Motorola to cut 3500 jobs to arrest plunging profits

In an effort to return its operating margin to a double-digit percentage level in the second half of 2007, Motorola Inc. the world's second- largest mobile-phone maker plans to cut 3,500 jobs and save $400 million.

The decision to axe 3,500 jobs worldwide, which represents five percent of its work force, comes on the back of a 48 percent decline in Q4 profits in 2006. Motorola’s profits fell for the second quarter running.

The dip in profits came even though the the company posted record sales. Revenues were up 17 percent in the quarter to US$11.8 billion after the company shipped 67.7 million handsets, up 22 percent n last year.

Profit margins are under stress due to waning demand in the U.S. and Europe. The demand is increasing in India and China, where phones are cheaper. As a result Motorola, based in Espoo has introduced phones in these emerging markets that cost less than $50. The cheaper phones were instrumental in reducing Motorola's average selling price per phone by $12 in the fourth quarter to $119.

Motorola chief executive Ed Zander was confident about the company’s future and said, “As I said earlier this month, we are disappointed with our fourth-quarter operating earnings performance. However, the company generated strong revenue growth and met or exceeded our goals in many areas during the quarter."

"I am confident that we remain well positioned for continued growth and success. Our goal is to return to double-digit operating margins in the second half of this year,” he added.

Many analysts however said they would hold their applause until they see Motorola's new products. They said that Motorola would be able to pull off a turnaround only if its next array of phones is admired enough to trump competitors. With competition expected to become fiercer, it is going to be a big challenge for the phone maker.