Motorola's Android Outlook

Motorola Inc. (NYSE: MOT) surprised Wall Street Thursday, reporting a small profit in the second quarter even as revenues fell, while the company itself appears more focused on the Android phones it promises to deliver in the fourth quarter.

Table 1: Motorola Q2 Earnings
2Q08 2Q09 Change
Revenues ($B) 8.1 5.5 -32%
Net Income ($M) 4.0 26.0 +550%
EPS ($) 0.00 0.01 Flat
Source: Motorola Inc.

The second-quarter profit was particularly unexpected in the wake of Motorola's first-quarter loss of $231 million. On the company's earnings call, the co-CEOs, Greg Brown and Sanjay Jha, attributed the turnaround to tight cost-cutting measures, particularly in the Mobile Devices division.

Jha, who runs that division, was much more of a presence on today's conference call than he has been previously, as it became clear how much his Android-based smartphone strategy will dominate the last quarter of this year and the whole of 2010 for Motorola.

Motorola is expecting to launch more than 30 new phones in the second half of 2009. To hear Jha tell it, however, the first two smartphones, based on the Google (Nasdaq: GOOG) Android operating system from Motorola, are the ones that everything hinges on.

"From my perspective, there are really only two phones that matter," Jha bluntly admitted.

The first high- and low-end models are expected to be on the shelves for the holiday gift season. Jha said Motorola has already inked deals with "major carriers" to distribute them.

So, how will Motorola make its Android phones stand out from the High Tech Computer Corp. (HTC) (Taiwan: 2498) handsets out now and the many more coming from other manufacturers? There's no one single way, according to Jha.

"It's a matter of running harder than anyone else," Jha says. He notes, however, that Motorola is focusing on "tight intergration" of Internet connectivity with the device and changing up form factors.

There's a lot riding on Motorola's Android strategy in the coming months, as the Mobile Device unit's top-line is still in a bad way. Revenue fell 45 percent to $1.8 billion in the second quarter. The unit posted an operating loss of $253 million, compared to a loss of $346 million a year ago.

Jha said that he is hoping to start the turnaround next year. "If we don't break even on a quarterly basis in 2010 I'll be disappointed. On a yearly basis, I'm not going to make predictions."

Meanwhile, sales at the Home and Networks cable equipment division fell 27 percent to $2 billion, while Enterprise Mobility unit sales fell 17 percent to $1.7 billion.

Nonetheless, Motorola's stock is up almost 10 percent today on the news of the profit, to $7.15 per share.

— Dan Jones, Site Editor, Unstrung

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