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updated: 8/14/2012 7:51 AM

Motorola Mobility loses state incentives over job cuts

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  • About 700 people are losing their jobs at Motorola Mobility in Libertyville as part of Google Inc. plans to cut about 4,000 positions from that unit.

      About 700 people are losing their jobs at Motorola Mobility in Libertyville as part of Google Inc. plans to cut about 4,000 positions from that unit.
    Gilbert R. Boucher II

  • Video: Moto's YouTube channel

 
 

Libertyville-based Motorola Mobility Holdings is expected to lose its state tax credits after cutting 700 jobs in the suburbs during a restructuring plan announced Monday by its parent company, Google Inc.

The mobile phone maker is required to maintain 2,500 employees in Illinois to be eligible for the state EDGE tax credit. But Motorola Mobility told the state it expects its head count to fall to 2,256 as a result of the layoffs. Google plans to cut about 4,000 jobs worldwide at Motorola Mobility, one of Google's biggest downsizing measures yet.

"During that time, the company will not receive tax benefits," said Sandra M. Jones, spokeswoman for the Illinois Department of Commerce and Economic Opportunity. "The company can reapply for tax credits if and when its workforce returns to at least 2,500."

In May 2011 Motorola Mobility agreed to stay in Illinois in exchange for state tax credits worth more than $110 million, with Gov. Pat Quinn saying the company made "an oral commitment" to keep 3,000 jobs, though the state's contract specified 2,500. The agreement covers 10 years from the original signing date.

Motorola Mobility also agreed to invest $30 million in capital improvements and $570 million in research and development.

In August 2011, Google announced it would buy Motorola Mobility for about $12.5 billion. After Google took over as owner, Motorola pledged to invest an additional $300 million, Jones said.

Motorola Mobility announced last month that it would move its entire workforce from Libertyville to new Merchandise Mart headquarters in downtown Chicago by late 2013.

"While we are disappointed Google is laying off workers as part of a global reorganization in the wake of its acquisition of Motorola, we are heartened that a growing technology company like Google is putting roots in Illinois," said Jones. "We expect that Google's decision to make Chicago one of only three global hubs of innovation -- along with Beijing and Silicon Valley -- will draw more technology investment to the state."

About two-thirds of the 4,000 Motorola Mobility job losses will be outside the United States, Google, based in Mountain View, Calif., said in a regulatory filing.

Google also will close about one-third of Motorola Mobility's nearly 100 facilities and simplify its wireless product portfolio worldwide. Google said the measure will incur severance-related costs of no more than $275 million.

"These changes are designed to return Motorola's mobile devices unit to profitability," Google said in the Monday filing.

Last month, CEO Dennis Woodside told the Daily Herald that as Motorola moves into Chicago, it also plans to consolidate offices worldwide and include some of those workers in Chicago.

The cuts announced Monday will affect the mobile devices business and home business as well as various corporate functions, said Motorola Mobility spokeswoman Jennifer Erickson.

"Employees are being notified this week, with the exception of some countries outside of the United States," Erickson said.

The layoffs fired up rumors that started after the acquisition that Google had intended to get rid of the phone business and just keep the valuable 17,000 patents. However, Rick Summer, Google analyst with Chicago-based Morningstar Inc., believes Google wants to continue to operate a handset business, but needs to justify the purchase price.

"Today's announcement is no indictment that Google intends to close Motorola Mobility," Summer said.

Google likely will drop the lower-end phones and focus heavily on high-end smartphones that run its Android platform, Summer said.

And while the closure of overseas offices certainly will lose potential revenue in the short term, the cost-cutting measure will be better for the company in the long run, said Summer.

"Google, by design, is a thoughtful company and is doing what's best for the business," Summer said.

Android has emerged as the No. 1 operating system on smartphones with 68 percent of the global market in the second quarter, according to market researcher IDC.

In the first quarterly report with Motorola included in results, Google said Motorola Mobility contributed revenue of $1.25 billion for the second quarter. Overall, sales were $12.2 billion, compared with $9.03 billion a year earlier, the company said on its website.

Google also has shaken up Motorola management, eliminating 40 percent of its vice presidents, said a person familiar with the matter, asking not to be identified because the detail isn't public.

Motorola understands how hard the changes will be for employees, Erickson said.

"Motorola is committed to helping them through this difficult transition and will be providing generous severance packages, as well as outplacement services to help people find new jobs," Erickson said.

Google has said to expect a fewer number of devices moving forward, said Jeff Kagan, an independent technology analyst based in Atlanta, Ga.

"One thing is for sure, Motorola is not Motorola any longer," said Kagan. "The company we thought we knew is now a stranger, a puppet being controlled by Google with strings from above."

•Bloomberg News contributed to this report.

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