Motorola announces 3,500 job cuts as profits slump
Posted: 20 January 2007 0415 hrs

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NEW YORK : Motorola Inc., the world's second-largest mobile phone maker, announced 3,500 job cuts after reporting a sharp fall in earnings due to an industry price war.

The US company's revenues surged by 17 percent to a record 11.8 billion dollars in the fourth quarter through December, thanks to robust worldwide demand for the latest cellphones.

Motorola shipped a record 65.7 million handsets in the three-month period, up 47 percent from the same quarter of 2005.

But its quarterly net profits slumped 48 percent to 624 million dollars, as the company was forced to slash prices to keep up with competition for share of a market that is dominated by Finland's Nokia.

Motorola chief executive Ed Zander said he was "disappointed with our fourth-quarter operating earnings performance," before announcing the 3,500 layoffs in a bid to slash costs.

The figure amounts to five percent of Motorola's global workforce of 67,000. On a conference call with industry analysts, Zander said it should generate savings of 400 million dollars over the next two years.

"However, the company generated strong revenue growth and met or exceeded our goals in many areas during the quarter," the Motorola boss stressed in a statement.

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

The tale of Motorola's star model, the Razr phone, is emblematic for an industry that has been slashing prices to woo customers now that mobile phones have become ubiquitous in many societies.

Motorola launched the Razr in 2004 as a luxury model priced at 500 dollars. But the phone, which did much to help the company take the fight back to Nokia, can now be found for less than 50 dollars in the United States.

The firm estimated it had a 23 percent share of the global cellphone market in the fourth quarter, behind Nokia.

John Challenger, chief executive of the employment consultancy Challenger, Gray and Christmas, said the telecommunications industry was becoming volatile, particularly in the wireless sector.

Last week, US wireless operator Sprint Nextel announced 5,000 job cuts as it seeks to streamline its operating costs.

And the market for tech-heavy "smartphones" is set to intensify with Apple Inc.'s announcement last week that it will launch its long-awaited "iPhone," in a bid to emulate the runaway success of the iPod music player.

"There are more players, which means more competition for subscribers," Challenger said.

"Additionally, cellphones have become a status symbol, so consumers will quickly abandon phones for whatever brand and model is deemed to be the coolest on the market," he said.

"These factors are contributing to the wild ups and downs this industry seems to be experiencing of late."

Motorola said its 2006 net profits slowed 19.6 percent to 3.7 billion dollars compared to 2005, with annual earnings per share falling to 1.46 dollars from 1.81.

In the fourth quarter, its earnings per share came to 25 cents, generally in line with Wall Street forecasts.

In early afternoon trade, Motorola's share price was up 2.72 percent at 19.22 dollars.

The company expects sales of between 10.4 and 10.6 billion dollars for the first quarter of 2007, a marked decline from the record performance in the final three months of 2006.

- AFP /ls