Motorola cuts 7,000 extra jobs

With a phalanx of once-lionised US firms hastily reducing their financial statements in the wake of the Enron, Global Crossing, Tyco International and now WorldCom accounting scandals, one mobile phone and chip-maker has broken ranks to confirm its guidance - while culling more staff.

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By  Richard Brown Published  June 27, 2002

Schaumburg, Illinois-based Motorola today reaffirmed its earlier guidance for Q2 2002, confident that sales for the quarter will meet or slightly exceed $6.4 billion.

The company also reaffirmed that it is confident operating results for the quarter, excluding special items, will meet or be slightly better than a loss of four cents per share.

However, the news will come as cold comfort for the 7,000 additional staff Motorola will sack as part of its ongoing cost-saving plan. These cuts will affect all Motorola’s business segments globally, plus corporate headquarters and will reduce manufacturing, research and development, and sales, general and administrative expenses.

This latest round of job cuts come on top of a 32 percent reduction - or 42,900 jobs through layoffs and 5,500 through sales of businesses - since August 2000.

Charges associated with the cutbacks are expected to reach $3.5 billion, 90 percent of which will be accounted for in Q2. The company hopes the moves will result in pre-tax savings of $100 million for the remainder of 2002 and provide an annualised pre-tax saving of $700 million.

Also, Motorola said it would write off $530 million in long-term financing receivables, from the remaining portion of a loan to Turkish cellular service operator Telsim, which remains in default.

During Q2, Motorola paid an estimated $500 million in cost-cutting expenses plus Iridium-related litigation. Including these payments, the company expects a slightly positive operating cash flow for the quarter.

David Devonshire, chief financial officer, remarks: “The company expects to have, at the end of the second quarter, approximately $6 billion in cash, cash equivalents and short-term investments on hand and only $1.5 billion in short-term debt of which only $500 million is in commercial paper.”

In addition, Motorola said that in compliance with generally accepted accounting practices (GAAP), it plans to revalue its long-term financing receivables and other investments to reflect their current market valuations.

Ed Breen, president and chief operating officer, explains: “Beginning in the third quarter of 2000 through the end of 2001, Motorola made the early and tough decisions to reduce its overall break even cost structure by more than 20 percent.

"This year, we indicated that we will continue to further reduce our break even cost, as painful as these decisions are, in order to position Motorola to be far more competitive going forward with the single-minded purpose of strengthening the corporation and enhancing shareholder value.”

Motorola also said it continues to expect to show a profit in the third and fourth quarters of this year and be profitable for the full year, excluding special items. The company also said it continues to expect a sales decline of five percent to 10 percent for the full year compared to 2001.

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