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MOTOROLA CEMENTS RESTRUCTURING PLAN

Motorola Inc. last week announced its long-awaited plan for realigning the company along with another quarter of depressing financial results.

Ending its “warring tribes” way of doing business, Motorola announced its communications-related businesses will be restructured under a single organization called the Motorola Communications Enterprise. The company’s paging, cellular, infrastructure, two-way radio and satellite businesses previously operated as distinct groups, competing against each other as a way to drive performance. The strategy has worked in the past, say analysts, but competitive pressures around the world have eroded the benefits.

“Our recent financial results highlight the need for change in our communications businesses,” said Chief Executive Officer Christopher Galvin. “This new structure links all of Motorola’s communications-related businesses so that they can easily share resources and cooperate on key business and technology issues.”

Motorola took a $1.3 billion loss for the second quarter on substantial restructuring costs, compared with earnings of $268 million last year. The company recorded special items of $1.91 billion pre-tax, which include $1.98 billion of charges associated with its recently announced restructuring plan, which called for cutting employees by 15,000 and abandoning non-performing businesses.

In the first six months of the year, Motorola’s loss, including special items, totaled $1.15 billion compared with earnings of $593 million in the last year’s first half.

Motorola said to date it has eliminated nearly 9,000 employees worldwide and will realize savings of about $100 million during the third quarter as a result of the restructuring plan. The company has made the majority of its employee cutbacks in its semiconductor and Messaging, Information and Media divisions-the businesses most affected by worldwide pricing pressure.

Motorola’s stock fell Wednesday by $2.81 to $52.19, following Motorola’s conference call that warned investors the third quarter would show similar dismal results. The company’s stock rose slightly to $XXXX after news of the restructuring was announced on Thursday.

“We had a very difficult second quarter,” said Robert Growney, president and chief operating officer of Motorola. “Order inputs are still not where we would like them to be. We’re still seeing severe price pressures in our equipment products and semiconductor products. As we look into the third quarter, we frankly do not expect much change.

“We have seen a continuation [of pricing pressure] in particular in the paging business, with heavy pressure coming from Korean suppliers in the Asia Pacific marketplaces,” he said. “Pricing pressure has spread in Europe and South America and to some degree in the United States.”

In recent months, Motorola has admitted its mistakes, in particular its tardiness into the digital handset market and its over estimation of the analog handset market’s virility. The company plans to announce a full line of digital handsets this month and begin making substantial shipments of Time Division Multiple Access and Code Division Multiple Access handsets.

Robert Galvin, chairman of Motorola, told an audience of business school deans last month the company failed to expand capacity to produce semiconductors in the early 1990s when customers needed more and didn’t invest enough resources into digital technology.

Chris Galvin said the new structure will allow Motorola to respond more quickly to the needs of consumers, telecommunications network operators and commercial, government and industrial users of telecommunications. The plan made no mention of the semiconductor division.

Merle Gilmore will serve as president of the Communications Enterprise division, as well as Motorola executive vice president. Major business areas within the Communications Enterprise will be:

Personal Communications Sector, led by Fred Kuznik, who will serve as president of the sector, as well as Motorola executive vice president. Motorola’s former Cellular Subscriber division and Messaging Systems Products Group will be combined in the new business area, along with the Consumer and Retail Business Radio and Accessories businesses of the former Land Mobile Products Sector.

Network Solutions Sector, which also will be led by Gilmore. The company’s Cellular Infrastructure Group and Satellite Communications Group will be combined under the new division.

Global Telecom Solutions Group, led by James Norling, who will serve as acting president as well as Motorola executive vice president and deputy to the chief executive office. The group will focus on the major telecommunications network operators worldwide through a key account management team that works across Motorola businesses.

Commercial, Government and Industrial Solutions Sector, led by Robert Barnett, president of the division and company executive vice president. Motorola’s former Land Mobile Products Sector and Space and Systems Technology Group will be combined to focus on providing communications solutions to large commercial, government and industrial consumers.

Internet and Networking Group, led by Randy Battat, general manager and Motorola senior vice president. Motorola’s former Information Systems Group and Lexicus Division will be combined with other business units to focus on Internet access or software platforms.

Network Management Group, led by Michael Norris, general manager and a senior vice president. The group was part of Motorola’s former Cellular Networks and Space Sector.

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