U.S. News

Motorola to Cut 3,500 Jobs After Posting Lower Profit

Motorola, Inc.

Motorola CEO Ed Zander said Friday the cell-phone maker will cut
3,500 jobs as it moves to improve operating costs after a worse-than-expected fourth quarter.

Zander, speaking to analysts at a meeting in New York, said the move will save Motorola about $400 million over two years. The job cuts are to be completed by mid-2007.

Motorola has about 67,000 employees worldwide.

The announcement came after the world's No. 2 handset manufacturer reported that fourth-quarter profits fell 48% despite record sales as operating results stumbled during the key holiday selling season.

The Schaumburg, Ill.-based company had warned two weeks ago that results would come in well below expectations after a decline in its operating profitability.

Missed Forecasts

Zander said a variety of factors, including missed forecasts, had resulted in a worse-than-expected quarter despite strong sales. He said Motorola is sticking with its strategy, which many analysts had said was in need of overhaul following the company's Jan. 5 profit warning.

"There's no change in strategy," he told analysts at the meeting, which was broadcast over the Internet. "There may be some changes in tactics."

He also dismissed suggestions that the trend-setting Razr phone, which turned around the company's fortunes two years ago, is running out of momentum.

"It's funny, I keep reading about Razrs being tired," he told analysts on an earlier conference call. "We sold more Razrs in quarter four than in any quarter we ever had. We now have sold over 75 million Razrs worldwide."

Edward Jones analyst Rick Franklin said that while results remained strong in Motorola's networks and enterprise and connected home segments, the company has to reduce costs in the handset business, where the operating margin sank to 4.4% from 11.6% in the third quarter.

"Something Needs Fixing"

"When you see this level of margins, there's something that needs fixing and it's not a three-month fix," he said.

The company, which trails Finland's Nokia, said its world market share grew nearly 1% in the quarter to 23.3%.

Operating earnings from the mobile devices division, the company's largest business, fell 49%  to $341 million despite a 19% increase in sales to $7.8 billion. The company shipped a record 65.7 million handsets in the quarter, up 47% from a year earlier.

"It definitely was a pricing issue, being very aggressive on pricing--particularly in the emerging markets," said Morningstar analyst John Slack. "It may take a couple quarters for them to get back to where they want to be."