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 its slow turnaround in the competitive smartphone market.

Motorola, which previously warned of weaker phone shipments in the first quarter, said total shipments fell 43% despite an increase in smartphone sales. The drop comes as the company shifts its focus away from feature phones, which have a lower price tag and aren't as profitable as smartphones.

The results highlight co-Chief Executive Sanjay Jha's efforts to remake the business to rely largely upon the faster-growing smartphone business for earnings and revenue growth. But it also underscores the risk that he faces as Motorola goes up against a flood of alternative smartphone makers with their own high-profile products. While Motorola benefited from the heavy push that the Droid received from Verizon Wireless, it is unclear whether the company will be able to repeat its success with future devices.

Jha remains upbeat, calling for higher sequential sales of smartphones in the second quarter and backing his expectations for the mobile division to post a profit by the end of the year.

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

Motorola put its second-quarter earnings excluding items at 7 cents to 9 cents a share, suggesting that the company will continue to benefit from a stronger mix of smartphones and higher margins. Jha pointed to the second quarter as a bottom for the decline in feature phone sales.

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.

Motorola shares rose 3.4% to $7.16 in recent trading.

Jha won't have the benefit of the network and enterprise units when Motorola completes its split, expected to occur in the first quarter of next year. In addition to the handset division, which posted a 9% decline in revenue and an operating loss of $192 million, Jha will get the 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.

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.

Jha said he drew his optimism from conversations with Motorola's wireless carrier partners and the commitments he has received. He declined to comment on whether the company would enjoy another Droid-like push from a carrier this year.

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.

Business spending is coming back and benefiting its enterprise mobility unit, Brown said in an interview.

"The recovery is taking hold," he said.

The networks business is also seeing demand as carriers feel the pressure to upgrade their infrastructure to handle the exploding wireless data traffic, he added.

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