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Google warns of more Motorola cuts, revises up third quarter bill

Google Chairman Eric Schmidt speaks at a Motorola phone launch event in New York, September 5, 2012. REUTERS/Brendan McDermid
Google Chairman Eric Schmidt speaks at a Motorola phone launch event in New York, September 5, 2012. REUTERS/Brendan McDermid

By Alexei Oreskovic

(Reuters) - Google Inc raised its estimate of the cost of job cuts at its money-losing Motorola Mobility unit in the third quarter and warned of "significant" additional charges from further restructuring.

Severance-related charges at its mobile phone unit will be 9 percent higher at $300 million, Google said, adding the bill may rise another $40 million in the quarter after the exit of facilities and markets.

"Motorola has continued to refine its planned restructuring actions and now expects to broaden those actions to include additional geographic regions outside of the U.S.," the company said in a statement.

Google's broader plan for the money-losing cellphone maker remained unclear.

A spokeswoman said the company was not announcing additional job cuts.

Shares of Google were up 0.7 percent at $767.65 in midday trading Thursday, at a record high.

Google acquired Motorola in May for $12.5 billion to bolster its patent portfolio as its Android mobile operating system competes with rivals such as Apple Inc and Samsung Electronics Co Ltd.

But many investors and analysts have questioned Google's need to be in the hardware business, where profit margins are lower and Google has little experience.

"There's some lack of fully understanding beyond those patents what there is for Google to do with Motorola," said Needham & Company analyst Kerry Rice.

"Investors have been waiting to see if Google keeps it as is, or makes any drastic changes by selling off certain divisions or manufacturing operations," Rice said.

So far, Rice said Google has kept mum on its long-term plans for Motorola and has kept its focus on making the business less of a drag on profitability.

Motorola's mobile devices unit has lost money in 14 of the last 16 quarters. In the second quarter, Motorola reported an operating loss of $233 million on revenue of $1.25 billion.

Recent media reports have suggested that Google may sell the Motorola Mobility's television set-top box business.

The world's No.1 Internet search company, which is due to report its third-quarter results later this month, has found favor on Wall Street despite the questions about Motorola.

Google's lucrative search advertising business looks increasingly attractive to investors, compared with social Web companies such as Groupon Inc and Facebook Inc, whose long-term money-making capabilities are less clear, say analysts.

Google said in August it would cut 20 percent of the Motorola Mobility workforce as it moves to make more smartphones and fewer simple mobiles.

The New York Times has reported that Google planned to shrink Motorola's operations in Asia by exiting unprofitable markets and abandoning low-end devices to focus on a few models (http://r.reuters.com/mub23t).

Motorola Mobility, which has 94 offices around the world, has centralized its research and development in Chicago, Sunnyvale, California and Beijing.

"Motorola continues to evaluate its plans and further restructuring actions may occur, which may cause Google to incur additional restructuring charges, some of which may be significant," Google said in Thursday's statement.

(Reporting by Alexei Oreskovic in San Francisco and Neha Alawadhi in Bangalore; Editing by Bernadette Baum)

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