As posted by: Wall Street JournalMotorola Inc. moved Wednesday to freeze pensions and salaries, as well as take further steps to conserve cash as plummeting demand for handsets continues to take a toll on the wireless industry.
The Schaumburg, Ill., maker of telecommunications equipment, which is struggling to compete in both the low and high ends of the cellphone market, also said it would suspend contributions to employees' retirement savings plans, just weeks after announcing broad cost reductions and layoffs.
The erosion in cellphone demand has been especially hard for Motorola, as consumers turn to Apple Inc.'s iPhone and Research In Motion Ltd.'s BlackBerry devices and other smart phones.
Slowed carrier and government spending are expected to hit the healthier parts of Motorola, such as its cable set-top box and public-safety radio businesses, whose profits have helped offset nearly $1 billion in operating losses at its mobile devices division so far this year.
"It's clear that the decline in operations is more precipitous than anyone imagined even a few months ago," said David Hamburger, a telecom credit analyst at Citigroup Investment Research. "And it's hitting harder at Motorola than most companies given the competitive pressures in an already slowing wireless market."
Motorola said it would permanently freeze its U.S. pension plans, which mostly serve long-time and retired workers, starting March 1. It will continue to provide funding to meet benefits already vested or earned by employees and retirees, which it earlier estimated would cost $290 million next year. A spokeswoman said the freeze also applies to executive pensions.
Motorola closed its pension plan to new employees in January 2005, instead offering new hires a slightly higher match on contributions to their 401(k) retirement savings plans. The company said it would suspend those matches, which last year cost $116 million, starting in January.
"The sustained downturn in the global economy requires that we take these difficult but necessary steps" to "conserve cash and reduce expenses," Co-Chief Executives Greg Brown and Sanjay Jha said in a statement.
Motorola said most of its employees would receive no salary increase next year. Additionally, the co-CEOs agreed to a 25% cut in their base pay of $1.2 million for next year.
Mr. Brown, who oversees Motorola's noncellphone businesses, will voluntarily forgo his 2008 annual cash bonus, with a target value of $4.2 million, according to David Schmidt, an executive compensation consultant at James F. Reda & Associates. Mr. Jha was guaranteed a cash bonus of $2.4 million when he was hired in August to revitalize the cellphone business, but said he would forfeit the same amount of bonus as Mr. Brown and take the rest as restricted stock.
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"Based strictly on performance of stock and expected financial results, they do not deserve a bonus," said Mr. Schmidt, recognizing that neither has been in charge of the company for very long.
Over the last few years, Motorola has faced a string of problems as its mega-hit Razr phone lost its luster. Many hoped Mr. Jha would tap the company's innovative roots and bring out a slew of worthy Razr successors, but so far he has focused instead on cutting the complexity of its design and production processes.
With sales atrophying, Motorola pulled back from Europe and other regions to focus on Latin America and parts of Asia. But a recent report by Global Crown Capital LLC suggests a sudden slowdown in the Chinese market, where Motorola has been relatively strong.
Motorola's shares were unchanged at $4.41 in 4 p.m. trading Wednesday on the New York Stock Exchange. They are down 73% over the past year.
Mr. Hamburger of Citigroup said the cost-saving moves may be aimed at conserving cash to pay an estimated $630 million in dividends next year.
