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Wednesday, August 15, 2012

Google Slices Motorola Mobility Staff

by Peak Positions

Story first reported from

Google Inc. said Monday that it will reduce Motorola Mobility's workforce by about 20% to help streamline the unprofitable wireless-phone maker.

The roughly 4,000 job cuts are the first large-scale layoffs in Google's 13-year history. They are 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, and come as analysts speculate about whether Google is considering a spinoff of its home-television business that provides set-top boxes and other equipment to cable providers.

Google expects severance-related charges of as much as $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, possibly "significant" charges tied to the restructuring effort largely in the current quarter.

The company warned Monday that "investors should expect to see significant revenue variability for Motorola for several quarters," adding that it will likely take longer for Motorola to trim expenses than it will for the company's revenue to feel the impact from the latest cuts.

Niki Christoff, a Google spokeswoman, declined to elaborate on the restructuring effort beyond the company's latest statement in a filing with U.S. regulators. She added in a written statement that 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 intellectual property.

All of Motorola's new handsets use Google's Android mobile software.

Google said it plans to cull Motorola's product portfolio, which includes 27 different mobile phone models, to emphasize a smaller set of smartphones.

Motorola, which contributed about 10% of Google's second-quarter revenue, recently posted a $41 million operating loss in its mobile segment. The home business eked out a $3 million profit.

Two-thirds of the 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 the company's Libertyville, Ill., headquarters to downtown Chicago's Merchandise Mart building.

Investors reacted positively to the restructuring plan, along with an analyst's upgrade of Google's stock and a separate deal to buy John Wiley & Sons Inc.'s Frommer's travel brand. Shares in Google rose 2.8% to $660.01 on the Nasdaq Stock Exchange Monday. The stock is up 17% 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 [Electronics Co.] 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. Chief Financial Officer Vanessa Wittman, who previously oversaw restructuring efforts at Seattle-based 360networks, to work at Motorola.

Former Motorola 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 at Motorola.

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