UPDATE 5-Motorola cellphone unit turns profit after 3 years

* Reaches oper profit in cell unit a quarter early

* Q3 adjusted EPS, revenue beat Street view

* Ships 3.8 mln smartphones vs analyst view 3.57 mln

* Analysts worry how it would fight a Verizon iPhone

* Shares up 0.6 percent
(Adds analyst quote, share price update)

By Sinead Carew

NEW YORK, Oct 28 (BestGrowthStock) – Motorola Inc (MOT.N: ) made
money from its phones for the first time in more than three
years in the third quarter, helped by smartphones running
Google Inc (Read more about Google Stock Analysis)’s (GOOG.O: ) Android software.

The stock shot up as much 7 percent after the company
reported its earnings on Thursday morning but had given back
most of its gains by late afternoon. Investors turned their
focus to how the phone maker would cope once its most important
customer, Verizon Wireless, started selling Apple Inc (Read more about Apple stock future.)’s(AAPL.O: )
iPhone — which is widely expected in early 2011. Verizon
Wireless is a joint venture of Verizon Communications Inc
(VZ.N: ) and Vodafone Group Plc (VOD.L: ).

The sale of Motorola’s Droid phones at Verizon Wireless has
being largely responsible for putting the phone maker back on
the map after years of losing out hugely to rivals.

Motorola, which plans to split itself in two early next
year, said it would counter new competition with more marketing
spending, diversifying its phone lineup with more mid-range
phones and deepening ties with operators other than Verizon.

Sanjay Jha, co-chief executive and head of the phone unit,
warned of first-quarter pressure due to competition and a
typical dip in sales when the holiday shopping season ends.

But he was confident he could keep strong ties with
Verizon, which has promoted Motorola Droid phones heavily.

“In our business we don’t get assurances,” Jha told
Reuters, but added: “It’s a matter of understanding the
economics that drive each of the partners. I believe Verizon
will continue to support the Droid franchise.”

Charter Equity Research analyst Ed Snyder said investors
were less than certain Motorola would be able to keep phones
profitable in the first quarter.

“Business is getting better, but it’s also getting more
expensive,” Snyder said.

Another analyst, Tavis McCourt from Morgan Keegan, said
investors are happy Jha is at least planning for a Verizon
iPhone, which he sees hurting sales for a quarter or two.

“We’ll see how well they manage around it,” he said.
“They’ll be impacted but … there’s plenty of business for
Motorola to be profitable, despite the iPhone coming to more
carriers.”

Motorola said its phone unit posted a $3 million operating
profit for the third quarter, compared with a year-earlier
operating loss of $183 million.

It promised its mobile phone operating profit would rise
this quarter, despite an expected increase in marketing
spending around new product launches.

Motorola’s total third-quarter profit (Read more your timing to make a profit.) rose to $109 million,
or 5 cents per share, from $12 million, or 1 cent per share, a
year earlier. On an adjusted basis, earnings per share were 17
cents, compared with analysts’ average estimate of 11 cents,
according to Thomson Reuters I/B/E/S.

Revenue rose 6 percent to $5.8 billion, compared with Wall
Street expectations of $5.66 billion. It included $871 million
from the network equipment unit.

Motorola said it expects fourth-quarter earnings per share
of 14 to 16 cents from continuing operations. The forecast
excludes items such as earnings from the networking unit, which
it is selling to Nokia Siemens Networks, a joint venture of
Nokia (NOK1V.HE: ) and Siemens AG (SIEGn.DE: ).

Jha said full-year smartphone unit-sales would hit the high
end of Motorola’s previously announced target range of 12
million to 14 million.

This implies fourth-quarter smartphone sales of as much as
5.2 million and likely means that concerns about rival devices
such as the Galaxy Android phone from bigger rival Samsung
Electronics Co Ltd (005930.KS: ) were overblown, Morgan Keegan’s
McCourt said.

“There was some fear competition at Verizon had gotten
fierce enough that Motorola wouldn’t see the normal uptick in
sales in Q4, but it appears they will,” the analyst said.

Since the end of 2006, Motorola has been losing out to
rivals such as Apple, Nokia and Samsung due to the lack of
stand-out phones after its once-lauded Razr matured.

But in the third quarter, it shipped 9.1 million phones,
including 3.8 million smartphones, which was ahead of the
average expectation for 3.57 million smartphones, according to
six analysts contacted by Reuters.

Motorola shares were up 5 cents at $8.14 in afternoon
trading on the New York Stock Exchange after reaching as high
as $8.70 earlier in the session.
(Reporting by Sinead Carew; editing by Gerald E. McCormick
and Andre Grenon)

UPDATE 5-Motorola cellphone unit turns profit after 3 years