Motorola cuts 7,000 jobs and takes $3.5 billion charge

SCHAUMBURG, Ill. -- Continuing its painful measures to cut costs, Motorola Inc. here today said it plans to take a $3.5 billion charge, reduce its workforce by approximately an additional 7% or 7,000 positions, and consolidate more of its chip-making plants.

The staff reductions, part of an ongoing restructuring strategy to reduce expenses, will impact all business segments and its corporate headquarters. Motorola's goal is to reduce its headcount to about 100,000 this year, from 111,000 at the end of 2001. It cut 4,000 jobs in the first quarter. At its peak, Motorola employed 150,000 workers.

Some 20% of the job cuts were in the company's infrastructure operations, which has been reportedly up for sale. The company did not break out the job cuts in the chip arm, however.

And, as a result of its semiconductor chip-outsourcing plan, which was reiterated on Wednesday, the troubled Schaumburg-based company said that "certain company-owned semiconductor manufacturing facilities will be written down to their fair market value."

On Wednesday, the company reiterated its so-called "asset-light" strategy, while simultaneously expanding its silicon foundry alliance with Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC). The strategy is geared to shift more of its chip production to foundries, such as TSMC (see June 26 story ).

A spokesman for Motorola said the moves would reduce the company's break-even point within its semiconductor group to $4.9 billion for the year. Previously, the break-even point for the company's chip arm was $5.2 billion.

The spokesman added that Motorola has no plans to shutter addition wafer fabs other than those that have been announced. Today, however, the company did announce plans to write-down certain manufacturing fabs, it was noted.

"The restructuring will be substantially completed when the steps we are announcing today are fully implemented," said Ed Breen, president and chief operating officer at Motorola, in a statement. "This means our businesses will be sized to today's economic environment and our assets will reflect today's market values," he said.

The semiconductor outsourcing agreement will result in lower capital expenditures in the future. Charges associated with these restructuring actions total about $1.9 billion, resulting in pre-tax savings of $100 million for the remainder of 2002 and provide an annualized pre-tax savings of $700 million.

The company also expects to record $1 billion charges related to lower market valuations of its investments and other assets. It will also write off $530 million in long-term financing receivables, which represents the remaining portion of a loan to Turkish cellular service operator Telsim, which remains in default.

The aggregate impact of all of these actions is expected to result in a charge of about $3.5 billion of which less than 20% is expected to be cash-related. The company plans to record more than 90% of these charges in the second quarter of 2002.

Remaining charges are expected to be recorded in the third and fourth quarters as appropriate under GAAP. A charge of $3.5 billion would lower annual GAAP-reported earnings by approximately $1.10 cents per share.

Motorola also reaffirmed its earlier guidance for the second quarter of 2002 and the full year. The company said today it is confident sales for the quarter will meet or slightly exceed $6.4 billion.

It 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 5-10% percent for the full year compared to 2001. And, Motorola also said that it continues to believe that earnings of at least 4 cents per share is achievable for the full year 2002, excluding the impact of special items.