Moto vows new phones but cuts R&D by 15%

(Reuters) — Motorola Inc. is aiming to cut its quarterly research and development expenses for mobile devices by about 15 percent by the end of 2007 to try to return to profitability.

Executives at the company told an analyst meeting in New York that they expect all three divisions, including the mobile devices unit, to post a profit next year.

Motorola has already said the mobile unit will not be profitable this year.

"We'll be profitable in all businesses by 2008," said Motorola's Chief Operating Officer Greg Brown.

Stu Reed, the new head of the company's handset business, told the meeting that Motorola would be careful not to hurt development of new mobile phones even as it looks for cost savings.

Reed said there would be a wave of new products, including an announcement in the next 30 days, but did not provide details.

Analysts and investors have criticized Motorola for a weak phone line-up as it had failed to deliver a strong follow-up to the Razr, especially at a time when hot products from competitors like iPhone maker Apple Inc. have hit the market.

"It's not going to be about lower research and development," Reed said. "It can't be. It's got to be more efficient research and development spending."

He said on the sidelines of the meeting that most of the expense reduction had been achieved and would come from prioritization in Motorola's mobile devices portfolio and spending less on older software platforms as the company focused more on open systems, such as Linux and Java.

Motorola, which has dropped to third place in the global handset market behind Samsung Electronics Co. and market leader Nokia Oyj , has reported two quarterly losses in a row and a year of disappointing quarters.

Executives reiterated Motorola's recent prioritization of profitability over market share throughout their presentations on Friday.

"That was our strategy in 2004," Chief Executive Ed Zander said, adding that Motorola had put too much focus on market share in 2006.

Zander repeated the goal of returning operating profit margins above 10 percent.

"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."

Reed also added that inventory build-ups, which had driven down the prices of phones, had been cleared, and the company was on track to meet its third-quarter inventory targets.

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

"One data point does not a trend make. We're certainly not going to get bent out of shape, or overly concerned by one data point in the United States," said Davis. "There's still a lot of really good strong data showing it will grow on trend."

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

"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."