Motorola takes $2B charge
Company to cut 15,000 jobs, citing
slower sales, weakness in Asia
June 4, 1998: 8:35 p.m. ET
Motorola gets
$500M pact -
May 14, 1998
Motorola sells
modem unit -
April 29, 1998
Motorola
NEW YORK (CNNfn) - Motorola Inc., citing
deteriorating demand for its semiconductors,
Thursday said it plans to slash 15,000 jobs and take
a nearly $2 billion restructuring charge in the second
quarter.
In a statement issued after the close of trading,
Motorola said its second-quarter results will be
substantially below analysts' estimates and could
even translate into an operating loss. According to
First Call, analysts had expected the company to
earn 20 cents a share in the second quarter, down
from 44 cents a share a year ago.
The move, the second time the Schaumberg,
Ill.-based company has warned of weaker results in
the last two months, reflects ongoing pressures in the
technology sector as chip makers struggle with a
growing supply glut.
"In the fourth quarter of last year our forecast for
1998 called for higher sales growth and improved
profitability, but that has not materialized," Robert
Growney, president and chief operating officer said
in a statement.
"It is clearly time to accelerate the implementation
of our renewal plan. We are determined to return our
financial results to an acceptable level as soon as
possible," he said.
Wall Street reacted negatively to the news,
sending Motorola (MOT) shares down 2-1/2 in
after-hours trading from its New York close of
51-1/2.
Industry analysts said Motorola's warning about
pricing pressures could short-circuit technology
stocks on Friday, particularly in light of investor
concerns about chip giant Intel Corp. (INTC).
On Wednesday, Hambrecht & Quist cut its
second quarter earnings estimates for Intel, citing
weaker demand in Europe and slow PC sales in the
United States. The cut sent Intel shares reeling but
they recovered Thursday after the company said it
had no plans to issue a revised outlook for the
quarter.
Cuts blamed on price pressures, Asia
Motorola, which makes semiconductors, cell
phones, pagers and a variety of communications
products, attributed the moves to pricing pressures
and weakness in Asian markets.
"While we very much regret the impact this will
have on certain employees, we must adjust our
production capacity to the reality of current business
conditions and reduce costs to improve overall
financial performance," Christopher Galvin,
Motorola's chief executive officer, said.
Growney said the company hopes the initiatives
will lead to annual savings of more than $750 million.
Specifically, Motorola said it would:
Cut about 10 percent of its worldwide work
force over the next 12 months.
Consolidate manufacturing operations
company-wide. The company said plants that
make semiconductors and message products
would be hardest hit.
Exit other non-strategic, poorly performing
businesses.
Write down the value of assets which have
declined due to current business conditions or
shifts in strategy.
Take a $1.95 billion pre-tax charge in the
second quarter to pay for the moves.
Analysts said the news wasn't entirely surprising
since Motorola relies so heavily on Asia.
"Most of their peers have maybe 20 percent or
less of their earnings coming from Asia, whereas
Motorola generates 30 percent of its revenue from
Asia. Asia is certainly a major factor," said Alex
Cena, telecommunications equipment analyst at Bear
Stearns & Co.
David Powers, technology analyst at Edward D.
Jones & Co. said the cuts, while painful now, will
help Motorola in the long-term. (147K WAV) or
(147K AIFF)
Motorola trails rivals in digital phones
Motorola is the world's largest maker of cellular
phones, but it currently trails Nokia and Ericsson in
digital phone sales. Over the last few years the
company's profits have been hurt by the switch from
analog to digital phones and the severe price
pressures in its other core business --
semiconductors.
(Click here to see a chart of Motorola's stock
over the last three years.)
Galvin said the company will focus on its new
light-weight line of cellular phones, pagers and
two-way radios marketed under the Wings brand.
"Through these propositions, we intend to gain
market share in key businesses, such as digital
cellular telephones, where significant new products
are planned for introduction before the end of the
third quarter, and embedded semiconductors,"
Galvin said.
Embedded semiconductors are chips Motorola
makes to go into consumer devices made by a
variety of companies.
Galvin said these initiatives should put Motorola
on the road to financial recovery in the second half of
the year if economic conditions in Asia improve. --
by staff writer Cyrus Afzali
Motorola will
lay off 15,000.
Asia is dragging
down financials.
David Powers
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