- 28Oct
(Reuters) - Motorola Inc (MOT.N) made money from its phones for the first time in more than three years, helped by smartphones running Google Inc's (GOOG.O) Android software, and its shares rose nearly 7 percent.
While analysts applauded the profit, which came a quarter earlier than expected, they questioned Motorola on how it would battle new competition when key customer Verizon Wireless starts selling Apple Inc's (AAPL.O) iPhone, widely expected next year.
Motorola, which plans to split itself in two early next year, said it would counter new competition by spending more on marketing, diversifying its phone lineup, and deepening partnerships with operators other than Verizon.
Sanjay Jha, co-chief executive and head of the mobile phone unit, said he expected to keep a strong partnership with Verizon, but warned of first-quarter pressure due to competition and the typical dip in sales when the holiday shopping season ends.
"Clearly in the first quarter, there will be some seasonality, and there will be competitive pressure, as there is in the fourth quarter, but we feel comfortable with our position," Jha told analysts on a conference call.
Morgan Keegan analyst Tavis McCourt said investors were happy that Jha is planning for the Verizon iPhone, which he expects to hurt Motorola sales for a quarter or two.
"We'll see how well they manage around it," he said. "They'll be impacted but ... there's plenty of business for Motorola to be profitable despite the iPhone coming to more carriers."
Jha said full-year smartphone unit-sales would hit the high end of Motorola's previously announced target range of 12 million to 14 million.
But while Motorola said its mobile phone operating profit would rise in the current quarter, it will be partly offset by increased marketing spending around new product launches.
For the third quarter Motorola said its phone unit posted a $3 million operating profit, compared with a year-earlier operating loss of $183 million.
Since the end of 2006, Motorola has been losing out to rivals such as Apple, Nokia (NOK1V.HE) and Samsung Electronics (005930.KS) due to the lack of stand-out phones.
Avian Securities analyst Matthew Thornton said the strong third quarter was driven by the popularity of Motorola's Android phones in China and in the United States.
Motorola said it had shipped 9.1 million phones in the quarter, including 3.8 million smartphones. The average expectation was for 3.57 million smartphones, according to six analysts contacted by Reuters.
The company's total third-quarter profit rose to $109 million, or 5 cents per share, from $12 million, or 1 cent per share, a year earlier.
On an adjusted basis, earnings per share were 17 cents, compared with the analysts' average estimate of 11 cents, according to Thomson Reuters I/B/E/S.
Revenue rose 6 percent to $5.8 billion, compared with Wall Street expectations of $5.66 billion. The latest quarter includes $871 million of sales from the network equipment unit which Motorola is selling.
Motorola said it expected fourth-quarter earnings per share of 14 cents to 16 cents from continuing operations. The forecast excludes items such as earnings from the networking business, which it is selling to Nokia Siemens Networks.
Shares of Motorola were up 6.6 percent at $8.62 in morning New York Stock Exchange trading.
