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Motorola Reports Q4 Losses

Schaumburg, Ill. — Motorola sales plunged and losses mounted in the fiscal fourth quarter and full year, and the company’s first-quarter cellular handset sales will decline faster than global industry sales because of previously announced plans to scale back the number of operating systems in the company’s handset portfolio.

Fourth-quarter sales fell 26 percent to $7.13 billion from the year-ago quarter and 17.7 percent in fiscal 2008 to $30.2 billion.

The fourth quarter had a net loss of $3.58 billion compared with year-ago earnings of $100 million. The full-year net loss grew to $4.16 billion from 2007’s $49 million loss.

In 2009, the company forecast “meaningfully lower losses” because of previously announced cost reductions, manufacturing-cost improvements due to fewer handset platforms, and a focus on higher profit mid- and high-tier phones, said co-CEO Sanjay Jha. The company will break even “sometime after 2009,” but Jha wouldn’t say whether the break-even year would be 2010 or 2011.

As part of its mid- to high-tier repositioning, Motorola will focus this year on launching handsets based on Google’s open-platform, open-source Android operating system, Jha said. The company remains committed to the 2009 launching of smartphones based on the Windows Mobile 6 operating system, but in 2010, the company will step up its introduction of Windows Mobile devices because of the availability of the new Windows Mobile 7 OS, he said.

As the company exits 2009, it will have a competitive cost structure in place to deliver “a much improved financial performance” in 2010 over 2009, he added.

Plans announced in the third quarter of 2008 to cut 7,000 employees “and thousands more contractors” will save $1.5 billion in 2009 over 2008, added co-CEO Greg Brown. About $1.2 billion of those savings will come from the handset division, where the head count will be reduced by 25 percent, Jha said. The personnel cuts are underway, and the majority of cuts will be completed by the end of the second quarter, Jha said.

The handset division accounted for 33 percent and 40 percent, respectively, of company-wide fourth-quarter and full-year sales. Fourth-quarter handset sales of $2.35 billion were down from the year-ago quarter by 51 percent, and full-year handset sales of $12.1 billion were down 36 percent for the year.

The handset division’s operating losses grew to $595 million in the fourth quarter compared to year-ago quarter’s $388 million loss. For the full year, the division’s operating loss almost doubled to $2.2 billion from $1.2 billion.

In 2009, the company will focus on launching Android-platform handsets because the platform will gain traction in the market and because, by not building the platform from the ground up, Motorola can focus a greater share of its R&D dollars on differentiating its products. Differentiation will also come in part from Motorola’s extensive experience in the Linux/Java platform on which Android is based, from building applications and user experiences that are not part of the basic Android platform, and from the company’s world-class design capabilities. The company also wants to bring Android to lower price tiers than competitors, Jha added.