After reporting a 48% plunge in its fourth quarter profit, Motorola said Friday that it will cut 3,500 jobs in an effort to wring greater profits out of fast-rising sales of its wireless handsets.
Following Nokia, Motorola is the world's second-largest wireless handset vendor, with sales rising 47% to 65.7 million units in the fourth quarter alone. That helped to push Motorola's quarterly revenue to $11.79 billion, up from $10.04 billion for that period last year, and better than the brokers' estimate of $11.71 billion, according to a poll of analysts by Thomson Financial.
But the company's profit sank sharply, from $1.2 billion last year to $624 million for the fourth quarter of 2006. Motorola met analysts' expectations of 25 cents per share.
To boost profits, the company will cut 3,500 of its 70,000 employees, lowering its corporate cost structure by $400 million by the end of 2007, Chief Executive Ed Zander said Friday during a meeting with analysts. He will also flatten the company by removing certain layers of middle managers. The jobs will be cut mainly from an internal reorganization of the networks and enterprise group, and from overlapping general and accounting positions found in Motorola's recent acquisitions of Symbol Technologies and Good Technology.
The cuts will affect workers scattered through Motorola's global offices, and will be completed during the first half of 2007, according to company spokeswoman Jennifer Weyrauch-Erickson.
Motorola agreed in September to pay $3.9 billion to acquire Symbol Technologies, a maker of portable bar-code scanners, and announced in November it would buy Good Technology, a producer of mobile e-mail software. Together, the deals added about 8,000 people to Motorola, so these cuts will help ensure that the company maintains a constant headcount, Zander said.
Motorola drew its strongest revenue during the quarter from sales of its popular Razr and Krzr cell phones and its Q smartphone. Those products pushed the mobile devices group to produce $7.8 billion in revenue, up 19% from the same quarter last year.
In contrast, the networks and enterprise division -- which produces two-way radios for government and emergency workers -- produced a 6 percent rise in revenue to $3 billion. The connected home division rose an impressive 39% on sales of digital video set-top boxes and cable modems, but remained the smallest group with only $980 million in revenue.
The company's best chance for future profits can be found in mobile communications, said Zander, recounting his experience at the International Consumer Electronics Show in Las Vegas last week.
"This incredible world of mobile communications is just taking over," he said. "I just spoke in Las Vegas, and at the show there, 10 years ago it was televisions, and five years ago it was PCs. Now just about every booth, whether it was traditional companies like Microsoft or computer companies, companies like ourself, or even consumer electronics companies, were all talking about Mobile Me, seamless mobility, the mobile Internet."