Google Inc said it would cut 20 percent of the workforce of Motorola Mobility, the money-losing cellphone maker it bought for $12.5 billion last year, and shut nearly a third of Motorola's offices worldwide.
The news sent Google's shares up as much as 1.5 percent and Morgan Stanley also upgraded the company to "overweight".
Motorola Mobility has lost money in fourteen of the last sixteen quarters and in its latest quarter reported an operating loss of $233 million on revenue of $1.25 billion.
"These changes are designed to return Motorola's mobile devices unit to profitability," Google said in a filing with the U.S. Securities and Exchange Commission.
Google had evaded questions about its plans for Motorola Mobility when it reported quarterly results last month, saying it was yet to complete its homework on the various businesses.
"While lower expenses are likely to lag the immediate negative impact to revenue, Google sees these actions as a key step for Motorola to achieve sustainable profitability," Google said on Monday.
Morgan Stanley said Google may bring more discipline to Motorola Mobility than was assumed.
"We see management becoming somewhat more communicative, having recently enumerated key strategic growth areas, and cancelling underperforming projects," analysts at the brokerage wrote in a client note.
"We believe that Google is planning to reduce Motorola Mobility's smartphone portfolio to a few reference Android devices, and perhaps a couple of tablet devices."
Google expects to take a severance-related charge of up to $275 million mostly in the third quarter, it said in the filing.
Google, which expects to record the remaining severance-related costs by the end of 2012, said it could also incur other related restructuring charges mainly in the third quarter.
The Internet search company said it could not currently predict the amount of these other charges but added that they could be significant.
"Motorola is committed to helping them (the employees) through this difficult transition and will be providing generous severance packages, as well as outplacement services to help people find new jobs," a Google spokeswoman said.
Google shares were trading up 1.27 percent at $650.20 on Monday morning on the Nasdaq. They touched a high of $651.58 earlier.
TRIMMING THE TOP
The world's No.1 search engine agreed to buy Motorola Mobility last year, aiming to use Motorola Mobility's patents to fend off legal attacks on its Android mobile platform and expand beyond its software business.
One-third of the jobs lost will be in the United States, but the company has not specified where or what facilities would be affected.
Earlier the New York Times reported Google's plan and said it was looking to shrink operations in Asia and India, by not just exiting unprofitable markets but also stopping making low-end devices and focusing on a few cellphones instead of dozens.
Motorola Mobility, which has 94 offices throughout the world, will center research and development in Chicago, Sunnyvale, California and Beijing.
In addition to the planned cuts, Google has downsized Motorola Mobility's management, letting go 40 percent of its vice presidents, but has also hired new senior executives, the New York Times said.
Please login to add to favorites
Already added to favorites
Added as Favorite