Motorola, the second largest mobile phone maker after Finland’s Nokia, plans to cut 3,500 jobs, or about 5 per cent of its work force, as part of an effort to reduce operating costs after a what Ed Zander, chief executive, described as a “challenging” fourth quarter.
The job cuts, which are expected to save the company about $400m over two years and will be completed by mid-year, were announced during a conference call with analysts by David Devonshire, chief financial officer.
Mr Devonshire also forecast 2007 earnings per share would be flat to slightly above its 2006 earnings of $1.13 per share on sales of between $46bn and $49bn.
The Schaumburg, Illinois-based company, which has 67,000 employees worldwide, issued a profit warning two weeks ago. It alerted investors that fourth quarter profits would be well below expectations because of a mobile phone price war that broke out during the crucial holiday selling season which impacted average selling prices.
On Friday Motorola confirmed that fourth quarter profit fell 48 per cent as the company slashed prices to compete with Nokia and South Korea’s Samsung Electronics. Sales gained 17 per cent to $11.8bn, in line with expectations.
Mr Zander said a variety of factors, including missed forecasts, had resulted in a disappointing fourth quarter despite strong sales. Nevertheless he said Motorola would stick with its strategy. “There’s no change in strategy,” he told analysts. “There may be some changes in tactics.”
He also dismissed suggestions that the super-slim Razr phone, which Motorola introduced two years ago and helped revitalise its handset business, is running out of momentum. “We sold more Razrs in quarter four than in any quarter we ever had,” he said. “We now have sold over 75m Razrs worldwide.”
Overall, Motorola shipped 65.7m handsets in the quarter, up 47 per cent from a year earlier, and its share of the global market rose to 23.3 per cent, up almost one percentage point from the third quarter.
However, Ron Garriques, head of mobile devices, acknowledged that steep price discounts for the most expensive 3G phones and for cheaper phones sold in emerging markets took its toll.
The average selling price for phones shrank to $119 from $131 in the previous quarter as Motorola discounted the Razr and Q phones and sold more handsets in highly competitive emerging markets, where it described price competition as “brutal”.
Fourth quarter net income dropped to $624m, or 25 cents a share, from $1.2bn, or 47 cents, a year earlier. Profit from continuing operations halved to $528m, or 21 cents a share, from $1.18bn, or 46 cents a share, in the year-ago quarter, when Motorola reported a large gain from the collection of debt from Telsim, the Turkish phone company.