Motorola Drops Back

The latest quarter knocks it to No. 3 in handset sales.
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Motorola

(MOT)

dropped below

Samsung

, ending a two-and-a-half-year run as the No. 2 phone maker behind

Nokia

(NOK) - Get Report

.

The Schaumburg, Ill., wireless tech shop turned in its fourth consecutive

earnings shortfall Wednesday, saying it sold about 35.5 million phones in the second quarter. That's well below the 40 million-unit analysts estimate and about 10 million below the first-quarter level.

The weak phone sales come amid a period of robust growth in the wireless industry. Motorola holds the distinction of being the only major phone maker to cool down in this warm sales climate. So much so, says JP Morgan analyst Ehud Gelblum, that it has now been surpassed by Korea's Samsung as the second-biggest phone maker.

It was nearly three years ago, just prior to the introduction of the Razr phone, that Motorola was last

surpassed by Samsung for the No. 2 spot.

Motorola's latest plunge has flipped handset profits to losses, setting off a 7,500-employee firing spree and an ongoing management shakeup that observers see going

all the way to the top.

"Last time Motorola found itself here, it took six years and a near-wholesale change-out in management to deliver" a recovery, says Charter Equity Research analyst Ed Snyder.

In many ways, Motorola's current doldrums show just how phenomenal the Razr phone was.

The Razr's ultrathin metallic design clicked with phone buyers despite its weak camera, a widely despised user interface, poor Internet capability and lack of even a primitive email program.

Sure,

Apple's

(AAPL) - Get Report

iPhone is the leading vote getter in today's all-star gadget game, but the real hall-of-famer is Razr. In its first year and a half, Razr surpassed 50 million units sold --some 100 times more sales than the iPhone hit in its huge

weekend debut.

But the Razr's greatest accomplishment was that it concealed Motorola's massive flaws for two years.

Sinking Spell
Motorola handset market share drops as rivals gain ground

Source: JPMorgan estimates

And there seems to be no blockbuster phone in the pipeline that will give Motorola some much-needed cover.

"While new phones such as the Razr2 and the Rizr family are doing incrementally better," RBC analyst Mark Sue writes in a note Thursday, "Motorola sorely needs a hit product to turn things around."