Motorola Inc. (MOT) swung to a first-quarter profit as a stronger economy lifted its networks and enterprise divisions, but its marquee handset unit continued to struggle with its turnaround in the competitive smartphone market.

Motorola, which previously warned of weaker phone shipments in the first quarter, said total phone shipments fell 43% despite an increase in sales of smartphones.

The results highlight the difficulty of competing against a flood of alternative smartphone makers in the market even as one of its devices, the Droid, gets serious backing from the nation's largest wireless provider in Verizon Wireless. While the company has rolled out several other devices, none have received the same kind of buzz or marketing support as the Droid.

"Clearly there's competition at each of our carriers, but I feel comfortable with where I'm positioned," Co-Chief Executive Sanjay Jha told analysts during a conference call.

The Schaumburg, Ill., telecommunications equipment maker posted a profit of $69 million, or 3 cents a share, compared with a year-earlier loss of $231 million, or 10 cents a share.

Revenue fell slightly to $5.04 billion.

Analysts, on average, had a first-quarter estimate of $5.1 billion in sales and a loss of 1 cent per share.

"The non-handset businesses really came through with higher profitability," said William Choi, an analyst at Jefferies & Co.

Co-Chief Executive Sanjay Jha won't have that benefit when Motorola completes its split, expected to occur in the first quarter of next year. In addition to the hanset division, which posted a 9% decline in revenue and an operating loss of $192 million, he will get the profitable home division, which makes television set-top boxes. Despite an 18% decline in sales, the unit posted a profit of $20 million.

Things will only get tougher for Jha from here. HTC Corp.'s (HTCXF, 2498.TW) Droid Incredible is poised to take over Droid's spot as the flagship smartphone at Verizon Wireless. Research in Motion Ltd. (RIMM) just unveiled two Blackberrys, and Apple Inc. (AAPL) is expected to launch the next version of its iPhone in the summer.

"Where does Verizon Wireless highlight their promotions this quarter?" Choi asked.

Jha, however, sounded upbeat and said he expects smartphone shipments to rise sequentially in the second quarter and backed his expectations of a return to profitability for the mobile devices unit in the fourth quarter.

The competition has already overtaken one rival. Hewlett-Packard Co. (HPQ) said it had agreed to buy embattled smartphone pioneer Palm Inc. (PALM) for roughly $1 billion in cash.

Motorola drew strength from its enterprise mobility and networks units, run by fellow co-CEO Greg Brown. Both units doubled their earnings, and the enterprise mobility unit reported a 6% increase in revenue.

Motorola projected its second-quarter earnings excluding items at 7 cents to 9 cents a share.

Analysts have an average second-quarter earnings estimate of 3 cents a share.

The strong forecast suggests that the stronger mix of smartphones is leading to higher margins in the handset division. Jha has said he expects the unit to post a profit by the fourth quarter.

Motorola shares rose 4.8% to $7.25 in premarket trading.

-By Roger Cheng, Dow Jones Newswires; 212-416-2153; roger.cheng@dowjones.com
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