Three months into leading Motorola Inc.'s mobile phone division, co-chief executive Sanjay Jha has started some painful housecleaning that he hopes will restore the company's competitive standing.
The process requires thousands of layoffs in addition to continued declines in phone sales over the next six months, steps that Jha believes are necessary to rebuild Schaumburg, Ill.-based Motorola into the agile, innovative handset company it once was.

"The reality is there is no quick fix here," Jha told analysts on a Thursday conference call to discuss third-quarter earnings.

Motorola reported a net loss of $397 million, or 18 cents a share, in the third quarter, down from a profit of $60 million, or 3 cents a share, in the same period last year. Total sales fell to $7.5 billion from $8.8 billion, with handset sales dropping 31 percent on the year.

"Their thinking is they're willing to give up market share over the next three quarters in order to position themselves to be more profitable," said Matt Thornton, an analyst at Avian Securities.

The company's new focus on two main software platforms - Google's Android and Microsoft's Windows Mobile - will test the patience of investors who were expecting the company's recovery to bear fruit sooner. Jha has canceled several product launches scheduled for early 2009, and Motorola will have few smart phones to offer until later next year.

Oppenheimer analyst Ittai Kidron said this will make 2009 "another transition year" after a tumultuous 2008.

Moreover, tough economic conditions and the changes in the handset division have postponed the planned separation of the mobile phone unit from the company's other two businesses. Those segments, which make non-consumer communications equipment, are still profitable but vulnerable to slowdown if governments and businesses slash spending.

There is no new target date for the split, which was planned for the third quarter of 2009. Co-chief executive Greg Brown said the company felt it was better to conserve cash while financial markets remain dicey.

Jha said his decision to go full-tilt with Android and Windows Mobile was an extension of the turnaround strategy in place before his arrival. Motorola already was whittling its mobile phone software platforms, he said.

"I went further in making the consolidation happen faster," Jha told the Chicago Tribune.

Motorola will open a Seattle office to work with Microsoft on Windows Mobile. But 3,000 employees worldwide will be let go in the next two quarters as part of a plan to save $800 million next year. About two-thirds of the layoffs will be in the handset division, Brown said.

Jha said Motorola will use three operating systems for its cell phones, down from more than 20 combinations.

Jha said Android's open-source nature should spur faster innovation, with the release of its first Android phone scheduled for the 2009 holiday season. Smart phones with Windows Mobile 6.5 will be available in the second half of next year. For low-tier phones, Motorola is sticking with a proprietary technology called P2K.

"I would say it's a very well-considered choice that we have made, and in every choice there are some risks for sure," Jha said. "But I think the risks are manageable and that we can influence the outcome ourselves much more strongly. That's why I chose Android."

Motorola's transition period leaves room for its competitors that also are working on Android and Windows Mobile phones.

"The risky part of it is, it's unclear they can create a lot of differentiation in their handsets if they're using the same operating systems as other vendors," said Tavis McCourt, an analyst at Morgan Keegan.

As for the broader economy, Motorola's chief financial officer, Paul Liska, said the company remains in good fiscal health. Motorola has more than $2 billion in offshore funds that can be brought to the U.S. for liquidity needs, and the company has no big debt payments coming up.

Source:McClatchy-Tribune News