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Motorola Will Cut 7,000 Additional Jobs

Telecom: Layoffs will total 12,000 at cell-phone unit. Company seeks to stay competitive as sales slow.

March 14, 2001|BEN KLAYMAN | REUTERS

CHICAGO — Motorola Inc., the world's No. 2 mobile-phone maker, said Tuesday that it will cut 7,000 more jobs as it struggles to strengthen its cell-phone unit amid an industrywide slowdown in sales.

The Schaumburg, Ill.-based company said the job cuts--5% of its work force--raise the total in its cell-phone operations this year to 12,000, or 36% of the unit's employees.

The firm's announcement follows a warning Monday by rival Ericsson that it expects to post a first-quarter loss of as much as $500 million instead of breaking even. Motorola issued its own profit warning last month.

Motorola, which employs 140,000 people worldwide and ranks behind Finland's Nokia in cell-phone production, said it will complete the job cuts in the next two quarters and take an unspecified charge against first- and second-quarter results.

"Unfortunately, this was a necessary next step for us to achieve renewal and stay competitive in today's dramatic business environment, particularly given the current slowdown in the economy," Motorola personal communications sector President Mike Zafirovski said.

"We anticipate growth but at a slower pace," he said. "We must continue to adapt our overall cost structure, work force and production levels to a more competitive business model."

Motorola's shares rose 20 cents to close at $15.20 on the New York Stock Exchange. Over the last year, the stock has under-performed the Standard & Poor's 500 index by about 70%.

Motorola said it is looking at a number of promising opportunities to improve second-half performance, including new strategic alliances, customer agreements and products.

The cuts were not surprising, and Motorola still needs to get new products out faster, Deutsche Banc Alex. Brown analyst Brian Modoff said. "Clearly, they need to reduce their overall expenses," he said. "We're not forecasting profitability in handsets this year."

Leis Soderberg, the cell-phone unit's senior vice president in charge of strategy, declined to say whether the unit will be profitable.

The cell-phone industry faced the "triple whammy" in the first quarter of lower customer spending, high inventories and skittishness about the U.S. economy, he said.

Projected global cell-phone sales for the industry in 2001 have slowed drastically, from a forecast of 500 million to 600 million earlier this year to Motorola's recent below-500-million warning last month to Tuesday's sub-450-million rate supported by rival Siemens. That would be only a 10% increase over the 410 million sold last year.

When asked whether the cell-phone unit will lay off more workers, Soderberg said Motorola will do whatever it must to remain competitive.

Analysts said Motorola and Ericsson also have been hurt by Nokia's aggressive push to gain market share by cutting cell-phone prices, something it has done while still making a profit. Low-cost cell phones, which Motorola and Ericsson have not been as successful with, account for about two-thirds of the market.

Ericsson, the No. 3 maker of cell phones, said Monday that it expects a pretax loss of $400 million to $500 million in its first quarter, with sales flat or slightly lower than a year ago. The company had said sales would grow 15% in the quarter.

Nokia remains the only major mobile phone maker not to cut its first-quarter forecasts.

Jane Zweig, chief executive of Washington-based industry consultant Shosteck Group, said Motorola's news was not surprising given the recent layoffs by such hi-tech powerhouses as Cisco Systems Inc. and Nortel Networks Corp.

Motorola said Feb. 23 that a dramatic sales slowdown could lead to its first quarterly operating loss in 15 years.

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