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This layoff is a part of the company’s ongoing efforts to optimize the cost structure amid declining sales, according to The Wall Street Journal. Last August, the company had announced its plans to cut 4,000 jobs or 20% of the workforce. Google had said that the layoff was necessary for Motorola Mobility to return to profitability.
To recap: Google had acquired cellphone maker Motorola Mobility Holdings last year in May. The deal was the biggest in its 13-year history. The company picked up a 100% stake for $40.0 per share in cash or a total consideration of approximately $12.5 billion.
Although the the company was acquired with the intention of shoring up Android’s patent portfolio, analysts fretted that the deal would be a drag on Google’s earnings. They have been concerned that adding a phone manufacturing business could hurt Google's margins and would create automatic rivalry with hardware partners Samsung, HTC and other phone makers that run Android.
Motorola Mobility has not been very profitable for Google so far. The company has been facing strong competition in the smartphone market from other larger players such as Samsung Electronics, Apple Inc. (AAPL - Analyst Report), Sony Corp. (SNE - Snapshot Report), Huawei Technologies and ZTE.
In the fourth quarter, revenues of Motorola's mobile business were $1.51 billion or only 11% of parent Google's total revenue. Also, it posted an operating loss of $353 million in the quarter. On the contrary, Apple reported revenues of $54.5 billion and a net profit of $13 billion in the quarter ended Dec. 29.
But there might be some hope for a turnaround. Google is optimistic about new products in the pipeline and believes that the restructuring of the businesses will help it to redefine its cost structure. The company plans to drop all low-end devices from the portfolio and focus only on high-end devices.
Google is a market leader in online advertising and its mobile strategy has been bang on target so far. The company is very strongly positioned in the mobile segment, where smartphones and tablets have been making strong headway.
This dominant position has enabled Google to generate very strong mobile revenue growth in the fourth quarter. In fact, the company’s position in mobile looks better than it was on traditional computers, which says something about its strategic planning and execution.
Historically, Google has always fared better than Yahoo Inc. (YHOO - Analyst Report), which has been struggling to uphold itself, and Microsoft Corp., which is yet to gain critical mass. However, legal entanglements related to competitive matters or patent infringements remain an overhang.
Google currently carries a Zacks Rank #3 (Hold).
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