Months after being acquired by Google Inc., Motorola Mobility is undergoing a drastic restructuring and cutting more than 20 percent of its Chicago-area workforce in a bid to restore profits and better compete in a cutthroat field of smartphone-makers.
Google said Monday that Motorola Mobility, which it purchased for $12.4 billion in May, is laying off 20 percent of its 20,000-strong global workforce, affecting 4,000 employees worldwide. Locally, the company is cutting 700 of its 3,000 employees in Libertyville and Chicago, bringing the head count to about 2,300, said spokeswoman Jennifer Erickson. That represents a nearly 23 percent reduction and accounts for more than half the layoffs Motorola Mobility is making in the U.S.
The deep cuts come less than one month after Motorola Mobility and Mayor Rahm Emanuel made a high-profile announcement that the company would move its headquarters and 3,000 workers from Libertyville to the Merchandise Mart in downtown Chicago next year. The layoffs will suspend a state incentives program that gives Motorola Mobility tax breaks for retaining at least 2,500 local employees.
“When Google bought Motorola Mobility (in May), we knew things would not go along as they had in the past, that Google would bring new focus and restructuring to the business,” Emanuel said in a Monday phone interview.
Google’s new vision for Motorola Mobility involves shuttering about one-third of its 90 facilities worldwide and focusing on “more innovative and profitable devices” instead of lower-end phones that lack the processing power and computerlike features of smartphones, Google said Monday. That means Motorola Mobility will be making a big bet on pricier, cutting-edge devices — a strategy that carries risks in a highly competitive gadgets market.
The restructuring efforts are aimed at improving finances at Motorola Mobility, which has lost money in 14 of the past 16 quarters. In the most recent quarter, the company posted an operating loss of $233 million, with the bulk of that coming from the mobile devices segment. Motorola Mobility’s other division makes cable TV set-top boxes.
Layoffs are common byproducts of large corporate deals, and in the case of Google and Motorola Mobility, analysts said the two companies overlapped in areas ranging from sales and marketing to software engineering.
“It’s unfortunate, but it was foreseeable,” said Chris Silva, a mobile industry analyst at Altimeter Group. “It probably wouldn’t be surprising to see more (cuts) happen. These are two very large companies that are just starting to consummate their relationship, figure out redundancies and squeeze out inefficiencies.”
While Motorola Mobility declined to provide details on the types of jobs affected by the layoffs, analysts noted that a significant portion of the company’s employees were working on lower-end phones, which is no longer an area of interest for Google. Instead, Motorola Mobility will be poised to deliver high-end mobile devices that showcase the latest capabilities of Google’s Android operating system. Motorola’s portfolio of 24,500 granted and pending patents, many of them related to Android, were hugely attractive to Mountain View, Calif.-based Google.
Former Motorola Mobility Chief Executive Sanjay Jha, who was replaced by Google executive Dennis Woodside when the deal closed, had devoted major resources to developing Android-based smartphones during his tenure, forging a close relationship with Google and scrapping other operating systems. His turnaround efforts at the long-suffering mobile devices division involved layoffs and other cost-cutting measures. Google is taking that strategy further.
“It’s almost like Google is finishing the work Sanjay wanted to do,” said Chris Hazelton, research director for mobile and wireless at 451 Research. “Sanjay probably couldn’t make cuts this deep and make investors happy. Motorola’s (now) a piece of a much larger company. While this is a very deep cut to Motorola, it’s something that’s seen as being needed, and the company that can do it is Google.”
Competing in low-end phones requires selling large numbers of devices in emerging markets, a challenge that has tripped up several of Motorola Mobility’s competitors. But focusing on a handful of “hero” devices at the premium end of the market has its pitfalls: The strategy requires making costly bets on a small number of products that must go up against crowd favorites such as Apple’s iPhone and Samsung’s Galaxy S.
Before smartphones emerged, Motorola had dominated the mobile phone market with the Razr, only to tumble into near-obsolescence after failing to produce a worthy successor. Jha had expressed his distaste for a strategy that relied too much on a single product.
“Motorola’s legacy in hero phones is something (it wants) to avoid repeating, but that was a completely different world,” Silva said. He added that Google has “an advantage, not just because it’s the creator of Android, but because it has the ability to create an ecosystem around it,” referring to the tight integration of Google services into hardware products.
For example, Google’s Chrome Web browser is optimized for its Nexus 7 tablet and automatically syncs content across a consumer’s tablet, mobile phone and desktop. Motorola Mobility’s new smartphones make natural showcases for new services Google wants to introduce, such as making payments with a mobile device.
“It’s possible that other Android hardware partners will back off from the high-end smartphone,” Silva said.
If Google succeeds in transforming Motorola Mobility into a profitable smartphone powerhouse, the benefits should be felt in Chicago, said Tom Alexander, a spokesman for the mayor. Emanuel’s office noted that Motorola Mobility is still making a $300 million commitment to the city, including the cost of leasing four floors at the Merchandise Mart for 15 years.
“We expect them to create thousands of jobs in Chicago over time,” Alexander said in an email. “This is a change to get the company moving in the right direction, but this is a long-term relationship and we’re looking forward to many years of job growth, innovation and advancement from the company.”
But the layoffs disqualify Motorola Mobility from collecting incentives from an agreement signed last year with the state that provides more than $10 million in annual tax breaks over 10 years. The company committed to certain levels of investment and must retain at least 2,500 jobs locally.
The state incentives “will be suspended until we have at least 2,500 again,” Erickson said.
Motorola Mobility is notifying the workers who will lose their jobs, a process that will continue through midweek.
Google also said Motorola Mobility will be “providing generous severance packages” to affected employees. Google said it expects to take a severance charge of about $275 million, most of which will hit in the third quarter. Additional charges related to the restructuring will also be recognized during that quarter and “could be significant,” the filing said.
Tribune reporters Peter Frost and Kathy Bergen contributed.