Motorola’s Red Ink Means Pink Slips

With profits looking slimmer than its RAZR handset, second place mobile phone maker Motorola plans to slash 3,500 workers, or five percent of its workforce. During a call today to discuss fourth quarter earnings, chairman and CEO Ed Zander said the cuts could save the company about $400 million over two years.

The news comes amid a backdrop of higher Motorola sales and lower profits. The bottom line: fourth-quarter 2006 income fell 48 percent.

Motorola said it earned $624 million in the fourth-quarter of 2006 compared to $1.2 billion for the same quarter in 2005.

The company said sales for the quarter reached $11.8 billion, matching revised expectations that Motorola issued earlier this month. In October Motorola projected fourth-quarter sales would reach $12.1 billion.

Despite shipping more than 67 million handsets, including 25 new phones during the quarter, Motorola’s Mobile Devices unit earnings dropped to $341 million during the quarter, down from $663 million in 2005. Motorola blamed “an unfavorable geographical and product-tier mix” for the shortfall.

The job cuts follow an earlier pledge by Zander to unveil plans to improve operating profitability. At the time, analysts said the slump in sales was due to what one called a “little arrogance” on Motorola’s part. Motorola expected its RAZR handset to match the popularity of the earlier RAZR slimline phone.

Motorola’s Networks and Enterprise unit, which sells communication gear to governments and business, also ended the year in the red. Although fourth-quarter sales, compared to the previous year, rose 6 percent, earnings fell to $428 million, down from $542 million a year ago.

Not all Motorola segments were treading water. Fourth quarter sales by the company’s Connected Home Solutions department, selling set-top boxes and other devices for home media, rose 39 percent to $980 million.

Motorola expects 2007 to be a more profitable year.

Compared to last year’s $42.8 billion sales numbers, the cell phone company expects this year income to reach between $46 billion and $49 billion.

“Looking at the full year, I am pleased with our progress,” said Zander.

Motorola shares were 19.23 in afternoon trading, up around two percent from the opening bell.

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