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Motorola to Cut 3,500 Jobs | ASHARQ AL-AWSAT English Archive 2005 -2017
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NEW YORK (Reuters) -Motorola Inc. said on Friday it plans to cut 3,500 jobs and save $400 million, aiming to return its operating margin to a double-digit percentage level in the second half of 2007.

Shares in Motorola, the world’s second-biggest mobile phone maker, rose 3 percent after executives outlined the plan and said 2007 revenue estimates could beat Wall Street estimates.

Investors were happy that Motorola saw recovery in sight, after it reported earlier on Friday a 48 percent drop in fourth quarter profit, hurt by lower phone prices.

But despite the share rise, many analysts said they would hold their applause until they see Motorola’s new products.

“I think you’re seeing a little relief that things aren’t getting worse, that they think they can fix it,” said Benjamin Halliburton, chief investment officer of Tradition Capital Management, which has 220,000 Motorola shares and 281,000 shares of Nokia among its $450 million of assets.

Motorola said it would cut its workforce by 5 percent globally, including middle management. Along with the job cuts, Motorola said it expects to reduce the cost of making phones.

“Our goal is to return to double-digit operating margins in the second half of this year,” Chief Executive Ed Zander said during a Webcast of an analysts’ conference.

Chief Financial Officer David Devonshire forecast 2007 sales of $46 billion to $49 billion, compared with 2006 revenue of $42.88 billion and average analyst estimates for $46.09 billion, according to Reuters Estimates.

He forecast 2007 earnings per share the same as or slightly above 2006 earnings of $1.13 per share, and said the forecast includes stock-based compensation expenses of 7 cents a share.

Analysts had expected 2007 earnings of $1.18 per share, excluding unusual items, according to Reuters Estimates.

The company said fourth-quarter profit from continuing operations halved to $528 million, or 21 cents a share, from $1.177 billion, or 46 cents a share, a year ago, when it reported a large gain from the collection of debt from Turkish phone company Telsim.

Motorola blamed price cuts for its flagship Razr phone and tough price competition in emerging markets for a drop in its operating profit margin to less than 5 percent in the December quarter from 11.9 percent in the third quarter.

Several analysts said they remained unconvinced Motorola would pull off a turnaround unless its next line of phones is popular enough to trump rivals.

“They won’t cost cut their way out of this. You have to innovate your way out of this. This is going to be the challenge,” said Goldman Sachs analyst Brant Thompson, who was concerned that competition would become even more fierce.

“The question is do you see competitors get even more aggressive with pricing and does the handset market grow above expectations,” he said.

Ron Garriques, head of Motorola’s handset business, said he expects overall worldwide cellphone unit sales to increase in a range of about 10 percent to 12 percent in 2007, but noted that recent years had shown it was hard to predict global figures.

Motorola’s CFO backed his long-term target for profit margins of 12 percent to 14 percent per share and set a gross profit margin target of 32 percent to 34 percent.

Tradition Capital’s Halliburton said Motorola would have to deliver its growth plans for its shares to rise much further.

“In a year or so, if they execute on their plan, the stock could move back up to $24 or $25,” he said.

The stock, which fell as much as 12.4 percent after its January 4 profit warning, closed up 56 cents at $19.27 on the New York Stock Exchange.