Shortly after Motorola Inc. reconfirmed its guidance for fourth-quarter sales and revealed another 9,400 jobs will be eliminated during the next year, the company boldly predicted it will increase its share of the global handset market from approximately 15 percent to 25 percent over an unspecified amount of time.
The statement is just another in a series of head-turning steps taken by the company as of late-including its upcoming exit from the pager business-to help it return to profitability.
Ed Breen, Motorola’s incoming president, told analysts the company is inducing a longer-range plan that it hopes will give Motorola a 25-percent market share, placing it in a competitive position behind Nokia Corp., which has about a 33-percent share of the market as of the third quarter.
“We are already seeing improved growth margins in our handset business,” Breen said.
He later added that Motorola has picked up four points of market share so far this year.
“We’ve been picking up market share this past year because we’ve been able to get out in the marketplace first with some good 2.5-generation products,” said Bob Growley, president and chief operating officer of Motorola.
Despite the company’s technological head start, analysts are extremely skeptical of Motorola’s projections since other handset manufacturers-particularly ones that produce lesser-priced handsets-also are aiming to gain more market share.
“We’re modeling something a little more conservative than that,” said Jeffrey Schlesinger, analyst with UBS Warburg L.L.C.
Schlesinger said he is maintaining his estimates for Motorola’s 2002 market share at around 15 percent.
Breen gave no specific indication as to how Motorola will make the leap, only saying more details would be revealed during the company’s fourth-quarter earnings call in January. Christopher Galvin, Motorola’s chairman and chief executive officer, hinted the company will make strides not through better pricing, but through more technological innovations and strong relationships with wireless carriers.
While Motorola plans to aggressively attack the handset market, the company has been aggressively laying off employees for several months. This latest round of job cuts brings the total number of people let go during the past year to approximately 48,000.
Of the 9,400 employees being laid off, 4,100 will lose their positions during the fourth quarter. Approximately 4,000 will be laid off when Motorola phases out several semiconductor manufacturing facilities during the next year, and 1,300 positions will be eliminated across its manufacturing businesses.
“The extraordinary boom/severe decline technology cycle we are experiencing, when coupled with the overall softening of the global economy, dictates that the company must continue to improve its overall efficiency and competitiveness in order to return to profitability,” Galvin said. “Personally, I sincerely regret the impact on the Motorola associates affected by these actions, but these initiatives … will result in a leaner, more flexible and more profitable company.”
The layoffs should save Motorola about $865 million in 2002, and $1.1 billion annually thereafter.
Motorola expects ongoing operations for the fourth quarter to be flat to 3 percent higher compared with the third quarter. The company still expects to incur an operating loss for the quarter of 4 cents to 5 cents per share, but said 2002 should be a profitable year, with earnings of 15 cents per share on a pro-forma basis, which again, leaves many analysts scratching their heads.
Wojtek Uzdelewicz, an analyst with Bear Stearns & Co., cut his 2002 earnings estimate to 8 cents per share from 25 cents after last week’s announcement, and lowered his revenue estimate to $28.7 billion from $32.6 billion.
Schlesinger adjusted his estimates as well, from 21 cents per share to 8 cents.
Fueling this skepticism is Motorola’s own predictions that it will experience a loss of between 11 cents and 14 cents per share for the first quarter of next year. Most of Motorola’s recovery is expected to occur in the latter half of 2002.
