With Google’s $12.5 billion acquisition of Motorola Mobility closing in May, Google is now moving ahead on getting its new property in order. The New York Times is reporting that Google is preparing lay off 20 percent of the staff, or 4,000 jobs, and close one-third of its 94 worldwide offices – notifications of which will start to get sent out to employees beginning today (Monday), TechCrunch has learned.
(Update: Google has now posted an 8-K form confirming the cuts and closures, with the SEC noting a charge of up to $275 million for the cuts, initially coming in the third quarter, but also forebodingly noting that additional future charges for a bigger plan to overhaul the business “could be significant”. More details below)
TechCrunch first reported these job cuts would happen back in May, and now we have a bit more colour on this:
For starters, it looks like these cuts are getting made across the board as part of a general downsizing, rather than a strategic move targeting specific areas of the business. In other words, these cuts won’t give us any additional enlightenment about whether Google will continue to pursue Motorola’s set-top box business, or handset making business, or focus mainly on the 17k+ patents it has picked up in the deal. Nevertheless, the main aim of cuts is to return Motorola’s handset unit to profitability.
The 8-K form confirms that in addition to the job cuts, it is planning a big business overhaul. About one-third of Motorola’s 90 facilities will be closed, and the mobile product portfolio will be “simplified” and focused on smartphones, confirming other comments made in the NYT interview. This will mean the likely prospect of more restructuring charges. From the 8-K form:
Google expects to incur a severance-related charge of no greater than $275 million, which it believes will be largely recognized in the third quarter, with the remaining severance-related costs recognized by the end of 2012. Google also expects to incur other restructuring charges related to the actions described above, the majority of which will be recognized in the third quarter. Although Google cannot currently predict the amount of these other charges at this time, these additional charges could be significant.
Google would not comment on when layout notices would start to be sent out, or what areas will be affected, but it did confirm the layoffs as reported in the NYT. A spokesperson said that the main aim is to return Motorola’s longtime loss-making mobile devices unit to profitability:
“While we expect this strategy to create new opportunities and help return Motorola’s mobile devices unit to profitability, we understand how hard these changes will be for the employees concerned. 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.”
The NYT piece notes that one-third of the cuts will be in the U.S. with the remaining two-thirds in the rest of the world. TechCrunch understands that Motorola had already been negotiating with key personnel at the company for weeks already.
Dennis Woodside, the Google transplant who is now Motorola’s new chief executive, told the NYT that Motorola will be streamlining quite a lot: goodbye to unprofitable markets, feature phone devices and a wide range of handset models from 27 introduced last year to “just a few” focusing on new features like better batteries and cameras and sensors that can identify people by their voices. That means more people in R&D and probably significantly less in manufacturing centers.
It’s not surprising that the majority of the cuts will happen outside the U.S., since this is what appears to be driving a lot of the decline at Motorola, as it competes against much bigger players like Apple and fellow-Android licensee Samsung.
As Google’s Android has risen to become the world’s most popular smartphone platform, Motorola has not been one of the chief beneficiaries of that rise in the same way that Samsung has.
Moto, in fact, has been on a downward trajectory, with its Q1 global share of mobile sales, according to Gartner, down to 2% worldwide (from 2.1% in Q1 ). At least in the U.S., Motorola still has a ranking, if small, proportion smartphone business. According to figures out from comScore, for the quarter ended June 30, Motorola accounted for 11.7% of all smartphone activity in the U.S., putting it as the fourth most-used smartphone brand in the U.S. But with that number down 1.1% from a year ago, this points to how the company unit sales are actually in decline there as well.
In Google’s last quarterly earnings, the first to include Motorola, Google noted that Motorola posted a GAAP operating loss of $233 million ($192 million for the mobile segment and $41 million for the home segment), equivalent to -19% of Motorola revenues in the second quarter of 2012. Non-GAAP operating loss for Motorola in the second quarter of 2012 was $38 million, or -3% of Motorola revenues.
Google reported Motorola hardware (and other) revenues of $1.25 billion, compared to $3.3 billion a year ago. (Google didn’t post revenues for Motorola from the year ago, so this may not be a straight like-for-like comparison.)