Motorola's star continues to wane. On Friday afternoon New York-time, the credit rating agency Standard & Poor (S&P) reduced the status of telecoms equipment and mobile handset manufacturer Motorola to junk status.
S&P reduced Motorola's shares by two points from BBB to BB+, placing it a level below "investment grade" stock and dropping it into junk teritory. The overall effect will be to further lower the company's battered profit margins, hit free cash flow and make it all the harder, in increasingly difficult economic times, to raise credit.
In a note expalining the rationale behind its action, S&P laid the blame fairly and squarely on the continuing turmoil in Motorola's mobile handset unit and referred to "continual operational challenges" there "that are not likely to be reversed over the intermediate term". As such it's a damning indictment of the company and its management.
And that's not all, one of the other big US credit rating agencies, Moody's has already indicated that it is contemplating reducing its own Motorola rating even further. At the moment the Schaumberg, Illinois-headquarted Motorola is just about clinging on to Moody's Baa2 level - and that is the agency's second-lowest investment grade. A further downward re-classification would dump Motorola deeper in the financial mire.
Motorola is the architect of its own misfortunes. A smug senior management team took its eye off the ball after the phenomenal success with the now-aging and somewhat passe Razr suite of handsets that were incredibly popular market leaders a couple of years ago.
Resting on its laurels for far too long, the company simply failed to have any other cutting-edge phones anywhere near ready to replace the Razrs and precious little behind it in terms of medium- or long-term development either.The result was that fickle consumers (there is precious little brand loyalty in the cutthroat world of mobile handset marketing) simply went elsewhere for their next trendy models leaving Motorola high, dry and struggling.
Motorola, spurred-on by relentless pressure from corporate raider and major shareholder Carl Icahn, has bet the corporate shirt on a one-shot strategy to save the company and, back in January this year announced a plan to spin-out the mobile handset business into a separate unit.
Almost a year later nothing has happened and Motorola now says the plan has been deferred indefinitely. And that's one of the main reasons for S&P's pessimism and the write-down.
Over the course of 2008 Motorola has been axing jobs left, right and centre and the cull will continue into 2009. Between January and October this year 9,000 posts were eradicated and a further 3,000 layoffs were announced a couple of months ago. The company lost US$397 in Q3 whilst revenues plummeted by 31 per cent. Q4 looks like being as bad - or probably worse - and the usually bullish Sanjay Jha, the CEO of Motorola's mobile division says "there is no quick fix" for the unit.
Meanwhile and elsewhere, AT&T says it is to cut a further 12,000 jobs - the equivalent of four per cent of the workforce - as the economic downturn bites it harder.
The telco says the redundancies will be enacted over the course of this month and on through 2009, meaning that some newly ex-employees will be having a less than happy Christmas.
AT&T says the impact of the slump is compounded by a need further to streamline the company and what it refers to as "a changing business mix". It is also to cut back significantly on overall capital expenditure.
The telco has not yet disclosed exactly where the axe will fall - either in terms of geographical locations or departments. However, given the continuing attrition AT&T is experiencing in its fixed-line operations it seems likely that jobs could well go there. The company has already announced that it will continue to recruit staff next for its broadband Internet access and mobile telephony arms.
The cuts will cost. AT&T says it will take a US$600 million exceptional impairment charge in Q4 to fund the layoffs.
AT&T is unusual in the US in that many rank and file, non-management employees have union contracts that guarantee high levels of job security and legally binding severance programmes. The company says it will honour these in full - which will be an expensive business.
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