Thursday, January 15, 2009

Dow Jones: More Job Cuts Expected As Motorola Continues To Struggle


Thursday January 15th, 2009 / 17h30

- The bloodletting has only begun for Motorola Inc. (MOT). Fresh off of eliminating 4,000 jobs, many believe the embattled telecommunications equipment maker still needs further cuts to survive, particularly as it feels the squeeze from a faltering handset market and increased competition. Even after the recent cuts, critics believe the company still carries a bloated work force.

"They are still way too overstaffed," said Bill Choi, an analyst at Jefferies & Co. "What you really need is a combination of cost reductions and a meaningful improvement in the portfolio."

Motorola shares recently rose 6 cents, or 1.5%, to $4.17.

While Motorola has been working on better handsets, including more smartphones, analysts don't see anything significant coming out until the end of the year. In the near term, the company can only control the costs.

Motorola spokeswoman Jennifer Erickson declined to comment, saying the company wouldn't speculate on further job cuts.

The cuts are expected to yield $700 million in savings this year. That comes on top of the $800 million in savings gleamed from restructuring actions taken in the fourth quarter.

In the past three months, Motorola announced 7,000 job cuts, with 5,000 coming from the mobile devices division. That's roughly a 25% reduction in the unit, but many believe that isn't sufficient. The company still has roughly 20,000 employees in its mobile handset business.

In comparison, Sony Ericsson, which sells slightly more handsets than Motorola, employs 9,400. The company, a joint venture between Sony Corp. (SNE) and L.M. Ericsson Telephone Co. (ERIC), has said it wants to cut 2,000 workers. While a direct comparison between Sony Ericsson and Motorola is unfair, the difference in staff versus their similar handset sales numbers is telling.

"The issue of the day is cost," said Eric Jackson, managing member of activist hedge fund Ironfire Capital LLC and a former Motorola shareholder. While getting Motorola trimmer was one priority, Jackson believes the company's underlying problem comes from its lack of direction - a problem exacerbated by the co-chief executive leadership structure.

In terms of fixing the cost structure, analysts were reluctant to give specific numbers on the necessary cuts. "It's tough to say what the appropriate level is," Choi said. Motorola's cost structure will look increasingly out of hand as the mobile devices business continues to lose ground and handset shipments fall further.

In addition to the slowing handset market, other handsets are likely to take Motorola's share of the market. A new version of the Apple Inc. (AAPL) iPhone, new Research in Motion Ltd. (RIMM) Blackberrys, and even the Palm Inc. (PALM) Pre could slice into Motorola's high-end device sales, leaving it only the cheaper devices.

Motorola co-Chief Executive Sanjay Jha promised better smartphones. "We are making good progress in developing important new smartphones for 2009 and are pleased with the positive response from our customers to these new devices," Jha said in a statement.

Still, the new handsets aren't likely to arrive until the fourth quarter. "Their products are just not competitive," said Matthew Thornton, an analyst at Avian Securities LLC. "They're left in no man's land." But even if Motorola comes out with a blockbuster handset now, it couldn't turn a profit because its cost structure is too high, he noted. Beyond job cuts, Motorola will have to look hard at other places, including the supply chain, outsourced staff, and other general expenses. "It's a necessary step and the right step, even if it's not pleasant," Thornton said.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020;

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