July 30 (Bloomberg) -- Motorola Inc., the biggest U.S. mobile-phone maker, posted a narrower second-quarter loss than analysts projected after job cuts reduced costs and handset sales recovered. The shares rose as much as 8.8 percent.

The loss, excluding some costs, was 1 cent a share, Schaumburg, Illinois-based Motorola said today in a statement. That beat the average estimate of 4 cents by analysts in a Bloomberg survey. Revenue fell 32 percent to $5.5 billion.

Motorola plans to introduce phones based on Google Inc.’s Android software for the year-end holiday season to reverse a sales decline and compete with Apple Inc. and Research In Motion Ltd. Motorola has cut at least 7,000 jobs since October as it narrows its phone range. The company is now realizing those savings, said Tavis McCourt, an analyst at Morgan Keegan & Co. in Nashville, Tennessee.

“Cost cuts are starting to work their way into the financials,” said McCourt, who has a “market perform” rating on the stock. “Sustainable profitability will still require a successful handset refresh.”

Handset shipments increased to 14.8 million from first quarter’s 14.7 million. Goldman Sachs Group Inc. analyst Simona Jankowski estimated shipments of 14.3 million and Citigroup Inc.’s Jim Suva predicted 14.6 million.

Motorola jumped as much as 58 cents to $7.15 in trading before U.S. exchanges opened, after closing at $6.57 yesterday on the New York Stock Exchange. Before today, the stock had advanced 48 percent this year.

Rival, Karma

One-time gains including a legal settlement helped Motorola post a net income of $26 million, or 1 cent a share, compared with $4 million, or break-even on a per-share basis, a year ago.

Earnings this quarter, excluding some costs, will be as high as 1 cent a share, Motorola predicted. Analysts projected a loss of 1 cent.

Motorola’s sales have dropped by almost half in three years because it failed to come up with a phone to repeat the success of the Razr, the best-selling device introduced in 2004. Last month, Verizon Wireless started offering Motorola’s Rival, which has a music player and a slide-out keyboard, and AT&T Inc. began selling the company’s Karma Internet phone.

Motorola is “on track” with its new devices slated for the fourth quarter and has agreements with carriers, co-Chief Executive Officer Sanjay Jha said in the statement.

Sales at the mobile-phone business, run by Jha, dropped 45 percent to $1.8 billion from a year earlier and stayed on the first quarter’s level. The unit’s operating loss narrowed to $253 million from $346 million a year earlier.

IPhone, BlackBerry Gains

Motorola said in February it doesn’t expect to restore profitability this year. To reduce more costs, Jha and co-CEO Officer Greg Brown announced plans in January to eliminate 4,000 jobs.

Research and development expenses fell 26 percent to $775 million last quarter, and general and administrative costs dropped by the same percentage to $822 million.

Sales at the home and networks mobility unit, which includes TV set-top boxes, fell 27 percent to $2 billion. The enterprise mobility unit, which supplies governments, emergency and police forces, had a 17 percent drop in revenue to $1.7 billion.

Apple posted earnings this month that exceeded analysts’ estimates after shipments of its iPhone soared sevenfold in the latest quarter to 5.2 million. RIM said last month quarterly BlackBerry shipments rose about 44 percent to 7.8 million.

Motorola’s task of developing a hit Android phone is difficult because other handset makers also use the software, said Matt Thornton, an analyst at Avian Securities LLC in Boston. Google, based in Mountain View, California, said last month it expects at least 18 Android phones to be introduced by the end of the year. HTC Corp. already sells an Android phone and Acer Inc., Samsung Electronics Co. and Asustek Computer Inc. have announced similar plans.

“Motorola made the right choice and the only choice with Android,” said Thornton, who rates the stock “neutral.” “It remains to be seen how Motorola will differentiate itself from its competitors.”

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

Last Updated: July 30, 2009 08:04 EDT