Motorola Inc, the world's No 2 mobile-phone maker, on Thursday may say quarterly profit rose as Razr handset sales topped 10 million for the first time.

Profit excluding some items likely increased 30 per cent to $864 million, or 34 cents a share, from $680 million, or 27 cents, a year earlier, said Ehud Gelblum, an analyst at JPMorgan Chase & Co in New York. Revenue probably gained 19 per cent to $10.6 billion, he said.

Motorola attracted holiday shoppers with new pink and blue models of the all-metal Razr. The phone, half an inch thick, helped Chief Executive Officer Edward Zander revive Motorola's reputation as a hip designer after its introduction in late 2004. Schaumburg, Illinois-based Motorola added the new models in November to keep up the momentum.

“The biggest thing for Motorola is still the Razr. It has prime cool factors, and when other companies try and copy that, they end up with a cheap, plastic look,” said Jane Snorek, who helps manage $110 billion including Motorola share at US Bancorp Asset Management in Milwaukee.

Razr may have accounted for almost one of every four Motorola phones sold in the quarter, especially in Europe and the US, Gelblum said. Motorola and larger competitor Nokia Oyj, which reports earnings next week, also are tapping demand in India and China to steal market share from smaller rivals.

Shares of Motorola, up 31 per cent in 2005, fell 18 cents to $23.34 in New York Stock Exchange composite trading on Wednesday. Profit has exceeded analysts’ expectations in each of the past 10 quarters, according to data compiled by Bloomberg. Twenty-seven analysts recommend investors buy the shares and 11 suggest holding them. None has a ‘sell’ rating.

Razr’s Inspiration

Sales in Motorola's mobile devices unit likely gained 30 per cent to $6.53 billion and accounted for 62 per cent of total revenue, Gelblum said. Razr, which sells for $150 on Motorola's Web site, helps offset lower prices in emerging markets. The company probably shipped 45 million total handsets, with an average selling price of $145, he said.

Analysts on average expect profit of 34 cents a share in the fourth quarter, according to Thomson Financial. Thomson didn't return calls seeking detail on items included in the estimates.

The success of the half-inch-thick Razr inspired a family of phones that may sustain growth next quarter. The Pebl is a rounded sister to the angular Razr, and the Slvr is a thin ‘candybar’ style phone. Razr sales helped overcome a stumble with the Rokr phones that carry Apple Computer Inc’s iTunes music.

“The Slvr and the Pebl have seen early signs of solid demand interest,” said RBC Capital Markets analyst Mark Sue, who has a ‘outperform’ rating on the stock. Pebl and Slvr went on sale in some markets outside the US during the quarter.

Zander, 59, declined to comment for this story. He received $6.1 million in salary and bonus for 2004.

Emerging Markets

Motorola focused on sales of phones that cost $30 to $40 in India and China. In India, shipments likely gained 87 per cent to 9.4 million handsets, and sales likely rose 33 per cent to 24.4 million in China, according to New York-based Credit Suisse First Boston analyst Michael Ounjian.

Motorola’s share of the handset market rose to 18.8 percent in the third quarter from 13.5 per cent a year earlier, according to Stamford, Connecticut-based Gartner Inc Espoo, Finland-based Nokia’s share rose to 32.6 per cent from 31 per cent.

“Motorola will continue to gain market share driven by its strong product portfolio as well as its focus on emerging markets,” said New York-based UBS analyst Maynard Um.

While demand for low-cost phones in emerging markets is rising, it may also accelerate a decline in average selling prices.

Worldwide cell phone revenue will slip 4.7 per cent to $109.7 billion in 2006 as saturation in the US and Japan slows handset sales, according to El Segundo, California-based ISuppli Corp.

Profit Margins

Zander plans to counter a slowdown with services such as iRadio music subscriptions and models such as the Q, a competitor to Palm Inc’s Treo, with a full keyboard and faster Web access.

Motorola said in July its operating margin, the percentage of sales left after manufacturing, sales and administrative costs, will widen to at least 13 per cent in the next two to three years.

That margin probably expanded to 12.8 per cent in the quarter from 11.7 per cent a year earlier, Kaufman Brothers analyst Bill Choi in New York said.

More Growth

The company’s smaller businesses also are growing. Government and enterprise sales probably added 7.5 per cent to $1.8 billion, Gelblum said. Sales in the networks unit, which builds equipment for communications systems, gained 4.9 per cent to $1.63 billion.

Revenue in the connected home business, Motorola’s smallest unit, was little changed at $670 million.

Motorola, the biggest maker of set-top boxes, this month bought some assets from San Diego-based Broadband Innovations Inc to expand its modem business, and announced plans to buy Sweden’s Kreatel Communications AB to add European set-top box customers.

The deals come after San Jose, California-based Cisco Systems Inc. last year agreed to buy No. 2 set-top box maker Scientific-Atlanta Inc. for $6.9 billion to help counter a slowdown in business spending on Internet switches and routers.