Motorola to keep focus on cost-cutting

Motorola will continue with its aggressive efforts to cut costs this year, focusing its strategy on five key markets and jettisoning more of its semiconductor fabrication plants, President and Chief Operating Officer Ed Breen told financial analysts Thursday.

Aiming to return the company to profitability while still investing in new technologies, Motorola will continue to cut its work force, streamline management and outsource manufacturing operations, Breen said in a keynote address at the JP Morgan H&Q Communications Symposium, in Dana Point, California. The speech was broadcast over the Web.

"We're gonna take the bricks and mortar out," Breen said. After cutting its roster of chip-fabrication plants, or fabs, last year from 18 to 14, Motorola plans to cut that number to eight, he said.

Breen, the former head of General Instrument Corp. who joined Motorola after it bought General Instrument in 2000, slammed Motorola's history of management and promised the changes would be uncompromising.

"The company's overhead and (minimum revenue for) break-even was just out of whack," Breen said. "Motorola never made good money even when it made good money."

Non-core businesses will be eliminated and management will be pared, including a cutback announced last month that will send 20 percent to 25 percent of the company's vice presidents packing within the next 60 days, he said.

"Nothing is going to be sacred around the company," he said.

Motorola's five core businesses now are mobile handsets, service-provider infrastructure, semiconductors, broadband equipment and commercial and public-safety networks.

In the handset business, Motorola expects to thrive in a shakeout that will occur as vendors attempt to develop and sell devices for 3G (third-generation) networks, Breen said. That migration will be harder than the move from traditional voice phones to 2.5G products such as GPRS (General Packet Radio Service) handsets, which began to hit the market last year, he said.

Whereas the handset business had turned the corner by the end of last year, sales of service-provider infrastructure equipment will continue to be weak in 2002, with revenue down about 10 percent as carriers keep capital expenditure low, he said. Asia will be the key growth market as European and North American networks already are more fully built out.

In semiconductors, Motorola is moving toward an "asset-light" strategy to keep costs down and boost margins, which have been at half the industry average, Breen said. The company is looking for deals to outsource the manufacturing of its chips.

Motorola's public safety systems, which now are being built to link the networks of police, fire and other authorities across entire states, are likely to be an area of growing investment in the wake of last September's terrorist attacks.

"With the events going on in the world right now ... I don't think there's a better-positioned company to participate in homeland security in the U.S. than Motorola," Breen said.

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