--Layoffs were expected as Google aims to streamline
unprofitable business
--Google says to expect more Motorola restructuring and
volatility
--Analysts speculate possible spinoff of Motorola's TV set-top
box business
(Updates with additional response from Google, analyst
commentary, fresh stock quote.)
By Drew FitzGerald
Google Inc. (GOOG) on Monday said it will reduce Motorola
Mobility's work force by about 20% to help streamline the
money-losing wireless phone maker.
The cuts, aimed at returning Motorola's once-dominant mobile
devices unit to profitability after the business spent 14 of the
past 16 quarters in the red, comes as analysts speculate Google
also is considering a spinoff of its home TV business, which mostly
provides set-top boxes and other equipment to cable providers.
The company sees severance-related charges of up to $275
million, most of which will be booked in the third quarter. The
remaining severance-related costs will be recognized by the end of
2012. Google also expects to record other significant charges tied
to the restructuring effort in the current quarter.
Google warned Monday that "investors should expect to see
significant revenue variability for Motorola for several quarters"
and that it expected to incur more restructuring charges, which
"could be significant." It added that while lower expenses are
likely to lag the immediate negative impact to revenue, it sees
these actions as a key step for Motorola to achieve sustainable
profitability.
Niki Christoff, a Google spokeswoman, declined to elaborate on
the restructuring effort beyond company's latest statement in a
filing with regulators. She added Motorola has a "vibrant Home
business with good market leadership and a strong strategy."
Google in May bought Motorola Mobility through a $12.5 billion
deal that armed it with thousands of patents, which have become
increasingly valuable as technology companies trade lawsuits over
their intellectual property. All of Motorola's new handsets use
Google's Android mobile software.
Google previously said it planned to cull the array of devices
Motorola offers to emphasize a smaller number of smartphones.
Two-third of the roughly 4,000 cuts in Motorola's mobile
business will take place outside the U.S. The company also plans to
close or consolidate about 30 of its 90 facilities. Motorola last
month agreed to move its Libertyville, Ill., headquarters to
downtown Chicago's Merchandise Mart building.
Investors reacted positively to the news, pushing Google's stock
up 1.1% to $649.12 early Monday. The stock has climbed 15% over the
past 12 months.
"They're taking steps to make what has been an unprofitable unit
for some time right-sized," RBC Capital Markets analyst Sean Kim
said.
Morningstar analyst Rick Summer called the moves "quick" and
"decisive" signs Google is committed to making the handset maker
profitable, though one goal for Motorola--to drive the popularity
of Android-based smartphones with cutting edge hardware--could be
an uphill effort.
"It's not clear what Google and Motorola can do to push that
market forward more than Samsung already has," he said.
Morgan Stanley on Monday upgraded Google's stock to overweight,
highlighting the company's stable revenue growth and attractive
valuation.
Fears of a messy Motorola integration were overplayed, the bank
said, adding that reports of a possible spinoff of Motorola's home
equipment unit "reinforces our view that Google is indeed
interested in [Motorola's] patents and smartphone hardware
expertise, but is not seeking to overextend itself."
Analysts said the latest move wasn't unexpected. Google this
spring hired Marsh & McLennan Cos. (MMC) Chief Financial
Officer Vanessa Wittman, who previously oversaw restructuring
efforts at Seattle-based 360networks, to work at Motorola.
Former Chief Executive Sanjay Jha left when the deal closed, as
did top executives Christy Wyatt, Bill Ogle, John Bucher and
Juergen Stark, among others. New leaders include Motorola unit head
Dennis Woodside and former Defense Advanced Research Projects
Agency chief Regina Dugan, who joined Google in March and will lead
an advanced technology group within Motorola.
--Saabira Chaudhuri contributed to this report.
Write to Drew FitzGerald at andrew.fitzgerald@dowjones.com
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