Milking Motorola Momentum

Entering the 2006 home stretch, wireless fans have high hopes that Motorola (MOT) can keep gaining on industry leader Nokia (NOK).

Tech investors will be watching Motorola's third-quarter numbers and fourth-quarter guidance late Tuesday, when the company reports earnings.

If predictions are accurate, the No. 2 mobile-phone maker will show solid third-quarter sales growth, wider margins and a point or two of market-share gains. And looking ahead to the busy holiday season, Motorola should be able to give an upbeat prediction for its fourth-quarter business.

The unrivaled success of the Razr phone, plus the launch of new models like Slvr and Krzr, have helped Motorola rally and send its stock up 23% in the past year. But you can expect Motorola fans to be spooked easily if the numbers don't align just so.

The Schaumburg, Ill., tech titan is expected to have sold about 54 million phones in the third quarter. That is up from the 52 million units shipped in the prior quarter and a big improvement over the 39 million sold in the year-ago quarter.

But that's not enough. Investors and analysts want a much stronger performance in the fourth quarter, which is seasonally the best for cell-phone sales. Analysts expect Motorola to sell at least 62 million phones in the current quarter ending Dec. 31.

Early signs from rivals like Sony Ericsson, a joint venture of Sony (SNE) and Ericsson (ERIC), have shown there is a strong demand for phones, particularly music phones. Last week, Sony Ericsson nearly tripled its third-quarter profit level from last year on record handset sales.

And if Sony Ericsson can capture wider margins and boost profits, surely Motorola has a good chance, say industry watchers. After all, if Motorola isn't giving away Razrs, then sales growth should come with margin expansion, say analysts.

"We continue to forecast Motorola, with its strong product line-up for the second half of 2006, can reach 11.8% mobile devices operating margins in the third quarter and 12.8% in fourth quarter, up from 11.2% in second quarter," wrote JPMorgan analyst Ehud Gelblum, who has a buy rating on Motorola shares.

Analysts also are looking for an adjusted profit of 34 cents a share on $11.1 billion in sales in the third quarter. And for the fourth quarter, analysts' consensus calls for a 39-cent profit on $12.1 billion in revenue.

Motorola shares slid 30 cents to $25.90 Monday.

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