Pace of Downward Spiral Quickens at Motorola

A year ago, Motorola announced it planned to spin off its ailing handset division, but the economy went south and the crumbling credit markets rendered the grand plan moot. Faced with hard reality, Motorola began cutting jobs, axing approximately 3,000 workers in the fourth quarter alone.

Then things really turned bad. The job cuts didn't stanch the bleeding and sales continued to tumble, with once-proud Motorola falling to fourth place among handset makers behind market leaders Nokia, Samsung and LG.

Motorola took the next inevitable step Jan. 14, announcing that another 4,000 employees—3,000 in the handset division—would be given immediate pink slips.

"The actions we are taking today in our Mobile Devices business will allow us to further reduce our cost structure and positions us for improved financial performance in 2009," Sanjay Jha, co-CEO of Motorola, said in a statement. "Additionally, 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 the new round of 4,000 job cuts is expected to result in annual cost savings of approximately $700 million in 2009. Combined with the first massive layoffs of 3,000 employees, Motorola predicted an aggregate 2009 cost savings of $1.5 billion.

Motorola will need it. Lower-than-expected fourth-quarter revenues prompted Motorola Jan. 14 to also issue a warning that the company expects to report a net loss of 7 to 8 cents a share for the period. Wall Street analysts had been expecting earnings of 2 cents a share. Fourth-quarter revenue is also expected to disappoint, with the company predicting $7 billion to $7.2 billion in revenue while Wall Street expected the number to hit $7.5 billion.

Motorola blamed the declines on "continued weakness in consumer demand and customer inventory reductions." The company expects to end the fiscal year with a total cash position of approximately $7.4 billion.

"Today's actions will allow us to further reduce costs, improve operating cash flow and help ensure that Motorola remains competitive and financially strong during these challenging times," Jha said.

Jha, who was brought in from Qualcomm in August to lead the spinoff, said he hopes a commitment to and a leap of faith with Google Android and Microsoft Windows Mobile as Motorola's future operating systems will turn the tide for the company. Jha said in October 2008 that Motorola would ditch at least four operating systems, including Symbian, to focus on developing midtier phones running Android and high-end enterprise devices operating on Windows Mobile.

The problem for Jha and Motorola is the transition will take some time. Jha predicted it would take until the third quarter of 2010 to bring out a Windows Mobile phone targeted at enterprises and probably until the 2009 Christmas season before a Motorola-built Android phone could hit the market.

By then, Apple and Research In Motion will have, no doubt, rolled out new iPhones and BlackBerrys targeting both the consumer and enterprise markets, swiping even more market share from Motorola. Meanwhile, Nokia, Samsung and LG Electronics will continue carving into Motorola. HTC is already producing Android phones for T-Mobile.

"The reality is, there is no quick fix here," Jha said.