Motorola surprises Wall Street with profit

Correction, 10:20 a.m. PDT: An earlier version of this story gave the incorrect quarter for the iPhone 3G's release. It was released in the third quarter of the calendar year.

Motorola surprised Wall Street Thursday by reporting a small profit and steady market share in its beleaguered handset business for the second quarter of 2008.

The key to Motorola's success for the quarter was cost-cutting and strong performance from businesses other than its handset division. As a result, the company was able to squeak out a $4 million profit, or less than 1 cent a share, which helped turn the tide on a year-long trend of losses. Motorola had actually forecast that it would lose about 2 cents a share.

Revenue was $8.08 billion, down from $8.73 billion. But it still beat expectations of $7.5 billion in revenue.

Motorola's Home and Networks Mobility and Enterprise Mobility divisions brought home the bacon with strong sales of $2.7 billion for Home and Networks and $2.0 billion from Enterprise Mobility.

The handset business, which narrowed its loss to $340 million from $347 million, continued to drag on the company's earnings. But surprisingly it wasn't as bad as expected.

Motorola managed to hang on to its No. 3 position in the global handset market, shipping some 28.1 million handsets during the quarter. The company had been expected to lose share to market leader Nokia and second place Samsung Electronics. But Motorola hung onto to its No. 3, mostly due to stronger sales in North America.

Again this is surprising considering that Motorola had no new, cutting-edge phones to compete against other hyped devices, such as Samsung's Instinct, which went on sale in the U.S. during the second quarter.

Motorola CEO Greg Brown told analysts and investors on a conference call that Motorola actually took share in North America due to the sale of low-cost 3G handsets. Even though Motorola hasn't had a hit since the Razr, which was introduced in 2004, people are still buying them. The company sold 3 million Razrs in the second quarter and 1 million Razr2s. And despite the hype surrounding the iPhone, Motorola still managed to sell 1 million Rokrs, the company's music-playing phone.

While Motorola may not have lost worldwide market share, it's clear the company is heavily reliant on sales in the U.S. About 48 percent of the devices the company shipped during the quarter were to the North American market, compared with only 14 percent for Asia.

Brown said that the company expects sales to fall sequentially in the third quarter as Motorola continues to lose market share abroad.

But the company is planning to release some new handsets featuring touch screens and smartphone capabilities for the holiday season, which it hopes will help revive sales in all markets.

In the meantime, the company is continuing to prepare to spin off the handset division. It's expected to complete the split in the third quarter of 2009.

Motorola also looks like it's getting ready to sell off some of the remaining pieces of its business. Earlier this week it announced plans to divide its Home and Networks Mobility unit into three distinct businesses. One business will include the company's cable set-top boxes and Internet-based video modems. Another business will include cellular network gear. And the third business will include broadband access products sold to service providers. Some experts believe this move could be a precursor to selling off each of the businesses individually.