Motorola Profit Falls 48%

Motorola Inc. (NYSE: MOT), the world's second largest cellphone manufacturer, this morning reported that, as expected, profits fell by 48 percent for the fourth quarter of 2006. (See Motorola Reports Q4.)

The Schaumburg, Ill.-based company warned two weeks ago that it wouldn't hit profit expectations. Fourth-quarter net profit fell to $624 million, or $0.25 per share, from $1.2 billion, or $0.46 a share, in the same quarter in 2005. (See Motorola Margins 'Collapse'.)

"We've got some issues since the last one, but in the last three years we've doubled this company… We just didn't get it done last quarter, and its just not acceptable," said Ed Zander, Motorola's chairman and CEO, on a conference call. He announced that the company plans to reduce headcount by 3,500 worldwide. The cuts are expected to save $400 million overall and will focus on middle management. (See Motorola to Cut Handset Staff?)

Motorola reported record sales for the holiday quarter, with revenue rising to $11.8 billion from $10 billion and device shipments up 47 percent to 65.7 million handsets. But margins on some of its best-selling phones, such as the RAZR, have been slashed.

Motorola's share of the global handset market is now at 23.3 percent.

First-quarter sales, Motorola predicts, will fall to between $10.4 billion and $10.6 billion.

Motorola has unveiled a profitability plan for its handset unit, which represents over 50 percent of Motorola's business, but Zander said that there will be no major changes at the company. "There's no change in strategy. There may be changes in tactics, but we're such a better-positioned company than we were a few years ago."

The company's goal, he said, is to return to double-digit operating margins by mid-2007.

Motorola also plans to continue acquisitions to add new technology for its device line and ramp its 3G gadget portfolio.

Ron Garriques, executive VP of the mobile device business, says that Motorola hopes to rebuild margins in his division with new releases like the upcoming V6 and the KRZR. (See KRZR Burn.)

Motorola's networks and enterprise business has been hit by a drop in the iDEN market and a fall in GSM pricing, but company officials point to promising developments in in next-generation networks.

Gregory Brown, EVP of the networks and enterprise unit at Motorola, says that the firm is planning initial service at its 1,000-site WiMax deployment with Sprint Corp. (NYSE: S) in Chicago by the end of this year, with commercial service in the first half of 2008.

"We've turned on Portland, we're firing up Seattle," he says of Motorola's work for Clearwire LLC (Nasdaq: CLWR).

The firm also announced a 3G UMTS infrastructure win this morning at Indian operator MNTL and said that its relationship with Chinese vendor Huawei Technologies Co. Ltd. remains "solid and progressing."

— Dan Jones, Site Editor, Unstrung

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