More cuts at Motorola

Profit down 48%, executives concede need for new products

January 20, 2007|By Mike Hughlett | Mike Hughlett,Chicago Tribune

Lopping 3,500 jobs will be easy for Motorola Inc. as it tries to regain its lost momentum.

But coming out with new chart-topping mobile phones -- and getting premium numbers like the Razr once did -- will be a lot tougher, analysts say.

Motorola executives laid out plans to cope with a shortfall in profits in a meeting yesterday with Wall Street analysts in New York. Cost cutting, including shedding about 5 percent of its global work force, or 3,500 jobs, should save Motorola $400 million over two years, they said.

But top executives acknowledged that, to get the Schaumburg, Ill., company back on track, their primary task is to do a better job of selling pricier and more profitable phones, such as ones that play video or can use new, ultrafast wireless networks.

"It's really going to be dependent on their products," said Lawrence Harris, an analyst at Oppenheimer & Co.

Harris and other analysts said the company isn't likely to see meaningful results from such new products until the second half of this year.

The jobs slated for elimination will be gone by the end of June. Motorola said the cuts, which appear to be the largest job reduction at Motorola in several years, will be "spread across the company globally." Still, the reduction in head count pales compared with Motorola's dark hours of 2001, when it announced that it was cutting 30,000 workers.

While analysts typically applaud job cuts, some were somewhat puzzled by Motorola's latest move.

"It doesn't make sense," said Albert Lin, an analyst at American Technology Research. "Laying off a substantial amount of people, that is what you do when you have longer-term structural problems."

Motorola executives didn't seem to say yesterday that the company has such problems, Lin said.

Ed Snyder, an analyst with Charter Equity Research, agreed. "You can fire people, but they're taking a beating [for management's] mistakes," Snyder said.

Motorola rocked Wall Street early this month, warning that its fourth-quarter profit would fall far short of expectations. And they did. Yesterday, the company posted earnings of 26 cents a share or $624 million, down 48 percent from a year ago. Its shares fell 56 cents yesterday to close at $19.27.

The company said its problems lie in its mobile phone division, which accounts for the majority of its sales and earnings. Even though Motorola picked up market share with strong sales volume, phone profits were hammered. Operating profit margins for the division were less than half of normal, and even worse than analysts expected.

So what went wrong? Motorola sold considerably more cheap phones than it expected, and lot fewer high-end models.

"We have to get these forecasts right on our mixes," Motorola Chairman and Chief Executive Officer Edward J. Zander told analysts. "We just didn't get it right this quarter."

Motorola executives detailed plans for new phones to solve their problems. A "Krzr" that will run on a 3G network was one. Such a third-generation mobile wireless network can transmit voices and data such as e-mail and video images. A Web-enabled phone built on Motorola's new ultra-thin Scpl ("scalpel") platform was another.

But it takes time to get new phones launched and accepted in the market, analysts said.

"They have a long road ahead of them," Snyder said of Motorola.

Mike Hughlett writes for the Chicago Tribune.

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