The struggling mobile handset developer Motorola Inc. (MOT) has decided to lay off 74 more workers from its mobile phone division. Earlier this year, the company had decided to lay off 3,000 employees in this division.
In spite of continuous business restructuring for the past year, the segment is being seriously challenged by devastating decline in sales volume since the beginning of fiscal 2008. During the first quarter of 2009, the company sold just 14.7 million units, down approximately 46% year-over-year and down 23.4% from previous quarter.
According to industry findings, Motorola now commands approximately 6% global market share for handsets, significantly behind Nokia (38%) (NOK), Samsung (18.8%), and LG (9.2%). None of its new launches products have favorable market traction as its iconic RAZR mobile phones had a few years ago.
Consumer preferences have shifted towards high-end feature-rich wireless PDA devices and smart-phones, which are gaining significant market acceptance. Unfortunately, Motorola’s PDA line lacks enthusiastic consumer appeal compared to Apple’s (AAPL) iPhone, Research in Motion’s (RIMM) Blackberry, Nokia’s N-series, or Palm’s Pre (PALM). This high-end segment is also crowding with other solution providers, including Google (GOOG), Samsung, and HTC vying for market share.
Enormous cash drain from the mobile handset division has pushed Motorola’s overall debt servicing outlook to negative. On February 3, Moody’s Investor Services downgraded Motorola’s broad credit rating to Baa3 from Baa2 and short-term rating to Prime-3 from Prime-2. Business restructuring is likely to result in higher cash drain due to severance payments and other charges. Motorola’s board of directors has also suspended dividend payments due to a weak cash position.
Motorola said it will launch a new 3G high-end smart-phone based on Google’s Android software during the fourth quarter. We are not convinced that a turnaround will take place without major structural revamps as the company is exposed to lingering economic headwinds, lower overall worldwide demand for mobile handsets and a lack of high-end competitive PDA wireless devices in its handset range. Thus, we maintain our Sell recommendation on Motorola.
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