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Motorola sees mobile devices profit in 2008

10 сентября 2007

Motorola Inc said on Friday it expects its mobile devices business to return to profitability in 2008, as the company cuts costs and introduces new cell phones. Motorola, which dropped to third place in global handset sales behind Nokia Oyj and Samsung Electronics Co Ltd last quarter, has forecast its mobile devices division would post a full-year loss in 2007.

"We'll be profitable in all businesses by 2008," Chief Operating Officer Greg Brown said on the sidelines of an analyst meeting in New York.

The news failed to boost Motorola's shares, which ended down 1.66 percent at $17.13 amid the overall market decline, as some investors showed disappointment that management did not unveil any new advanced phones at the event.

"I don't think investors would support another year of losses for the business. Most analyst estimates (assume) a return to profitability for this business," said Oppenheimer analyst Lawrence Harris said.

Wall Street has criticized Motorola for a weak phone line- up as it failed to deliver a strong follow-up to its flagship Razr phone, especially in the wake of hot products from competitors such as iPhone maker Apple Inc (AAPL.O: Quote, Profile, Research).

Stu Reed, the new head of Motorola's handset business, said there would be a wave of new products, including an announcement in the next 30 days, but gave few details. He said the company would move away from depending on one phone model.

Reed also said inventory build-ups, which had driven down the prices of Motorola phones, had been cleared, and it was on track to meet its third-quarter inventory targets. Motorola shares have lost about a third of their value since last October, when its results started to disappoint investors. In sharp contrast, Nokia's U.S. shares have risen nearly 70 percent over the same period.

Chief Executive Ed Zander repeated Motorola's goal of returning operating profit margins to above 10 percent, but did not say when he expected to achieve this.

"Mobile devices as far as we're concerned is a double-digit operating earning business," he said. "We have done it and we'll do it again."

The company is also trying to reduce costs through job cuts, saving on mobile phone research and development expenses, and speeding up cash flow generation from product investment.

Reed said Motorola has mostly achieved a plan to reduce R&D expenses by 15 percent by year end and it would be careful not to hurt phone development.

Chief Financial Officer Tom Meredith also said Motorola would cut the time between its purchase of phone components and the sale of those phones to improve operating margins by 4 to 6 percentage points.

Meredith plans to halve Motorola's cash conversion cycle to 25 days from 50 days in order to improve cash flow, saying one day would equate to an $85 million increase in cash flow.

Motorola's chief economist, Thomas Davis, told Reuters he was not worried about the U.S. economy, despite a disappointing August employment report issued by the government earlier on Friday.

Zander said he was encouraged by prospects in rapidly growing emerging markets, such as China and India, but said Motorola would not go after the cheapest market segments.

"People ask: 'What are you going to do about the $20 phone?'" Zander said. "My answer is, nothing. We're not going to go there. The market's big enough that we can have very sustainable long-term profits if we just focus on what we do best."

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