Motorola Inc. announces alliance with Celestica

Motorola Inc. last month announced a manufacturing deal with Toronto-based Celestica Inc., which the companies said has an estimated value of more than US$1 billion over a three-year period.

Motorola has sold its manufacturing operations in Dublin and Mt. Pleasant, Iowa, to Celestica for an estimated US$70 million. The agreement is subject to post-closing adjustments, according to Schaumburg, Ill.-based Motorola, which will outsource the manufacturing of some of its wireless products to Celestica.

Celestica, which provides a range of services such as design, assembly testing, product assurance and supply chain management, operates more than 30 manufacturing and design facilities around the world.

According to a press release issued by Motorola, the agreement is expected to close in Q1 of this year. While the company will continue to manufacture cell phone handsets, messaging devices, two-way radio products and accessories for another two years in Dublin and three years in Mt. Pleasant, it will outsource the manufacturing of those products after that time period.

It was also announced that a Motorola manufacturing facility in Boynton Beach, Fla., will be converted to focus on administrative support, software applications and product design, according to the company.

“This is part of a company-wide strategy to improve supply chain efficiencies and focus on core competencies,” said Margot Brown, a spokesperson for Motorola. “Additionally, since 1998 we have been continually examining ways to streamline our portfolio and build on company strengths. We want to anticipate the customer and the marketplace and grow our position as a technology leader.”

Out of 130,000 positions, Motorola indicated that the announcement will result in the termination of approximately 2,870 employees. Celestica will offer approximately 650 positions to the 1,400 Motorola employees in Dublin, according to a statement, as well as 550 positions to the 670 workers in Mt. Pleasant.

Brown indicated that other employees will be offered competitive severance and outplacement packages.

“This wasn’t a decision we made lightly,” she noted. “We feel that we have worked out the best possible outcome for a large number of our employees with a company that shares similar values. We will do what is right for the remainder who don’t have employment options with us or with Celestica.”

The announcement came a day before Motorola revealed that it does not expect to achieve its projected sales and earnings in the fourth quarter of 2000.

In a statement, the company said, “operating profits will not meet earlier guidance in the semiconductor and personal communications segments.” The statement also indicated that the profits in the personal communications segment are being affected by the delays in “achieving expected cost reductions in wireless phone production.”

Motorola took various actions to reduce costs in the third and fourth quarters of 2000, which will continue into Q1, the company stated. These actions, such as outsourcing and the consolidation of manufacturing operations, “will result in charges against earnings, to be reported as special items in the fourth quarter of 2000 as well as in the first quarter of 2001.”

Brown said the Celestica announcement is not related to the earnings warning, but is part of a strategy that “is ongoing and deliberate. Since 1998 we have been implementing a series of consolidations and restructuring to improve time-to-market, gain competitive advantage and focus on core competencies.”

Jonathan Poe is vice-president at Stamford, Conn.-based META Group Inc.’s Executive Directions. He said Motorola’s announcement is a good move for the company.

“Motorola needs to focus on creating innovative products to compete against Nokia,” he said. “Celestica and the other contract manufacturers have a high degree of flexibility in their contract manufacturing, and are basically just kicking butt as far as manufacturing.”

He added that any time a manufacturer such as Motorola can use a contract manufacturer such as Celestica, “that’s a good thing, and probably will do a lot to increase the stock price in the long term.”

It is not expected that the Celestica alliance will affect products or customers, Brown said.