Is Motorola planning more layoffs?

Motorola Inc is expected to make steep cost cuts, including more layoffs, at its mobile devices division as a broad slump in demand for cell phones exacerbates its own market share declines.

With even market leader Nokia warning about weakening phone demand, analysts say Motorola could miss Wall Street's already low expectations for phone sales in the fourth quarter and the current quarter. As a result, they expect Motorola to cut the size of its handset unit -- beyond the 3,000 layoffs the company announced in October, which were mostly in its handset unit and equivalent to 4.5 per cent of its workforce.

"Resizing is necessary beyond the 3,000," said Avian Securities analyst Matthew Thornton, who estimated that Motorola's phone unit could have roughly 28,000 employees after the previously announced layoffs.

Motorola declined to comment. The Schaumburg, Illinois-based company fell to fourth place in the global phone market in the third quarter of 2008, and said key new devices would be ready in the second half of 2009, which could mean deeper market share losses until then.

This was before Nokia said in December that it expected the phone market to shrink 5 per cent or more in 2009. Some analysts now expect sales to fall as much as 15 per cent from 2008. As a result of the deteriorating market, Deutsche Bank analyst Brian Modoff estimated that Motorola needed to cut costs by roughly another $650 million, on top of the $800 million reductions already announced.

"Their cost structure is too high for where they need to be in this environment given their market share," said Modoff, who sees Motorola reporting 22 million phone sales for the fourth quarter just ended, and 17 million for this quarter. He estimated that with its current cost structure Motorola could break even if it sold about 28 million phones per quarter, but said that this figure was too high for comfort in the weak economy.

"I think they need to be profitable below 20 million units," said Modoff. Analysts on average expect Nokia to report 121.5 million phone sales for the fourth quarter, with estimates ranging from 110 million to 135 million.

They expect Sony Ericsson, which overtook Motorola in the third quarter, to sell about 26.6 million phones. Phonescoop.com, a blog about the latest phones, said Motorola could lay off as many as 50 per cent of its mobile phone workers, but analysts said this would be a "drastic" move.

Charter Equity Research analyst Ed Snyder said such a cut would mean giving up workers in research and development, and "dramatically" reducing the number of phones launched. But he said that such a move was not implausible.

"They're hemorrhaging cash. They have to cut the division," he said. But Deutsche Bank's Modoff said Motorola needs to be careful about where it makes cuts because it needs to be able to compete with popular devices such as Apple Inc's iPhone and phones based on Android, the operating system designed by Google Inc.

These phones have made the focus of industry competition more about innovative software and user interfaces than about phone hardware."They should keep (jobs) in software and chop them in hardware. The emphasis needs to be placed on low cost designs and operating systems," said Modoff. In the third quarter, Motorola's mobile unit revenue fell 31 per cent to $3.1 billion, and the unit's operating loss widened to $840 million from $248 million.

Agencies

Web 2.0 a hit with handset makers

Cell phone makers are increasingly pre-loading their handsets with social networking applications to woo Internet-savvy consumers.

LG Mobile has tied up with Mobile 2.0 service provider RockeTalk which will upload a social networking application on its phones. Similarly, Samsung Mobile has a tie-up with ShoZu, provider of mobile social media services, which has pre-loaded social networking software on select Samsung phones.

Says Samsung Mobile country head Sanjay Dutt: “Early next year, we plan to launch our own proprietary software for enabling social networking through mobiles. This will be preloaded on most Samsung multimedia phones. The idea is to enable users to stay connected while on the move.”

LG GSM business head Anil Arora: “Social networking is the next thing on mobile phones. In future, we plan to preload more mobile phone models with social networking application without any extra charge.”

The company currently pre-loads the application only on LG KT 610 and KF 750 cell phones.

According to handset marketers, social networking on mobiles is a hightraction feature in the urban market where youths form a big consumer group for handsets. Says Motorola India and South-West Asia senior director (sales) Lloyd Mathias: “Social networking is an important feature, especially in the urban market and can define the purchase decision. Today’s Internet savvy youths seek access to social networking sites on mobile phones.”

Motorola has social networking application pre-loaded on seven of its handset models, including all phones in the Moto Rokr and Moto Ming series.

Some handset makers are eagerly seeking a tie-up in the space. Says Meridian Mobile CEO Rajiv Khanna: “We see potential in this feature and are planning to make even our low-end phones internet-ready. Early next year, we will tie up with a local web 2.0 service provider and upload this feature in our phones at the shop-floor level.”

Service providers are spoilt for choice as manufacturers queue up seeking collaborations for pre-loading phones with social networking applications.

Says RockeTalk marketing director Sameer Agarwal: “Our application makes it easier for mobile users to send voice messages, pictures and videos. Social networking on mobiles is set to grow exponentially as mobile internet penetration increases.”

The US-based service provider claims to be in advanced stages of talks with handset makers--Nokia, Sony Ericsson, Samsung and Spice Mobile--for pre-loading web 2.0 applications.

Almost 10 million new handsets are sold in India every month, making it one of the biggest markets globally. No wonder, handset marketers like LG and Samsung are quick to adopt novel features to fuel sales.

Source: Agencies