& cplSiteName &

Motorola to Cut Handset Staff?

Dan Jones
LR Mobile News Analysis
Dan Jones, Mobile Editor
1/18/2007
50%
50%

Motorola Inc. (NYSE: MOT) could announce plans to cut staff at its handset division as it lays out disappointing fourth quarter results this Friday.

Motorola said earlier this month that its sales for the fourth quarter of 2006 will fall to between $11.6 billion and $11.8 billion, below the company's earlier predictions of as much as $11.8 to $12.1 billion and below consensus analyst estimates. The fall-off is being blamed on an increasingly tough handset market for the company, which had been buoyed by sales of its RAZR phone during most of 2006. (See Motorola Margins 'Collapse'.)

Citigroup analyst Daryl Armstrong is predicting that as part of a plan to improve the profitability of their handset business the firm could lay off up to 5 percent of the employees in that unit.

"We estimate that each 1 percent of the workforce in Mobile Devices that are terminated results in $45 million in cost reductions. Or roughly $0.01 EPS improvement," writes Armstrong in a research note. "Our current expectation is that the company reduces headcount by 3 percent to 5 percent."

Motorola has not yet returned calls for comment on the prediction.

"Scalpel" forthcoming Armstrong notes, however, that there is only so far the Schaumburg, Ill.-based company can go with restructuring in the highly competitive cellphone market. "Given the competitive landscape, where vendors like Nokia, Samsung, & LG are improving their product portfolios, we think that Motorola has little room to disrupt the operations in their handset division," Armstrong notes. "We think this limits the amount of restructuring that the company can execute without incurring meaningful operational risk."

This means the firm has to keep trying to replicate the success of the RAZR with new models. Armstrong expects to see new Linux-based SCPL -- or "Scalpel" models this year.

Motorola's reaction to the new iPhone from Apple Inc. (Nasdaq: AAPL), however, could be 12 to 15 months away. "We expect the company to respond with its own offering, although we expect them to attack the mid- to high-end of the market ($200 - $400) rather than replicate Apple’s offering at the ultra high-end of the market," Armstrong writes. "While we think they can replicate the hardware aesthetic design and much of the feature functionality of the iPhone, we think they probably have to radically overhaul their User Interface software for a product like this."

Motorola appears to be experiencing similar problems to those that its top-ranked handset rival Nokia Corp. (NYSE: NOK) underwent over the last year or two when some of its product line started to look rather outmoded thanks to the Motorola RAZR.

RAZR margins decline "Motorola is having a relatively tougher time than other major phone vendors," Gartner Inc. analyst Todd Kort tells Unstrung, "because they are facing difficult comparisons with their performance of the last two or three years, when they were able to achieve substantial market share gains and strong profit growth based on the huge success of their RAZR line.

"Interest in the RAZR remains good," Kort adds, "but profit margins on the RAZR line have substantially declined." Motorola is now charging "a small fraction" of the $500 original price for RAZRs at launch.

Indeed, Nokia has now revamped its offerings with new enterprise models and thin phones coming in 2007. Goldman Sachs & Co. recently upgraded the company's stock from a "hold" to a "buy" on the expectation of solid fourth-quarter results. Nokia is reporting on January 25.

Meanwhile, Sony Ericsson Mobile Communications is claiming to once again be the third-largest handset maker in the world over nearest rival Samsung Electronics Co. Ltd. (Korea: SEC) The firm this week reported fourth-quarter net profit up 144 percent to $578 million compared to the same quarter a year ago. Revenues were up 60 percent from $2.99 billion to $4.89 billion year-on-year.

The London, U.K.-based company shifted 26 million phones in the last quarter of 2006, compared to 16.1 million a year ago. The firm noted that many of these had been high-end models such as its "Walkman" MP3 phone and "Cybershot" camera phones.

"Sony Ericsson is the driver of Ericsson... Sony Ericsson’s Q4 results have improved EPS [Earnings Per Share] growth in 2007 from 2 percent to 14 percent," estimates Richard Windsor at Nomura Securities He still says that Ericsson is "slightly overvalued", however.

Ironically, Gartner's Kort says that Nokia and Sony Ericsson are looking sharper now because they don't have the burden of matching a RAZR-like success in their product lines, as does Motorola. "Nokia and Sony Ericsson have not had a huge success on the level of the RAZR and their new higher-end, higher margin lines have been growing relative to where they were a year or two ago, so they are looking better now."

— Dan Jones, Site Editor, Unstrung

(0)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
From The Founder
The independent evaluation of Nokia's key virtual network functions (VNFs) was a defining moment for the Finnish giant.
Flash Poll
Live Streaming Video
Charting the CSP’s Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it’s going from two industry veterans.
LRTV Custom TV
Cisco's Innovations in Cable

5|26|16   |   03:18   |   (0) comments


Marc Aldrich from Cisco discusses the latest in security, the evolution and momentum for CCAP and what the industry will be seeing next from Cisco.
LRTV Documentaries
Leading Lights 2016 Highlights

5|25|16   |   02:26   |   (1) comment


Some of the high points from this year's Leading Lights awards dinner at the Hotel Ella in Austin, Texas.
LRTV Documentaries
Light Reading Hall of Fame 2016

5|23|16   |   05:43   |   (0) comments


Find out who has been welcomed into Light Reading's Hall of Fame this year.
LRTV Custom TV
ZTE TM Forum Highlights

5|23|16   |     |   (0) comments


ZTE showcased its new ICT solutions at TM Forum in Nice.
LRTV Interviews
Gamma's MD on the Emergence of UC2

5|20|16   |     |   (0) comments


Gamma Communications Managing Director David Macfarlane believes the unified communications (UC) market has reached a tipping point.
LRTV Custom TV
The Ultimate 5-Minute Guide to Digital Customer Engagement

5|20|16   |     |   (0) comments


In this short video, you will hear all about how Digital Customer Engagement is the key to meeting customer expectations, keeping them happy, and maximizing revenue. VP Product & Marketing at Pontis, Ofer Razon, breaks down for us the five essential capabilities for successful Digital Customer Engagement. Don’t miss!
LRTV Custom TV
NFV in 2016: Part 1 – NFV Use Cases Get Real

5|19|16   |   05:57   |   (0) comments


Consensus is building around the key use cases for NFV, including managed IP services at the network edge and on customer premises, which can generate new revenues from enterprises/SMBs and consumers; Evolved Packet Core to support LTE migration; and adjacent technologies, such as TAS and IMS, to support VoLTE and next-generation charging and policy control ...
LRTV Custom TV
Nokia's Steve Vogelsang on NFV – Part 3

5|19|16   |     |   (0) comments


Steve Vogelsang discusses the challenges of operational transformation and how Nokia helps its customers. Join Steve at the Big Communications Event in Austin the morning of May 24, on his keynote and optical networking panel.
LRTV Interviews
Level 3: Why UC Is In Demand

5|17|16   |   04:12   |   (1) comment


Andrew Edison, Level 3's senior VP of sales, EMEA region, talks about the drivers of growth in the unified communications services market.
LRTV Custom TV
ARM's OPNFV Action

5|17|16   |     |   (0) comments


At the ARM booth at MWC 2016, Joe Kidder and Bob Monkman speak to Light Reading about OPNFV and their upcoming action.
LRTV Custom TV
Nokia's Steve Vogelsang on NFV – Part 2

5|16|16   |     |   (0) comments


Steve Vogelsang gives advice to service providers on how to move to NFV. Join Steve at the Big Communications Event in Austin the morning of May 24, on his keynote and optical networking panel.
LRTV Interviews
Interoute CTO on NFV's Maturity

5|13|16   |   06:46   |   (1) comment


Matt Finnie, CTO at international operator Interoute, explains how NFV has made life easier in terms of logistics and how Interoute can now enable a 'software-defined moment' for its customers.
Upcoming Live Events
September 13-14, 2016, The Curtis Hotel, Denver, CO
December 6-8, 2016,
June 16-18, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
A new survey conducted by Heavy Reading and TM Forum shows that CSPs around the world see the move to digital operations as a necessary part of their overall virtualization strategies.
Hot Topics
DT: Telcos Must Escape Vendor Prison
Iain Morris, News Editor, 5/24/2016
AT&T to Start 5G 'Friendly' Trial by 2016 End
Dan Jones, Mobile Editor, 5/24/2016
Cisco's Patel Hails 'Microculture' Successes
Iain Morris, News Editor, 5/26/2016
AT&T's Margaret Chiosi Retires
Ray Le Maistre, Editor-in-chief, 5/25/2016
Cable Is Eyeing Its Retail Options
Mari Silbey, Senior Editor, Cable/Video, 5/25/2016
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
In this latest installment of the CEO Chat series, Craig Labovitz, co-founder and CEO of Deepfield, sits down with Light Reading's Steve Saunders in Light Reading's New York City office to discuss how Deepfield fits in with the big data trend and more.
Grant van Rooyen, president and CEO of Cologix, sits down with Steve Saunders, founder and CEO of Light Reading, in the vendor's New Jersey facility to offer an inside look at the company's success story and discuss the importance of security in the telecom industry.
Animals with Phones
Live Digital Audio

Our world has evolved through innovation from the Industrial Revolution of the 1740s to the information age, and it is now entering the Fourth Industrial Revolution, driven by technology. Technology is driving a paradigm shift in the way digital solutions deliver a connected world, changing the way we live, communicate and provide solutions. It can have a powerful impact on how we tackle some of the world’s most pressing problems. In this radio show, Caroline Dowling, President of Communications Infrastructure & Enterprise Computing at Flex, will join Women in Comms Director Sarah Thomas to discuss the impact technology has on society and how it can be a game-changer across the globe; improving lives and creating a smarter world. Dowling, a Cork, Ireland, native and graduate of Harvard Business School's Advanced Management Program, will also discuss her experience managing an international team focused on innovation in an age of high-speed change.