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Moto down on handset losses, delays spinoff : Dumps Symbian, selects Android platform, due in late ’09

Motorola Inc. lost $397 million on $7.5 billion in revenue across all its businesses in the third quarter and said today it would delay its plan to spinoff its handset division until sometime after 2009.
And in a move to cut costs, the company said it would cut 3,000 jobs, or about 5% of its workforce. About 2,000 of the job cuts will come from its mobile-devices business, which continues to see sales shrink.
Company-wide revenue was down about 15%; net earnings had been $60 million in the year-ago quarter.
Sales in the company’s flagship device business reached $3.1 billion, down 31% from the year-ago quarter. The handset business lost $840 million, more than three times the loss in the year-ago quarter.
Motorola shipped 25.4 million handsets in the quarter, down from 37.2 million in the year-ago quarter, according to Strategy Analytics. The company said that fourth-quarter unit shipments would be lower sequentially, despite the typical bump driven by holiday sales.
As a result, Motorola sank to fourth place among the top five global handset vendors for the quarter, below Nokia Corp. (118 million units), Samsung Electronics Co. Ltd. (52 million units) and Sony Ericsson Mobile Communications (25.7 million units), which barely edged out Motorola. LG Electronics Co. held fifth place (23 million units).
Traders sent Motorola’s stock tumbling nearly 8% to $4.99, near its 52-week low of $4, by midday in reaction to the news.
“The biggest shock here is the magnitude of revenue decline – down 15% and more than $400 million below consensus,” wrote analyst Tero Kuittinen at Global Crown Capital L.L.C. “This supports our suspicion that Motorola is fundamentally weaker than Wall Street believes.”
“Poor results … underscored the need for drastic action by new co-CEO Sanjay Jha,” wrote TBRI analyst Ken Hyers. “Jha did not disappoint, announcing a sweeping restructuring package…”

Symbian, Freescale out
The company said in a conference call it would phase out use of the Symbian operating system and focus on Linux-based Android and Microsoft Corp.’s Windows Mobile for its smartphone efforts. Motorola also will cut off business with semiconductor supplier Freescale and use Qualcomm Inc. for low-cost 3G phones and Texas Instruments Inc. for higher-end devices.
Further, Motorola said it would cut $600 million in operating costs next year, beyond a similar cut to be completed this year. Analysts said further job cuts at the company likely were coming.
Jha also said that Motorola would winnow its offerings in the first half of next year, in line with its revised strategy. Thus, said Hyer, Motorola is likely to see more market share losses before bottoming out and resurrecting its fortunes.
Kuittinen agreed.
“There now is a clear chance that Motorola’s volumes will decline below 20 million units in the first quarter of 2009, which would mean substantial losses even with aggressive cost-cutting measures.”
Hyers said Motorola needed to focus its handset efforts on low-cost handsets for emerging markets and high-end smartphones.
The company took one-time charges in the third quarter relating to its consolidation of its silicon and software platforms and streamlining of its product portfolio.

A few bright spots
Motorola’s handset fall was softened somewhat by progress in its other divisions.
Motorola’s home and networks mobility business earned flat sales at $2.4 billion and operating earnings of $263 million, up 65% from the year-ago quarter. The company’s enterprise mobility business earned revenue of $2 billion, up 4% over the year-ago quarter, and operating earnings of $403 million, up 23% over the year-ago quarter.
The company said it expected to end the year in the black, excluding all-important charges relating to reorganizing the company and implementing further cost-cutting measures.
Article updated Oct. 30 to include details on job cuts.


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