Motorola overtaken by iPhone, still posts profit

NEW YORK - Motorola posted an unexpected profit in the first quarter, as sales of its new phones outdid its own forecasts.

It also gave an outlook that was brighter than Wall Street was predicting, and its shares jumped on Thursday.

However, it has lost its position as the largest US maker of phones to Apple Motorola sold a total of 8.5 million phones in the quarter, while Apple sold 8.8 million iPhones.

Four years ago, when the Razr was still popular, Motorola sold 46.1 million phones in the first quarter.

The Schaumburg, Illinois, company has been trying to turn around that long slide in phone sales by focusing on new smart phones, including the Droid.

That strategy is bearing fruit, but too slowly to compensate for the drop in overall phone sales. Motorola sold 2.3 million smart phones in the first three months of the year. It had said it expected to sell less than two million.

A year ago, Motorola sold 14.7 million phones in the comparable quarter. The drop in phone revenue in the latest quarter was just 9 per cent - less steep than the drop in overall unit sales would suggest.

Motorola can charge much more for the new smart phones than for run-of-the-mill phones.

Sanjay Jha, the head of the phone business, said on a conference call he expects smart phone sales to be up this quarter, while overall phone sales will continue to decline.

Motorola is now the world's seventh-largest maker of phones, down from fifth in the fourth quarter.

As a whole, Motorola earned US$69 ($90.32) million, or 3 cents per share in the quarter. In the same quarter a year ago, it lost US$231 million, or 13 cents per share.

Motorola had said it expected to lose 1 cent to 3 cents per share for the quarter.

Revenue fell 6.1 per cent to $5.04 billion. Analysts polled by Thomson Reuters were expecting US$5.1 billion in revenue.

Motorola shares rose 20 cents, or 2.9 per cent, to US$7.12 in afternoon trading.

For the current quarter, Motorola said it expects to earn 7 cents to 9 cents per share. Analysts had been projecting earnings of 3 cents per share.

However, the phone business still won't be profitable for Motorola until the fourth quarter, Jha said.

Motorola's star division was Enterprise Mobility, which makes police radios, bar code scanners and other equipment for big clients. Its revenue was US$1.7 billion, up 6 per cent compared to a year ago. Profit more than doubled.

Sales of cable set-top boxes and wireless network equipment fell, but profits rose thanks to cost-cutting.

Motorola is planning to split off its cell phone and set-top box business into a separate company led by Jha early next year, leaving Enterprise Mobility and Networks under Greg Brown, who is currently co-CEO.

Motorola's smart phones use Google's Android software, which grew quickly in popularity last year.

Last month, that started to look like a shaky foundation to build on, as HTC, another major maker of Android phones, was sued by Apple over patents. Then this week HTC agreed to license Microsoft patents on undisclosed terms.

Jha said Motorola is not in an "ongoing discussion" with Microsoft, and would not say whether Apple had been in touch about intellectual property.

He suggested that Motorola has enough patents of its own to defend itself against any advances.

Technology companies often accumulate patents as a way to countersue anyone who tries to sue for patent infringement.

"To deliver a smart phone in the marketplace, you need patents in a very broad range of areas. We are comfortable in our position," Jha said in an interview.

Apple's iPad has reignited interest in tablet computers, and Jha suggested that Motorola, too, is looking beyond phones to other portable entertainment devices.

"We're engaged in a broad range of devices, from those that fit in your pocket to those that don't fit in your pocket," Jha said.

- AP