Light Reading

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
Light Reading sits down at CES with the head of Cisco's service provider video business, Conrad Clemson, to discuss how NFV and cloud security relate to video, the challenge of managing 4K/8K traffic, the global expansion of Netflix and virtual reality.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
LRTV Documentaries
EANTC Tests Nokia IP Routing & Mobile Gateway VNFs for Real World Deployment

2|9|16   |   5:08   |   (0) comments


Nokia obtained validation of its virtualized router and virtualized mobile gateway capabilities through rigorous testing performed by EANTC. The results set a new industry benchmark for outstanding performance, scalability, resiliency and manageability. Nokia VNFs are ready for telco cloud deployment, so that service providers can accelerate mobile, business and ...
Between the CEOs
CEO Chat With Level 3's Jack Waters

2|8|16   |   26:15   |   (1) comment


Light Reading CEO and founder Steve Saunders sits down with Level 3 Communications' CTO Jack Waters to discuss hot topics like virtualization, 4K and the future of telecom...
LRTV Custom TV
The Composable Telco

2|8|16   |   24:46   |   (0) comments


Heavy Reading's Principal Analyst Caroline Chappell presents the keynote at Light Reading's 2020 Vision Executive Summit in Dublin.
LRTV Custom TV
Join Us at the Digital Operations Transformation Summit

2|4|16   |   03:52   |   (0) comments


The Digital Operations Transformation Summit on February 21, 2016 at the Crowne Plaza Barcelona Fira Centre will bring together 50 senior executives to engage in a unique debate on the opportunities and challenges presented by the transformative evolving digital landscape. RSVP now at events@lightreading.com.
LRTV Custom TV
Making the Test: ADVA Ensemble Connector vs. Open vSwitch

2|4|16   |   01:28   |   (0) comments


Light Reading, in partnership with EANTC, recently tested ADVA's Ensemble Connector, which replaces open vSwitch and offers carrier-grade capability and interoperability. The test results strengthen ADVA's credibility as a provider in the virtualization space.
LRTV Custom TV
Bridging the Gap Between PoCs & Deployment in NFV

2|4|16   |   31:50   |   (0) comments


Charlie Ashton of Wind River presents the keynote at Light Reading's 2020 Vision executive summit in Dublin.
Between the CEOs
CEO Chat With Mike Aquino

2|3|16   |   17:34   |   (0) comments


The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Shades of Ray
MWC: Buckle Up for 5G & the IIoT

2|2|16   |   02:28   |   (0) comments


This year's Mobile World Congress looks set to be a 5G land grab and a chance to get down and dirty with the Industrial Internet of Things (IIoT) – but what will the 5G discussions actually be about?
LRTV Custom TV
Case Study: Building China's Next-Gen TV Networks

2|2|16   |   5:01   |   (0) comments


With over 2 billion viewers worldwide, Shenzhen Media Group is one of China's largest content producers. By partnering with Huawei and Sobey, SZMG was able to modernize media operations with the Converged News Center, a production studio that is a model for next-generation workflows.
LRTV Custom TV
Quad Channel Modulator Driver with 46 Gbaud Capability from MACOM

1|28|16   |     |   (0) comments


MACOM's MAOM-003427 is the industry's first surface-mount modulator driver with 46 Gbaud capability to support next generation 200G and 400G applications.
LRTV Custom TV
Video Infographic: Validating Cisco's NFV Infrastructure

1|26|16   |   02:24   |   (1) comment


We all know that the network of the future will be virtual, but when will virtual become a reality? This video infographic covers the four key areas in which Light Reading, in partnership with EANTC, tested Cisco's NFV infrastructure: performance, reliability, multi-service capabilities and single pane of glass management.

For the full report, see

Between the CEOs
CEO Chat With Phil McKinney, CableLabs

1|22|16   |   13:36   |   (1) comment


At CES in Las Vegas, we met with Phil McKinney, CEO of CableLabs. Phil provides an update on the rollout of DOCSIS 3.1, his views on the future of open source and how consumer interest in virtual reality could affect network traffic.
Upcoming Live Events
March 10, 2016, The Cable Center, Denver, CO
April 5, 2016, The Ritz Carlton, Charlotte, NC
May 23, 2016, Austin, TX
May 24-25, 2016, Austin Convention Center, Austin, TX
All Upcoming Live Events
Hot Topics
Google's 5G Radio Ambitions Are Expanding
Dan Jones, Mobile Editor, 2/5/2016
Cincinnati Bell Joins Weight Watchers Club
Alan Breznick, Cable/Video Practice Leader, 2/5/2016
Yahoo & Verizon Sitting in a Tree...
Brian Santo, Senior editor, Test & Measurement / Components, Light Reading, 2/8/2016
Vodafone: Flexible Work Policies Boost Profits
Sarah Thomas, Editorial Operations Director, 2/8/2016
It's Time to Integrate OTT Video
Alan Breznick, Cable/Video Practice Leader, 2/8/2016
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Light Reading CEO and founder Steve Saunders sits down with Level 3 Communications' CTO Jack Waters to discuss hot topics like virtualization, 4K and the future of telecom...
The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Animals with Phones
Retro Is the Way to Be Click Here
Some animals are too cute for smartphones.
Live Digital Audio

Broadband speeds are ramping up across Europe as the continent, at its own pace, follows North America towards a gigabit society. But there are many steps to take on the road to gigabit broadband availability and a number of technology options that can meet the various requirements of Europe’s high-speed fixed broadband network operators. During this radio show we will look at some of the catalysts for broadband network investments and examine the menu of technology options on offer, including vectoring and G.fast for copper plant evolution and the various deployment possibilities for FTTH/B.