Motorola Ships Fewer Phones, Makes Bigger Profit (MOT)

The Q2 earnings report from Motorola Inc. (NYSE:MOT) beat expectations and might have been even better if the company had been able to meet demand for its newest smartphones. The Droid phones, based on the Android operating system from Google Inc. (NASDAQ:GOOG), sold exclusively by Verizon Wireless, a joint venture between Verizon Communications Inc. (NYSE:VZ) and Vodafone plc, have sold well due to the shortage of a competing phone, the Droid Incredible, made by HTC Corp. Motorola’s latest model, the Droid X, is slated to be Verizon Wireless’ next potential big seller and it is on backorder until August. Like the HTC phone, component supply problems have held back shipments.

Motorola posted second quarter EPS of $0.09, excluding certain charges. Revenue totaled $5.41 billion. Analysts were expecting EPS of $0.08 on revenue of $5.2 billion. Year-over-year sales were down slightly, but net earnings were up by a factor of six.

A significant portion of Motorola’s earnings came from its network equipment unit, which posted a 2% drop in revenue, but operating earnings of $178 million, nearly double the amount from a year ago. Those earnings will disappear by the end of 2010 because Motorola has sold this unit to Nokia Siemens Networks, a joint venture between Nokia Corp. (NYSE:NOK) and Siemens AG (NYSE:SI), for $1.2 billion.

In its mobile devices unit, Motorola’s sales fell 6% as the company weeds out some of its low-margin phones in order to focus on the smartphone business. Motorola shipped 2.7 million smartphones in the second quarter, up from 2.3 million in the first quarter. Total handset shipments fell, however, from 8.5 million in the first quarter to 8.3 million in the second quarter.

Motorola will split its home and mobile devices businesses from its enterprise mobility business in early 2011, in an effort to boost shareholder returns. The enterprise business, to be called Motorola Solutions, will focus public safety radios, scanners, and some telecom devices. In the second quarter, the handset business posted a non-GAAP operating loss of $109 million, and the enterprise business posted non-GAAP operating income of $292 million.

Motorola’s Droid phones compete directly with the iPhones from Apple Inc. (NASDAQ:AAPL), of course, and Apple claimed that the Droid phones suffered from the same antenna problems as the iPhone 4. Motorola denied the claim and told customers they could hold the phone in any position they chose, and that the Droid phones did not need a jacket in order to work. Take that Steve Jobs.