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Motorola Tops Profit, Sales Estimates on Droid Demand

The Motorola Inc. Droid X. Photographer: Jin Lee/Bloomberg
The Motorola Inc. Droid X. Photographer: Jin Lee/Bloomberg

July 29 (Bloomberg) -- Motorola Inc., the U.S. mobile-phone maker, reported second-quarter earnings that beat analysts’ estimates, helped by demand for its new line of smartphones.

Profit, excluding some costs, was 9 cents a share, the company said today in a statement. Analysts had projected 8 cents, according to the average of estimates compiled by Bloomberg. Revenue for the quarter was $5.41 billion, compared with the $5.2 billion estimate.

Motorola’s Droid X, the company’s latest phone based on Google Inc.’s Android software, sold out at Verizon Wireless and Best Buy Co. stores after its debut this month. Such demand, following the success of the original Droid released late last year, bodes well for a recovery at Motorola, which suffered a 27 percent sales drop in 2009, said Mark McKechnie, an analyst at Gleacher & Co. Securities.

“The Droid X appears to be off to a good start, fueling confidence in Motorola’s handset turnaround,” said McKechnie, who is based in San Francisco and has a “buy” rating on the stock.

Revenue for the quarter fell 1.5 percent from the year-earlier period. Net income climbed to $162 million, or 7 cents a share, from $26 million, or 1 cent, a year earlier.

Motorola, based in Schaumburg, Illinois, rose 22 cents, or 2.9 percent, to $7.90 at 10:09 a.m. on the New York Stock Exchange. The stock had slid 1 percent this year before today.

Smartphone Surge

Sanjay Jha, co-chief executive officer who oversees the handset business, reiterated today on a conference call that he’s “confident” the unit will turn a profit in the fourth quarter. That would pave the way for a planned spinoff of the phone unit and the division that makes cable TV set-top boxes, which the company said it expects in the first quarter.

The mobile-phone unit reported an operating loss, excluding income from a legal settlement, of $109 million, compared with an operating loss of $239 million in the year-earlier quarter. Revenue dropped 6 percent to $1.72 billion.

Motorola said it shipped 2.7 million smartphones last quarter and 8.3 million handsets in total. McKechnie had estimated 2.5 million smartphones and 8.3 million handsets.

The Droid X is “off to a great start” and is “exceeding our expectations,” Jha said. He expects the company to launch “meaningfully more” than 20 smartphones this year, after saying in the past the company would debut “at least 20.”

Financial Outlook

Demand for the Droid X is currently outstripping supply, he said. Jha, who joined Motorola in 2008 from chipmaker Qualcomm Inc., said today a shortage of mobile phone chips is “our largest constraint.” He expects Motorola to ship 12 million to 14 million smartphones this year and said shipments would be a “modest” amount more than that if not for supply constraints.

Motorola agreed this month to sell its wireless networks unit to Nokia Siemens Networks for $1.2 billion, leaving co-CEO Greg Brown to manage just the enterprise mobility business that makes two-way radios and bar-code scanners.

The enterprise mobility division had a revenue gain of 10 percent to $1.85 billion in the second quarter. Sales at the set-top-box unit fell 13 percent to $886 million, and sales at the wireless networks unit dropped 2 percent to $967 million.

Motorola said overall profit for the third quarter, excluding certain items, will be 10 to 12 cents a share. That compares with the average estimate of 10 cents per share, according to Bloomberg’s survey of analysts.

“The old Droid is still selling surprisingly well, the Droid X is doing well and it looks like the Droid 2 launch is early,” said MKM Partners analyst Tero Kuittinen who is based in Greenwich, Connecticut and has a “neutral” rating on the stock. “This is kind of like Motorola’s moment in the sun.”

(Motorola held a conference call today to discuss results. To listen to a recording go to {MOT US <Equity> CWP <GO>} and follow the investor relations link.)

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

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net.

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