-cent loss expected by analysts, First call said. Motorola said revenues in the quarter are expected to decline 14 percent from the fourth quarter of 2001.
The company also confirmed it expects an operating loss with flat or slightly higher sales in the fourth quarter, reiterating an operating loss of 4 cents to 5 cents a share and sales from ongoing operations to be flat to 3 percent higher than the $7.24 billion reported in the third quarter.
Of the jobs cuts, Motorola said it has already notified 4,100 employees company-wide that their positions are being eliminated. It said about 4,000 more in its semiconductor unit are now being notified that their positions will be eliminated over the next year.
The company said it will also cut about 1,300 employees across its equipment manufacturing businesses. |
