Motorola Inc posted stronger-than-expected quarterly results on strength in its enterprise and network units, sending its shares up despite frustration it did not raise its phone sales target.
Investors had hoped that the popularity of Motorola's Droid X, its latest phone being championed by Verizon Wireless, would result in a new, higher forecast for 2010 smartphone sales.
Instead, Motorola, which is counting on sales of smartphones based on Google Inc's Android software for growth, affirmed its previous annual target. When pressed by analysts on a call, executives cited concerns about the economy, component supply shortages and stiff competition in the smartphone market.
The quarter was modestly better than people expected but guidance wasn't commensurately strong, said Charter Equity Research analyst Ed Snyder, who noted that Motorola's caution in the face of stiff competition was justified.
The stronger-than-expected results, including a six-fold increase in profit, helped lift shares of Motorola. Motorola is selling its network equipment business this year and plans to split the rest of the company in two next year.
In the second quarter, it posted a profit of $162 million, or 7 cents per share compared with a profit of $26 million, or 1 cent per share, in the same quarter the year before.
Excluding items, it earned 9 cents per share compared with Wall Street expectations for 8 cents, according to Thomson Reuters I/B/E/S.
Net sales fell to 1.5 percent to $5.4 billion, ahead of the average analyst expectation for revenue of $5.19 billion.
Avian Securities analyst Matthew Thornton said revenue beat his estimate for the networks unit, which Motorola is selling later this year to Nokia Siemens, a Nokia and Siemens venture.
But phone sales were only in line with expectations despite some hopes that supply shortages of an HTC Corp <2498.TW> phone at Verizon Wireless would boost Motorola sales there.
Motorola shipped 8.3 million phones in the quarter including 2.7 million smartphones, compared with the average estimate for 8.13 million total phone sales and 2.69 million smartphones, according to seven analysts contacted by Reuters.
One concern among some investors is that if Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc , starts to sell the Apple iPhone, the No. 1 U.S. mobile provider would promote Motorola products less.
Co-Chief Executive Sanjay Jha told analysts on a conference call that he sees Verizon continuing to invest in Motorola products. As long as we continue to execute the way we're doing Verizon will continue to invest in Droid, he said.
But he also noted that competition will intensify as BlackBerry maker Research in Motion and Microsoft Corp both plan to brand new smartphone operating systems.
Jha also said that along with HTC and the entire industry, Motorola is suffering from component supply shortages.
We believe we will catch up with demand sometime through the course of this quarter, said Jha, who forecast third-quarter smartphone and overall handset sales volume to be higher than the second quarter.
An increase would be welcome news for Motorola, which has lost out to rivals such as Apple and Samsung Electronics <005930.KS> in the last few years. While Apple launched its latest iPhone in the second quarter, Motorola's Droid X did not go on the market until the third quarter.
Motorola forecast third-quarter earnings per share of 10 cents to 12 cents, excluding items. Thornton said the midpoint of the range was a penny ahead of Wall Street expectations.
Shares were up 1.8 percent at $7.82 in morning trade.
(Reporting by Sinead Carew; editing by Derek Caney, Dave