NEW YORK — Wall Street responded positively to Motorola's plans to cut another 4,000 jobs, but most analysts see the company's future depending on new products.
The Schaumburg, Ill.-based Motorola late Wednesday announced the job cuts as part of its two-year restructuring program aimed at improving disappointing results stemming from the one-hot Razr phone's loss of popularity. The world's No. 2 cell phone maker posted its first quarterly loss since 2004 this spring in the face of declining prices and increased competition from other companies' models.
The new cuts come on top of the previously announced elimination of 3,500 jobs, and are expected to result in an additional $600 million savings in 2008. Analysts approved of the payroll trimming, and some adjusted their earnings estimates to reflect it, but most said the real proof of a turnaround for Motorola will be new products that capture consumers' attention.
"While the cost control measures initiated by Motorola are steps in the right direction, the company's long-term competitiveness and profitability continues to depend on its ability to roll-out innovative mobile devices," said Brian Modoff of Deutsche Bank. "While the company's recently announced new phones are solid products, they are not game changers and the company may continue to lose share in 2007," wrote Modoff, who kept a "Hold" rating on the stock, but increased his price target to $17 from $15.
Banc of America Securities analyst Tim Long, who has a "Buy" rating and $22 price target on Motorola, likewise said, "We are encouraged by the cost reduction efforts, but look for traction with new handsets to drive higher earnings per share and cash flow." Ehud A. Gelblum of JPMorgan agreed, "Certainly the most attractive way for Motorola to reach its previous benchmark would be through new desirable models sold at higher average sale prices."
The announcement "does not meaningfully improve our expectations for better product," Gelblum said, adding, "we certainly believe Motorola is poised to leverage sales if and when new hit models reach the market." Gelblum has an "Overweight," or "Buy" rating on the shares. In premarket electronic trading, Motorola shares added 9 cents, to $18.37, from their close Wednesday at $18.28.