With profits down, Motorola to cut 3,500 jobs

Buffeted in its attempt to both lead in design and chase market share, Motorola Inc. announced it will cut five percent of its workforce to reduce overhead. But the company said it does not plan to change its basic strategy.
Wall Street appeared to keep faith with the wounded giant, as the company’s stock ticked upward after the news.
Motorola’s mixed results for the fourth quarter and full year 2006-handset unit volumes, market share and revenue were up solidly, but net earnings, average selling prices and operating margins suffered-reflected both company-specific issues and handset-market conditions.
Raging sales of relatively low-cost, low-margin handsets in robust emerging markets brought volumes but not profits, while cooling-and competition-in more lucrative, mature markets stalled the company’s financial momentum. Motorola’s runaway hit handset, the Razr, continues to sell phenomenally well at rock-bottom prices, likely eclipsing the debut of the Razr’s anointed successor, the Krzr.
The results “disappointed” CEO Ed Zander, leader of a company that only six months ago was giddy with unqualified success. Zander declared himself “pleased” with progress, however, despite the dismal earnings news.
For the fourth quarter, the American handset giant reported shipments of nearly 66 million units, up 47 percent from the year-ago quarter, which contributed to a 4.6 percent gain in global market share over fourth-quarter 2005. Revenue for the quarter hit $11.8 billion, up 17 percent from the year-ago quarter. Net earnings in the fourth quarter of $624 million, however, plummeted 48 percent from the year-ago quarter.
The picture for the full year followed a roughly similar pattern. Motorola’s handset shipments in 2006 reached more than 217 million units, up nearly 50 percent over the prior year, giving the company an estimated 22.2 percent global market share, a greater than 4 percent boost over 2005. Revenue reached nearly $43 billion for the year, a 22 percent jump over 2005. Net earnings for the year of $3.7 billion, however, represented a 20 percent drop from the prior year.
Zander, in a conference call with investors and analysts, said that in response the company would reduce operating costs via job cuts-3,500 jobs, though the company didn’t disclose the exact positions, will save the company $400 million over the next two years-while maintaining its current strategy.
Zander offered a tempered outlook on the first quarter of this year, forecasting revenue between $10.4 billion and $10.6 billion.
Financial analyst Albert Lin, with American Technology Research, said yesterday that Motorola, to a degree, was a victim of its own success.
“When you make a derivative product that shares the same look and feel, you’re forcing consumers and carriers to make a choice based on price and other issues,” Lin said, in reference to the continued success of the now low-priced Razr, and its effect on its Krzr successor.
Overall market conditions, however, are unlikely to change soon, the analyst said.
“Sometime in late 2007, early 2008, I think you can expect a resurgence in the upgrade cycle among subscribers,” Lin said. “But that’s not the environment we’re currently in.”