Motorola Inc says its will take a massive $1.95bn charge in the second quarter and will lay off 10% of its work force over the next 12 months in an attempt to cut costs in the face of falling demand and intense pricing pressure in the semiconductor market. 15,000 people will lose their jobs and the Schaumburg, Illinois- based company said it will be pulling out of poorly performing business areas, although it declined to detail which these areas would be. The goal, said Robert Growney, Motorola’s chief operating officer, is to generate annualized savings…of more than $750m. The divisions bearing the brunt of the cuts will be Semiconductors, Cellular phones and Messaging (pagers), a spokesperson said. Margot Brown, director of external communications said, This kind of thing has never happened in the history of Motorola. To say it will be painful for us is a major understatement. Motorola has made profits in excess of $1bn a year for the last five years, but in March, it issued a profits warning for the first quarter of 1998, blaming softness in the Asian markets. For the second quarter to June this year, Motorola has now warned investors that it’s heading for an operating loss, which means big net losses, even before the massive $1.95bn charge. No information was given about anticipated revenues, but these too will be substantially down following lower unit sales in phones and pagers and a reduction in the average component selling price across semiconductors, the company said. And so in just six months, Motorola has turned a $320m profit into a substantial loss. The $1.95bn charge this quarter, the biggest in the company’s history, will wipe out nearly all of Motorola’s reported profits since 1995 and will comprise severance charges and asset write-downs for discontinued and under utilized plant. Small semiconductor firms all over the world will no doubt be looking on with intense interest because many of them buy their fabrication equipment second hand from Motorola. News of the lay-offs came late on Thursday, and the company declined to add any further details in advance of a conference call scheduled for today (Friday). But warning signs have been apparent in recent months, including the news that Motorola Inc is to team with Lucent Technologies Inc to save costs on the development of digital signal processors, and the recent abandonment of the $12.9bn Celestri satellite network. Christopher Galvin, Motorola’s CEO, said in a prepared statement that he regretted the impact these cuts would have on his employees, but then appeared to trivialize the situation by stating that his company would get back into profits later in 1998 with a plan to create the ‘wings’ for businesses and consumers so they can take their worlds with them. Second, we will embed our ideas and technology along with our customers’ in order to create everyday miracles. Juxtaposed against today’s announcement of 15,000 job losses, the statement appeared remarkably insensitive, but Motorola said its employees recognized the need for the continuation of its long term marketing goals. We want our customers to recognize, embrace and have a relationship with the Motorola brand, a spokesperson said.
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