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Motorola Sacrifices 3,500 Jobs as Earnings Dive

Fri, 03/23/2007 - 12:59pm
Joni Morse

Motorola posted disappointing fourth-quarter earnings this morning and said it plans to slash 3,500 jobs to offset its lackluster profits.

According to the Chicago Tribune and other media reports, Motorola CEO Ed Zander announced the job cuts while speaking to analysts in New York. Zander reportedly said the slimming of its workforce by mid-2007 will save the company about $400 million over the next two years. There was no mention of which groups will be affected by the 5% cut of Motorola's 67,000 headcount.

Zander also reportedly told the analysts that the company will seek to beef up its line of higher-end phones, in the hope that doing so will provide a much-needed boost to its profit margin.

Motorola posted net income of $624 million, down 48% from the year-ago quarterly profit of $1.2 billion.

Interestingly, Motorola's sales jumped 18% from last year's $10 billion to $11.8 billion during the fourth quarter of 2006. The company shipped more than 65 million cell phones, a 47% increase compared to the same period in 2005.

In a press release, Motorola said it "continued as the clear No. 2 player in the world's wireless handset industry, with an estimated 23.3% global market share." Year-over-year, Motorola's global handset market share increased by 4.6%.

While hanging on to market share is all well and good, profits are king. Motorola's average handset sales price dropped from $131 to $119, prompting several analysts to comment that Motorola swapped units shipped for profits as its hyper-successful but low-cost RAZR handsets flew off shelves. The more sophisticated - and more expensive - KRZR hasn't exactly taken off by comparison, and the subdued success of the KRZR hits Motorola right in the bottom line.

As a result, Motorola said it will focus sharply on maximizing the profit margins of 3G phones, as demand for music, video and data-capable phones increases in the United States.

As a division of Motorola, Mobile Devices racked up $7.8 billion in sales, a 19% increase year-over-year, though operating earnings fell from $663 million to $341 million during the same period.

The Networks and Enterprise unit reported sales of $3 billion, up 6% compared with the year-ago quarter, though operating earnings decreased to $428 million from $542 million in the year-ago quarter. The company credited the division's success in large part to sales to public-safety customers and continued momentum in garnering WiMAX deals.

The company's biggest spike in sales came from its Connected Home Solutions sector, which supplies cable operators with set-top boxes for broadband access. The unit's $980 in sales were up 39% over the year-ago figure, with operating earnings coming in at $118 million, more than double the $52 million reported a year ago.

Zander stated in a press release that he was disappointed with his company's fourth-quarter operating earnings performance, though he stressed that the company generated strong revenue growth and met or exceeded its goals in many areas during the quarter.

"I am confident that we remain well positioned for continued growth and success," Zander said.

Looking ahead to the first quarter, the company said it expects between $10.4 billion and $10.6 billion in sales.

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