Motorola Inc., warning investors of another poor financial quarter, announced a restructuring plan that includes cutting employees by 15,000 worldwide and taking a $2 billion blow in special charges.
The company, which employs about 150,000 people, said it will consolidate manufacturing operations throughout the company, with an emphasis on the Semiconductor Products and Messaging, Information and Media segments. Motorola also will abandon non-strategic and poorly performing businesses and write down nonperforming assets. Motorola would not specify in what areas it plans to eliminate employees nor the businesses it plans to exit.
“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,” said Motorola’s Chief Executive Officer Christopher Galvin. “We expect improved business results from the renewal of the company’s communications equipment businesses, a process that began in April, the details of which will be announced next month.”
“In the fourth quarter of last year, our forecast for 1998 called for higher sales growth and improved profitability, but that has not materialized. It is clearly time to accelerate the implementation of our renewal plan,” said Robert Growney, president and chief operating officer of Motorola.
Blaming deteriorating demand and global pricing pressure-primarily in its semiconductor business-Motorola cautioned that it would report an operating loss in the second quarter, possibly well below industry estimates of 20 cents per share. The company expects the restructuring and consolidation plan to result in annualized savings of more than $750 million.
“That translates into earnings of about 80 cents per share, and that is a significant amount given its current earnings,” said Michael Ching, wireless equipment analyst with Merrill Lynch. “But it will not have any impact on increasing market share.”
Merrill Lynch alerted investors that the restructuring does nothing to stimulate revenue growth or drive market share in the near term.
“Investors should be cautious about the realization of these savings without meaningful revenue growth. For example, the company has taken almost $400 million in charges over the last year, and it has not helped operating margins.”
Motorola’s stock price remained unchanged at $51.50 per share on the New York Stock Exchange Friday morning.
Motorola’s announcement follows several quarters of the company reporting revenues well below analysts’ expectations, and a slowly deteriorating market share in the consumer handset market for Motorola. Motorola fell from a 34-percent market share in the combined analog/digital handset market in 1996 to 25 percent in 1997, while many of its competitors’ market shares increased. Analysts have long criticized the company for its late entrance into the digital handset market.
“About three or four years ago, we allocated resources to our space and cable modem business. If there was an error, it was a little less investment in the handset area, which has now been significantly corrected. We plan to make digital handset announcements next month,” said Galvin in a conference call Friday.
Motorola’s Messaging, Information and Media Segment experienced a 25-percent drop in sales and an operating loss in the first quarter, blamed on lower paging sales to operators in North America and China. Sales and orders also fell in Motorola’s Cellular Subscriber Sector. The semiconductor business continues to see an erosion of pricing and soft demand for consumer electronics worldwide, said the company.
