Android pushes Motorola into black

Company's mobile unit turns profitable in the third quarter for the first time since 2006. Motorola can thank Google's Android OS for the about-face.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read

Finally, there's some good news for Motorola.

The U.S.-based cell phone maker reported today that its mobile device unit posted an operating profit for the first time since 2006. The company had not expected this unit to turn a profit until next year. Motorola, which announced third quarter earnings, also posted better-than-expected sales of its Google Android-powered smartphones.

The mobile device unit generated $3 million in operating profit in the third quarter. This was up from an operating loss of $183 million in the same period a year ago. Motorola's total profit for the company also grew to $109 million, or 5 cents per share. This compares with $12 million, or 1 cent per share, during the third quarter last year.

Revenue was up 6 percent to $5.8 billion, compared with $5.4 billion last year.

Motorola plans to split itself into two companies later this year and has been selling off business units in preparation. The third quarter included $871 million in sales from the network equipment unit that Motorola is ushering out.

The company topped analyst expectations for the quarter in terms of unit shipments. During the quarter it shipped 9.1 million phones, including 3.8 million smartphones. Analysts expected the company to ship about 3.57 million smartphones, according to Reuters.

Motorola has been focusing its mobile device unit on increasing its smartphone portfolio using Google's Android operating system.

The strategy seems to be working. So far this year, Motorola has introduced 22 smartphones, including three new devices in China. The company is also expanding its Droid phone portfolio, with three new devices coming to Verizon Wireless, the biggest wireless provider in the U.S. The Motorola Droid and Motorola Droid X have helped Verizon fight AT&T and its exclusive Apple iPhone.

While smartphones are growing in popularity, competition is also heating up. Microsoft, for example, has re-entered the picture. What's more Verizon Wireless, which has been a major sales channel for Motorola's Droids, may be getting its own version of an Apple iPhone early next year.

This new competition puts pressure on Motorola as it tries to keep its newfound sales momentum.

Android competition heating up
Sanjay Jha, CEO of the mobile device unit, acknowledges the competition during an earnings conference call this morning. In particular, he noted growing competition within the Android market with Samsung's new Galaxy lineup and devices from HTC. But Jha also said that Motorola is well positioned with its products and brand.

As for the Verizon iPhone threat, he said Motorola recognizes that the first quarter of 2011 will be tough. He would not disclose how much business Motorola has been getting from Verizon, which is selling its flagship Android phones, the Droid and Droid 2. But he said the company plans to continue its strong relationship with Verizon while it pursues its business with other carriers, such as AT&T. Motorola has already introduced three new Android phones for AT&T, including the business-oriented DroidPro.

"We expect to continue to have a meaningful relationship with Verizon," he said during the call. "We think the Droid franchise is economically very valuable to Verizon, and we expect Verizon to continue to foster that relationship in a meaningful way. But we are also planning to diversify."

Jha said the company will not only expand among carriers in the U.S. but will also move more aggressively into international markets, such as China, where it expects to see strong growth. Motorola also going after the likes of Research In Motion, with plans to differentiate a line of Android products for businesses.

Additionally, Motorola is also preparing to diversify its product line with the introduction of a tablet PC currently code-named Gingerbread. This device will compete head-to-head with Apple's iPad and the other tablets coming out. Jha wouldn't offer specifics about the device, but he said the company will compete well in this category.

Even as Motorola expands its device portfolio Jha said the company will pay particular attention to the high-end smartphone market. He said having a strong high-end presence creates a halo effect that helps the company sell midtier devices. He likewise noted that having strong flagship smartphones in the U.S. also helps the company sell products overseas.

Update at 7:20 a.m. PDT:Information from the earnings call has been added.