Motorola Mobility Looks Good on Paper

NEW YORK ( TheStreet) -- If incremental profit growth and gradual product rollouts defined success in today's mobile device market, then Motorola Mobility ( MMI), which reports second-quarter earnings after the bell Thursday, would top every investor's list this year.

Unfortunately, innovation as it relates to consumers' desire for the next great gadget moves at a steady breakneck pace, and Motorola, whose promising 2011 product launches have either been delayed or half-baked, has fallen behind.

The company, say analysts, isn't likely to see big market gains until next quarter, when its 4G products firmly hit U.S. shelves and it cements further gains in China.

"We believe 3Q is a window of opportunity for Motorola," wrote Barclays Capital analysts Jeff Kvaal in a recent note, "three launches and competitive slips should allow the company to gain share at key customer Verizon ( VZ)."

Until then, the company, which is ending its first full quarter as a newly split entity from network solutions-focused Motorola Solutions ( MSI), should continue its slow recovery. Analysts are expecting the firm, whose first-quarter global market share has slipped from 2.7% to 2.1% in the year-ago period according to Gartner, to post its first, albeit modest, profit.

The consensus is calling for earnings of 6 cents on quarterly sales of $3.12 billion.

They also see quarterly phone shipments arriving in line with the consensus 4.4 million, with much of that coming from Motorola's firm footing in China, where research shop IDC estimates that the company, capitalizing on the losses stemming from leader Nokia's ( NOK) big platform shift, holds the fifth spot in terms of greater China smartphone market share. In the past quarter, Motorola has launched six beefy Android smartphones there, as well as its new Xoom Android tablet.

"Motorola's market share in China is higher than its global average because they invest a lot of resources there to provide localized models," said Roberta Cozza, principal research analyst at Gartner. "But the big problem here is that they are very reliant on Android, and it's very tough to differentiate in this market."

Cannacord analyst T. Michael Walkley recently wrote that while Motorola is enjoying strong China sales, the firm is starting to lose market share to fellow Android handset-makers like Samsung, LG, HTC, Huawei, and ZTE. And then there's Apple ( AAPL), whose surprising 20.3 million phones shipped in the second quarter was fueled by sales in China.

"Motorola looks great on paper -- they're in a good spot now," said Ramon Llamas, a senior research analyst at IDC. "But here's the thing: they're not the only ones amping up the competition."

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Given the giant product launch gaps of entrenched rivals Research In Motion ( RIMM) and Apple -- RIM isn't releasing new superphones until next year, and a 4G iPhone isn't expected until sometime next year -- Android rivals have found a window in which to launch some formidable models -- super-charged, ultrathin 4G phones featuring a ripe app ecosystem.

Motorola was expected to be at the top of this front, unveiling a pile of slick, mobile market-changing goods at CES in January that were supposed to launch in the spring.

Instead, Motorola's Atrix, the $200 business-minded superphone that came with a laptop dock, didn't take off, its Xoom Android tablet received lackluster reviews and its first 4G phone at Verizon -- the Bionic -- has been repeatedly delayed. Rival HTC ended up launching Verizon's first 4G phone.

"Motorola lacks the scale to win a price war, so launch timing and differentiation are critical success factors," wrote Gartner's Cozza in an email. "Motorola is still working to find the right niche in partners' portfolios for new products to expand its share."

Motorola, say analysts, can still gain, but it must deliver solid goods sooner rather than later. IDC's Llamas points to the tablet sector, where the iPad's market lead has fallen a bit since its debut last year. "Motorola's tablet action is heavily invested in -- it just hasn't gotten a lot of play yet," he said. "It's still the early days of tablets ."

Motorola recently announced that its Xoom at Verizon will get a 4G upgrade in September, a feature that could give it a leg up over the iPad.

The company is also expected to launch two 4G phones at Verizon and Sprint ( S) in the next couple of weeks, highlighting its relatively new multicarrier strategy that puts it in a much stronger position than some of its rivals.

Motorola shares, which have lost 18% so far this year, were trading relatively flatly Thursday at $23.77.

--Written by Maggie Overfelt in New York.

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