Motorola Profit Up 66% in Quarter, Meeting Forecasts

Motorola Inc., the first of the Big Three mobile phone makers to report third-quarter earnings, posted higher results Tuesday that met Wall Street expectations and reflected improved handset profit margins.

The company, which also makes semiconductors and network systems, said third-quarter earnings from ongoing operations rose 66% to $598 million, or 26 cents a share, from $361 million, or 16 cents, a year ago.

Analysts on average pegged earnings at 26 cents a share, with estimates ranging from 25 cents to 27 cents, according to First Call/Thomson Financial.

Revenue grew 17% to $9.5 billion, the world’s second-largest mobile phone maker said. Analysts were expecting the company to post revenue of about $10 billion.

Motorola said its operating profit margin in the mobile phone unit rose to 6% of sales, versus 4% in its second quarter, and 2% in its first quarter. The margin report was keenly awaited by analysts, who had expected an increase of between 5.5% and 6.5%.

Investors were focusing on the profitability of Motorola’s handsets as a key indicator of the mobile phone industry’s health. Motorola has said it expects operating margins for the handset business to reach 10% by the end of the year.

In the personal communications segment, which makes the mobile phones, operating profit jumped 32% as sales rose 4% to $3.2 billion.

Handset segment orders fell 23% to $3.3 billion. Analysts had expected handset orders to fall in the third quarter because of last year’s unusually high growth rate, driven by service providers who built big phone inventories amid fears of component shortages.

Ahead of the news, Motorola shares fell 75 cents to close at $26.25 on the New York Stock Exchange.

“Considering everybody was jittery going into this, the fact that they hit the numbers that they were looking to hit I think is pretty positive,” said Peter Firstbrook, wireless research analyst with META Group. “So I think the market will react positively.”

“Profitability was more the issue with sales,” Firstbrook said. “There’s some concern there’s going to be an ongoing telecom equipment-buying slowdown. There may be a little bit of that, but wireless isn’t where I see that and that’s where mostly these guys play.”

The world’ No. 1 mobile phone maker, Finland’s Nokia, already has warned it expects lower margins in its third quarter, compared with its second quarter, and Sweden’s Ericsson is expected to post a significant loss in its handset business.