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By Roger Cheng

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Motorola Inc. (MOT) reported a surprising second- quarter profit, albeit a slight one, and forecast full-year earnings above Wall Street expectations even as results continued to be dragged down by the embattled mobile devices unit.

Motorola topped expectations by cutting costs and increasing revenue in its home and networks mobility and enterprise mobility divisions. While the handset division continued to struggle with a lack of eye-catching products and must deal with a potential split from Motorola, it also held up surprisingly well. In particular, the division was strong in the North American market, suggesting the slowdown in the U.S. economy hasn't hurt the handset business.

"I still think there are plenty of difficulties and challenges to weather through, but these results were pretty good," said Bill Choi, an analyst at Jefferies & Co. "Handsets weren't as bad as feared. The expectations had gotten pretty low with that division."

Shares of the Schaumburg, Ill., telecommunications equipment maker recently rose 62 cents, or 8.3%, to $8.32.

Motorola reported a second-quarter profit of $4 million, or less than 1 cent a share, reversing a year-ago loss of $28 million, or 1 cent a share. Revenue was $8.08 billion, down from $8.73 billion.

Analysts, on average, forecast a loss of 3 cents a share and revenue of $7.69 billion. Motorola had forecast a loss of 2 cents to 4 cents a share.

Motorola reported shipping 28.1 million handsets, and said it had maintained its share of the global handset market. That's a surprising statement as many had expected it to lose share to rivals such as market leader Nokia Corp. (NOK) and Samsung Electronics Co. Ltd. (005930.SE), which recently overtook Motorola for the No. 2 position. LG Electronics Inc. (066570.SE), meanwhile, has been seen breathing down Motorola's neck.

Motorola maintained its share with only a few product announcements, none of which matched the hype of some of the other devices that came out in the quarter, such as the Samsung Instinct. More surprisingly, Motorola took share in the North American market as a result of a low-cost 3G handset, according to Chief Executive Greg Brown.

Brown said he expects sales to fall sequentially in the third quarter as Motorola loses market share in the Asia and Europe, Middle East and Africa regions before rebounding in the fourth quarter. Motorola plans release more handsets into the market in the second half.

The economic environment continues to be a potential issue as well.

"We'll continue to watch the macroeconomic concerns closely," Brown told analysts during a conference call.

The home and networks division, which includes WiMax technology and cable television gear, saw revenue rise 7% and earnings grow 28%, while the enterprise mobility division, which includes public radio systems, posted 6% growth in revenue and profit growth of 24%.

"It's surprising how well these divisions are doing given the pressures in these businesses," Choi said.

Chief Financial Officer Paul Liska said the company was on track to achieve operating cost savings of $1 billion, with 60% of those savings in the mobile devices unit.

Motorola expects earnings for continued operations for 2008 to be 6 cents to 8 cents a share, and expects third-quarter earnings from continuing operations to be flat, at 2 cents a share. Analysts were expecting earnings of 1 cent a share for both periods.

The surprisingly strong outlook suggests the first quarter may have been a bottom, Choi said.

The company has announced major restructuring for the coming months as it tries to recover from downturns. In late March it had appeared to cede to demands by billionaire investor Carl Icahn to sell off the handset unit. The separation of the handset unit will occur in the third quarter of 2009.

Brown added that Motorola was making "very good progress" on finding a new chief executive to run the handset unit, but declined to specify further.

Earlier this week, Motorola revealed the new plans to divide its home and networks mobility unit into three distinct businesses, which some believe will make them easier to sell off instead. The latest plans include a business for cable set-top boxes operation - including equipment for digital video, Internet- based video and modems - a cellular networks business and a broadband access solutions business.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(David Benoit contributed to this report.)

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  07-31-08 0947ET
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