Updated from 5:15 p.m.

Motorola ( MOT) rallied 7% late Wednesday after blowing by earnings targets and raising guidance on strong cell-phone demand.

The Schaumburg, Ill., wireless shop made $1.38 billion, or 54 cents a share, on $10.8 billion in sales in the second quarter ended in June. Those numbers compare with year-ago earnings of $933 million, or 37 cents a share, on revenue of $8.4 billion.

On an adjusted basis, subtracting about 21 cents a share in one-time gains, Motorola's pro forma profit was 33 cents a share. Analysts were looking for an adjusted profit of 31 cents a share on $10.1 billion in sales, according to Thomson First call.

"Mobile Devices led the way, setting records for unit shipments, sales and profits," CEO Ed Zander said in a press release.

Looking ahead to the third quarter, Motorola expects sales of $11 billion, well beyond the $10.3 billion that Wall Street was forecasting. The company points to success in its handset division, which saw 46% sales growth over the year-ago period.

The company says it sold 51.9 million phones in the second quarter. Analysts had been looking for about 48 million units shipped. The company says it now has 22% of the total mobile-phone market, up from 21% in the first quarter.

On a postclose conference call, Zander repeated an announcement from Tuesday that the company had shipped its 50 millionth Razr phone this week. The popular Razr phone has revived Motorola's design leadership and helped the company increase its worldwide market share.

Zander also predicted Motorola's new Q phone would be another winner. He said 150,000 units of the QWERTY-keyboard device shipped in the second quarter.

Motorola's report comes just a day ahead of an eagerly awaited report from handset rival Nokia ( NOK), which is due to post earnings Thursday morning.

"The handset market is still jumping," says Sanford Bernstein analyst Paul Sagawa. "I expect Nokia to post similarly strong numbers tomorrow."

Sagawa cautions that Nokia may show higher costs due to sales and marketing efforts in the second quarter. Even so, "Investors continue to systematically underestimate the strength and staying power of this handset upcycle," says Sagawa.

Asked if Motorola's success in the quarter had a lot to do with weak performances by rivals, cell phone unit chief Ron Garriques said there was no let up by other players. We saw "full participation from all our competitors" in the quarter, said Garriques. "They gave it all they could, and we still gained share and increased profitability."

Motorola executives said instead of paying down about $1 billion in debt this year as previously planned, those obligations will be paid next year when they come due. The company said it would instead use its cash for more stock repurchases and dividends.

Motorola shares, down 14% for the year heading into the postclose report, rose 37 cents in regular action before surging $1.44 late Wednesday to $20.69.