Motorola to cut off 3,500 jobs - Executives concede premium phones are key to recovery
Motorola to cut off 3,500 jobs - Executives concede premium phones are key to recovery
By Mike Hughlett
Copyright © 2007, Chicago Tribune
Published January 20, 2007
Lopping 3,500 jobs--that will be the easy part for Motorola Inc. as it tries to regain lost momentum.
But coming up with new chart-topping mobile phones--premium numbers such as the Razr once was--will be a lot tougher, analysts say.
Motorola executives laid out plans to cope with a sudden profit shortfall in a meeting Friday with Wall Street analysts in New York.
The firm's cost cutting, including shedding about 5 percent of its global workforce, should save Motorola $400 million over two years, the company said.
But top Motorola executives acknowledged that to get back on track their most important task is to do a better job selling pricier--and more profitable--phones. That would include phones that play video, for instance. Or phones for new ultrafast wireless networks.
"It's really going to be dependent on their products," said Lawrence Harris, an analyst at Oppenheimer & Co., New York.
Harris and other analysts said the company isn't likely to see meaningful results from such new products until the second half of this year.
The jobs slated for elimination, however, should disappear by the end of June. Motorola said the cuts, which appear to mark the largest job reduction at Motorola in several years, will be "spread across the company globally."
Still, the reduction in headcount pales compared with Motorola's dark hours of 2001, when the firm said it would slash 30,000 workers.
Today, Schaumburg-based Motorola, the world's second-largest maker of cell phones, employs 70,000 globally, including 15,000 in Illinois.
While stock analysts typically applaud job cuts, two were somewhat puzzled by Motorola's move.
"It doesn't make sense," said Albert Lin, an analyst at American Technology Research. "Laying off a substantial amount of people--that is what you do when you have longer-term structural problems."
And Motorola executives didn't seem to say Friday that the firm has such problems, Lin said. Cutting workers means cutting operating expenses, yet bloated operating expenses don't seem to be a problem, he said.
Ed Snyder, an analyst with Charter Equity Research, agreed. "You can fire people, but they're taking a beating [for management's] mistakes," Snyder said.
Motorola rocked Wall Street in early January, warning that its fourth-quarter profits would fall far short of expectations. And indeed, they did. Motorola on Friday posted earnings of 26 cents a share, or $624 million, down 48 percent from the same time last year.
The company's problems are in its mobile phone division, which comprises the majority of its sales and profits.
Even though Motorola picked up market share with strong sales volume, phone profits were hammered. Operating profit margins for the division were less than half of normal, and even worse than analysts expected.
So what went wrong? Motorola sold considerably more cheap phones than it expected, and a lot fewer high-end models.
"We have to get these forecasts right on our mixes," Motorola Chief Executive Officer Edward Zander told analysts. "We just didn't get it right this quarter."
Several things went awry.
First, demand fell for phones that run on Motorola's proprietary iDEN technology. Those iDEN phones, historically sold through Nextel, have high profit margins.
But since Nextel was bought by Sprint, demand for iDEN phones has dropped.
Second, Motorola, by its own recognition, has been weak in "3G" phones--models that run on technologically advanced networks particularly popular overseas.
Such phones command higher prices and better profit margins.
So do phones with bells and whistles such as video and music players, and models that are fashionable--such as the Razr. Or at least as the Razr once was.
The Razr debuted in 2004 at a retail price of $500, then dropped to $200 in 2005 and fell even more in 2006.
By this fall, it was selling for $30 to $50.
By dropping Razr's price, Motorola aimed to keep market share. Phones priced under $100 make up 80 percent of the market in this country.
"We made a decision, and I believe it was the right one, to hold onto our share in the feature phone category," Ron Garriques, Motorola's head of cell-phone operations, told analysts.
The problem: Motorola's sales forecasts for the premium phone market didn't materialize.
Many analysts say they think that's partly because the Razr cannibalized sales of the Krzr, a Razr-like phone that cost $200.
Zander seemed to acknowledge as much on Friday. "We had a mix between the Krzr and the Razr that was perhaps not what we wanted. But the Krzr still did very well," he said.
Motorola executives Friday detailed plans for new phones. A Krzr that will run on a 3G network was one. A Web-enabled phone built on Motorola's new ultrathin Scpl ("scalpel") platform was another.
"We have `whoa' products and we need even more," Garriques said.
But it takes time to get new phones launched and accepted in the market, analysts say. "They have a long road ahead of them," Snyder said.
"All the things they said [about new products] are steps in the right direction," Snyder said. "But can they execute on them, and what will their competitors do?"
Those competitors will be on the offensive, trying to claw at a suddenly weakened Motorola.
The company's stock closed at $19.27, up 56 cents, or 3 percent.
----------
mhughlett@tribune.com
By Mike Hughlett
Copyright © 2007, Chicago Tribune
Published January 20, 2007
Lopping 3,500 jobs--that will be the easy part for Motorola Inc. as it tries to regain lost momentum.
But coming up with new chart-topping mobile phones--premium numbers such as the Razr once was--will be a lot tougher, analysts say.
Motorola executives laid out plans to cope with a sudden profit shortfall in a meeting Friday with Wall Street analysts in New York.
The firm's cost cutting, including shedding about 5 percent of its global workforce, should save Motorola $400 million over two years, the company said.
But top Motorola executives acknowledged that to get back on track their most important task is to do a better job selling pricier--and more profitable--phones. That would include phones that play video, for instance. Or phones for new ultrafast wireless networks.
"It's really going to be dependent on their products," said Lawrence Harris, an analyst at Oppenheimer & Co., New York.
Harris and other analysts said the company isn't likely to see meaningful results from such new products until the second half of this year.
The jobs slated for elimination, however, should disappear by the end of June. Motorola said the cuts, which appear to mark the largest job reduction at Motorola in several years, will be "spread across the company globally."
Still, the reduction in headcount pales compared with Motorola's dark hours of 2001, when the firm said it would slash 30,000 workers.
Today, Schaumburg-based Motorola, the world's second-largest maker of cell phones, employs 70,000 globally, including 15,000 in Illinois.
While stock analysts typically applaud job cuts, two were somewhat puzzled by Motorola's move.
"It doesn't make sense," said Albert Lin, an analyst at American Technology Research. "Laying off a substantial amount of people--that is what you do when you have longer-term structural problems."
And Motorola executives didn't seem to say Friday that the firm has such problems, Lin said. Cutting workers means cutting operating expenses, yet bloated operating expenses don't seem to be a problem, he said.
Ed Snyder, an analyst with Charter Equity Research, agreed. "You can fire people, but they're taking a beating [for management's] mistakes," Snyder said.
Motorola rocked Wall Street in early January, warning that its fourth-quarter profits would fall far short of expectations. And indeed, they did. Motorola on Friday posted earnings of 26 cents a share, or $624 million, down 48 percent from the same time last year.
The company's problems are in its mobile phone division, which comprises the majority of its sales and profits.
Even though Motorola picked up market share with strong sales volume, phone profits were hammered. Operating profit margins for the division were less than half of normal, and even worse than analysts expected.
So what went wrong? Motorola sold considerably more cheap phones than it expected, and a lot fewer high-end models.
"We have to get these forecasts right on our mixes," Motorola Chief Executive Officer Edward Zander told analysts. "We just didn't get it right this quarter."
Several things went awry.
First, demand fell for phones that run on Motorola's proprietary iDEN technology. Those iDEN phones, historically sold through Nextel, have high profit margins.
But since Nextel was bought by Sprint, demand for iDEN phones has dropped.
Second, Motorola, by its own recognition, has been weak in "3G" phones--models that run on technologically advanced networks particularly popular overseas.
Such phones command higher prices and better profit margins.
So do phones with bells and whistles such as video and music players, and models that are fashionable--such as the Razr. Or at least as the Razr once was.
The Razr debuted in 2004 at a retail price of $500, then dropped to $200 in 2005 and fell even more in 2006.
By this fall, it was selling for $30 to $50.
By dropping Razr's price, Motorola aimed to keep market share. Phones priced under $100 make up 80 percent of the market in this country.
"We made a decision, and I believe it was the right one, to hold onto our share in the feature phone category," Ron Garriques, Motorola's head of cell-phone operations, told analysts.
The problem: Motorola's sales forecasts for the premium phone market didn't materialize.
Many analysts say they think that's partly because the Razr cannibalized sales of the Krzr, a Razr-like phone that cost $200.
Zander seemed to acknowledge as much on Friday. "We had a mix between the Krzr and the Razr that was perhaps not what we wanted. But the Krzr still did very well," he said.
Motorola executives Friday detailed plans for new phones. A Krzr that will run on a 3G network was one. A Web-enabled phone built on Motorola's new ultrathin Scpl ("scalpel") platform was another.
"We have `whoa' products and we need even more," Garriques said.
But it takes time to get new phones launched and accepted in the market, analysts say. "They have a long road ahead of them," Snyder said.
"All the things they said [about new products] are steps in the right direction," Snyder said. "But can they execute on them, and what will their competitors do?"
Those competitors will be on the offensive, trying to claw at a suddenly weakened Motorola.
The company's stock closed at $19.27, up 56 cents, or 3 percent.
----------
mhughlett@tribune.com
posted by Carlos T Mock at 10:20 AM
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