Google Inc. (GOOG) will cut about 4,000 jobs at its Motorola Mobility Holdings Inc. unit, or 20 percent of the staff at the company it bought for about $12.5 billion.
Two-thirds of the reductions will be outside the U.S., the Mountain View, California-based company said in a regulatory filing today. Google will also shut down about a third of Motorola Mobility’s 90 facilities and simplify its wireless product portfolio, it said. Google said the measure will incur severance-related costs of no more than $275 million.
Larry Page, who became the chief executive officer of Google last year, is streamlining the company as it pushes into the hardware market. Google, owner of the world’s most-popular search engine, completed the purchase of Motorola Mobility in May in its biggest takeover, boosting its patent portfolio and stepping up competition with Apple Inc. (AAPL)
“Google is trying to focus on the broader array of smartphones,” said Brian Wieser, a Portland, Oregon-based analyst at Pivotal Research Group who recommends buying the shares. “The legacy feature phones, although still important in many countries like India, are not necessarily able to take advantage of Google’s competencies.”
Return to Profitability
Google said in the filing that the changes are designed to return Motorola’s mobile devices unit to profitability.
“Investors should expect to see significant revenue variability for Motorola for several quarters,” Google said. “While lower expenses are likely to lag the immediate negative impact to revenue, Google sees these actions as a key step for Motorola to achieve sustainable profitability.”
In an e-mailed statement before Google’s filing was released, Motorola Mobility said it will assist with restructuring the unit.
“Motorola is committed to helping them through this difficult transition and will be providing generous severance packages, as well as outplacement services to help people find new jobs,” Motorola said.
Google has also shaken up Motorola management, eliminating 40 percent of its vice presidents, said a person familiar with the matter, asking not to be identified because the detail isn’t public.
Motorola said it expects this strategy to create new opportunities and help return its mobile devices unit to profitability. It also understands how hard these changes will be for employees, the company said.
The acquisition, announced last year, gives Google a trove of more than 17,000 patents amid rising popularity for its mobile Android software. Motorola and other handset makers that use Android, including Samsung Electronics Co. and HTC Corp. (2498), have faced legal battles around the world over technology used in the devices.
Android has emerged as the No. 1 operating system on smartphones with 68 percent of the global market in the second quarter, according to market researcher IDC.
Too Many Devices
In the first quarterly report with Motorola included in results, Google said Motorola Mobility contributed revenue of $1.25 billion for the second quarter. Total sales were $12.2 billion, compared with $9.03 billion a year earlier, the company said on its website.
Google plans to use the Motorola division to produce smartphones and tablet computers that can help it set the pace of innovation in the mobile business, Dennis Woodside, who leads the Motorola unit, said in an interview with Bloomberg Businessweek in May.
“This is a huge opportunity to really show what Android can do in a well-designed, well-packaged, and well-marketed product,” Woodside said.
Motorola released about 20 smartphones last year, which Woodside said is too many. He plans to focus on trying to make a few great devices and then concentrate on marketing resources to sell them, he said in May.
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