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Motorola to cut 3,500 jobs after drop in earnings

Motorola Inc, the world's second-largest mobile phone maker, announced 3,500 job cuts on Friday after reporting a sharp fall in earnings because of an industry price war.

The US company's revenues surged by 17 percent to a record US$11.8 billion in the fourth quarter through last month, thanks to robust worldwide demand for the latest cellphones.

Motorola shipped a record 65.7 million handsets in the three-month period, up 47 percent from the same quarter of 2005.

But its net profits slumped 48 percent to US$624 million, as the company was forced to slash prices to keep up with competition for share of a market that is dominated by Finland's Nokia.

Motorola chief executive Ed Zander said he was "disappointed" with the quarterly earnings, before announcing the 3,500 layoffs.

The figure amounts to 5 percent of Motorola's global workforce of 67,000. On a conference call with industry analysts, Zander said it should generate savings of US$400 million over the next two years.

The Motorola boss said "we are assuming a traditional ASP [average selling price] decline," but forecast a "return to double-digit operating margin" in the second half of this year.

"We are doing the right things for long-term growth," he said.

The tale of Motorola's star model, the Razr phone, is emblematic for an industry that has been slashing prices to woo customers now that mobile phones have become ubiquitous in many societies.

Motorola launched the Razr in 2004 as a luxury model priced at US$500. But the phone, which did much to help the company take the fight back to Nokia, can now be found for less than US$50 in the US.

Zander insisted the Razr remained "much sought-after" but acknowledged: "The area where we are missing is a very strong 3G [third-generation] product."

Motorola estimated it had a 23 percent share of the global cellphone market in the fourth quarter, behind Nokia, which has also seen its earnings dip on the back of the price war.

Last week, US wireless operator Sprint Nextel announced 5,000 job cuts as it sought to streamline its operating costs.

Finnish company Perlos, which makes phone casings for Nokia, said on Monday it would cut 4,000 jobs, or a third of its workforce, worldwide by the end of the year.

And the market for tech-heavy "smartphones" is set to intensify with Apple's announcement last week that it will launch its long-awaited iPhone, in a bid to emulate the runaway success of the iPod music player.

Motorola said its net profits last year slowed 19.6 percent to US$3.7 billion compared to 2005, with annual earnings per share falling to US$1.46 from 1.81.

In the fourth quarter, its earnings per share came to 25 cents, generally in line with Wall Street forecasts.

The company expects sales of between US$10.4 billion and US$10.6 billion for the first quarter of this year, a marked decline from the record performance in the final three months of last year.
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