Motorola reboots, sees Droid powering big holiday sales

Like a Phoenix risen from the ashes, Motorola (MOT), the one-time purveyor of that grey clamshell phone that everybody had back in the day, reported its second consecutive quarterly profit. It earned $12 million, or a penny per share, compared with analyst estimates of a break-even quarter. The bigger -- and better news -- came from Moto's outlook. Execs predicted fourth-quarter earnings, excluding certain costs, of 7 cents to 9 cents a share, ahead of analyst expectations of 6 cents.

The rosy view comes as the Schaumburg, Ill.-based company rides a crest of good buzz surrounding its forthcoming Droid handset (pictured). Motorola is teaming up on Droid with Verizon Wireless, the largest cell-phone company in the country. And overall, it looks like the efforts of co-CEO Sanjay Jha, the former Qulacomm chip designer who took the reins at Motorola's mobile business in August 2008, have paid off thus far. Motorola shares were burning up the Big Board Thursday, rising more than 11 percent in midday trading.

"The Droid is an attractive device," Jim Kelleher, an analyst at Argus Research, tells DailyFinance. "But it's very hard for any smart-phone maker to dislodge the iPhone. It's not so much about the device but the fact that it's a portal for the app store."

Kelleher said Motorola's new smart-phone entrants are solid, but the company should really focus on building great middle-market phones that still far outsell the newer multifeatured phones. "A lot of people still just want to make calls," he says.

Billions Lost, Payrolls Slashed

Indeed, after once setting the standard for mobile phones with devices like the RAZR, Motorola hasn't had a hit phone in years, as Apple (AAPL) and Research in Motion (RIMM) ate up the burgeoning smart-phone market with the iPhone and BlackBerry, respectively. Investors, consumers and even many of the company's own employees had nearly written Motorola off by the time Jha came on board last year.

It has lost a whopping $4 billion over the past two years and shed some 8,000 workers since December of last year. Motorola's global mobile-phone market share fell by almost 50 percent in the second quarter to a paltry 5.6 percent, according to research firm Gartner.

With its new Verizon Droid partnership, Motorola is looking to put the heat at both the iPhone and BlackBerry. On Wednesday, Motorola introduced Droid, its second handset based on Android, Google's open-source mobile operating system, after introducing its first, called Cliq, in September.

Betting It All on Android

One of Jha's top priorites was to be a player in smart phones for the holiday season he told Saul Hansell of The New York Times. "If I didn't have smart phones in the market for Christmas of '09, this business wouldn't have a runway," he said.

After ditching a bunch of dead-end phones and cutting costs, Jha quickly realized that he had to get serious about one mobile operating system, Hansell reports. The first thing Jha did was bounce Symbian, the operating system Motorola phones had been running on. "It came down to a Microsoft Windows mobile operating system and Android," Hansell writes. "When Microsoft said that a crucial release of its mobile operating system would be delayed, Mr. Jha gave Microsoft the stiff arm and bet on Android."

Then in a stunning Hail-Mary play, Jha told one one his top software engineers, "Burn the ships and focus on Android." It was an incredibly risky move -- but if it pays off, the decision will go down a savvy choice. And it could certainly be a harbinger of things to come, for example, Google's increased power in the mobile-phone market.

"Motorola has hitched its cart up with a really successful company, Google," Kelleher says. "And they really have to stay in the Android family because they need to link themselves with a good developer community."

Don't Break It Up

Kelleher says Motorola should abandon its past ideas about splitting itself up into the mobile handset business and other businesses like set-top boxes and other communications equipment. "I personally think they should keep the company intact," Kelleher said. "It's time for Greg Brown [the other co-CEO, who runs the non-handset business] to step away and make room for the one-CEO model. I do believe Sanjay is the right person for the job."

Indeed, it now looks like Jha has helped Moto get its mojo back.

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