As part of a massive cost-cutting campaign, chip and electronics conglomerate Motorola said today it would eliminate 15,000 jobs, or 10 percent of its workforce, and take $1.95 billion in charges for doing so.
The downtrodden company also said second-quarter earnings, excluding these charges, are expected to be well below analysts expectations because of "deteriorating demand and global pricing pressure." Motorola said these factors largely sprang from the state of the semiconductor business, as well as economic weakness in Asia. In addition, these issues could result in an operating loss for the quarter.
"It wasn't a complete surprise," said Mark McKechnie, industry analyst for NationsBanc Montgomery Securities. "I did think some of the problems clearly are due to external issues, but there's also some internal difficulties that Motorola has brought on itself. I think they 'get it' but they're in a difficult situation."
Motorola has been a bellwether in the Asian market, so the announcement could be a harbinger of negative news for other high-tech companies as well. Motorola's problems come as other chipmakers are experiencing a slowdown in industry demand that come on top of other specific problems, such as last week's news by Intel that it will delay shipment of the Merced ship by six months.
"In the fourth quarter of last year, our forecast for 1998 called for higher sales growth and improved profitability, but that has not materialized," Motorola president Robert Growney said in a statement. "We are determined to return our financial results to an acceptable level as soon as possible. The goal is to generate annualized savings, once all actions have been implemented, of more than $750 million."
Motorola's stock is hovering at a 52-week low. It closed at 51.5 per share today, up 0.675. The stock has traded as high as 90.5 and as low as 50.625 during the past 52 weeks. The cost-cutting announcement came after the stock market closed.
Among the actions the company is undertaking are the following:
"We believe than an improving trend of financial performance can develop in the second half of 1998, given stabilized economic conditions in Asia," company chief executive Christopher Galvin said. "Longer term, the actions we outlined today can help provide stronger future financial performance and superior returns to our stockholders."
According to First Call, analysts had expected Motorola to post a second-quarter profit of about 20 cents per share, down from 62 cents in the previous year.
Motorola has been in a financial slump. In March, the company warned that its first-quarter results would be "well below" analysts' expectations, joining companies such as Intel in warning of an earnings shortfall. In April, the company posted profits of $180 million, which were in line with the downward revised estimates.
Executives warned, however, that Asia's economic problems would continue to hurt sales for "several more quarters."
Last month, the company said it would fold its broadband satellite venture, dubbed Celestri, into Teledesic, a rival project led by Microsoft's Bill Gates and wireless pioneer Craig McCaw. The highly hyped Celestri was a nearly $13 billion network that was proposed last June.