Motorola Mobility (NYSE:MMI) is cutting 800 jobs and closing facilities, a downsizing that will cost the phone maker a total of $31 million as it prepares to be acquired by Google (NASDAQ:GOOG).
Motorola agreed to be acquired Aug. 15 for $12.5 billion by the search giant, which plans to use the Android OEM's patents to defend against rampant litigation by Microsoft and Apple versus Android OEMs. The deal is expected to close by the end of this year or in early 2012 pending regulatory approval.
Motorola Oct. 24 approved the job cuts and agreed to pay out a pretax charge of $27 million in severance costs and $4 million to close office space for the fourth quarter.
"Both of the company's business segments (the Mobile Devices business and the Home business), as well as various corporate functions, are impacted by the action and the action affects employees globally," Motorola said in a 10-Q filing with the Securities and Exchange Commission.
Motorola Oct. 27 reported third-quarter earnings of $3.26 billion on 12 cents per share. While this was an 11 percent boost from a year ago, it fell short of Wall Street analysts' consensus of $3.37 billion on 6 cents per share.
Worse for Motorola, which is fighting for Android smartphone and tablet market share versus Samsung and HTC, is that it also sold fewer than expected devices for Q3. Motorola sold 4.8 million Android smartphones and only 100,000 Xoom Honeycomb tablets; analysts had been expecting over 5 million in smartphone sales and around 300,000 or more Xooms.
The Android OEM is counting on a couple solid devices from its smartphone and tablet categories. For handsets, there is the Motorola Droid Bionic and the forthcoming Droid Razr, which at only 7.1 millimeters thin will be the thinnest premium smartphone on the market. At $299 on contract, it's certainly priced that way.
For tablets, Motorola reportedly has a couple new Xoom LTE models in the pipeline. Meanwhile, the company is banking on joining Google for additional financial protection.
Google has said it plans to operate Motorola as a stand-alone company, similar to the way YouTube runs. This is a wise move, as Samsung and HTC could be concerned Google might favor Motorola with early Android upgrades.
However, some analysts don't believe Motorola's hardware business will last long under the aegis of Google. Charter Equity Research analyst Ed Snyder said Google will simply take Motorola's patents and spin out the hardware business because it doesn't hew to the company's core competency of search and advertising services.
"Google bought Motorola for its patents, not for its hardware operations, which wouldn't contribute enough in revenue or profits to offset the risk," Snyder said in a research note Oct. 27. "We therefore expect Motorola to be spun or sold again in the not-so-distant future."