The Associated Press October 28, 2010, 1:16PM ET

Motorola posts 3Q sales jump, first since 2006

Motorola Inc.'s quarterly revenue rose over the previous year for the first time since 2006, when its Razr phone was still cutting-edge technology.

The company's phone division also reported an operating profit on Thursday for the first time in three years. That milestone came a quarter earlier than the company had expected. The division is pulling out of a deep dive by betting on smart phones such as the Droid X.

Motorola reported net income of $109 million, or 5 cents per share. That's up from $12 million, or 1 cent per share, a year ago. Excluding items, Motorola would have earned 16 cents per share, well above the 11 cents per share that analysts had expected.

However, nearly all the profits came from a division Motorola is about to sell. Without the network-equipment division, which supplies cell phone companies, net income would have been only $7 million, or less than 1 cent per share.

Revenue for the Schaumburg, Ill., company rose 6 percent to $5.8 billion in the July-to-September period, from $5.4 billion a year ago.

Motorola shares rose 29 cents, or 3.6 percent, to $8.38 in midday trading Thursday.

Motorola expects to close this year on a deal to sell its network-equipment division for $1.2 billion to Nokia Siemens Networks, a Finnish-German joint venture.

Early next year, the iconic U.S. electronics brand will split into two companies. The cell phone and cable box business will be called Motorola Mobility. Police radios, bar-code scanners and other products for corporate and government customers will be under Motorola Solutions.

The split has been driven by a desire to present two simple stories to investors rather than one complex one. It was announced in 2008, but delayed with phone sales collapsing. The successful turnaround now sets the division up for a life of its own.

The phone division shipped 9.1 million units in the most recent quarter, of which 3.8 million, or roughly 40 percent, were smart phones. Both sales figures were an increase from the second quarter, halting a multiyear sales slide.

However, Motorola finds itself in a very different place compared to when the slide started. In 2006, it was the second-largest phone maker in the world, because of the Razr. But Motorola was never able to produce a follow-up that could match the popularity of that slim clamshell phone. The company initially failed to latch on to the trend toward touch-screen smart phones, started by the iPhone in 2007; now it is playing catch-up.

Now, Motorola is the seventh-largest phone maker in the world. It's not even the biggest maker in North America, as it's outstripped by Apple Inc. and Research In Motion Ltd., the maker of the BlackBerry.

Motorola said it expects fourth-quarter earnings of 14 cents to 16 cents per share, excluding the network-equipment division. Analysts were on average expecting 15 cents per share, including that division. Considering the networks division added 4 cents per share in the third quarter, Motorola's forecast is higher than Wall Street's.

Looking further ahead, analysts are concerned about recent press reports, unconfirmed by the companies, that Verizon Wireless will get to sell Apple's iPhone in the first quarter. Verizon has been a key supporter of Google Inc.'s Android software, on which Motorola's new smart phones are based, and has positioned the "Droid" line of phones from Motorola and HTC Corp. as its alternatives to the iPhone.

On a conference call after the earnings release, Sanjay Jha, the head of the phone business, sought to reassure analysts.

"We expect to continue a very meaningful relationship with Verizon," Jha said. "We think the Droid franchise is economically very valuable for Verizon and they will continue to invest."

Jha wouldn't say how much of its smart phone sales go to Verizon. The other three national U.S. carriers -- AT&T, Sprint and T-Mobile -- also sell Motorola's smart phones.

Motorola executives also talked about a tablet computer, set to launch early next year. It would run Android software, much like ones from Samsung Electronics Co. and other companies that seek to compete with Apple and its iPad.

Unlike others, though, Motorola's tablet would be able to get a cable-TV feed from the company's set-top boxes, making it a small-screen complement to the TV set. It could also act as an advanced remote for the TV, letting a user "fling" a show from the tablet to the big screen with a flick of the finger, Jha said.

"The fact that we have a beachhead today in the home space ... gives us as strong a position as anybody to own this 'converged' experience opportunity," said Dan Moloney, president of Motorola Mobility.

Motorola's cable-box unit will go with the phone unit when the company splits up.

Motorola Solutions will stay in Schaumburg. Motorola Mobility will initially be based nearby in Libertyville, Ill., but may move its headquarters team. In an interview, Jha said possibilities include San Diego, the San Francisco area and Austin, Texas.


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