Moto’s momentum checked in Q3

Cracks in Motorola’s armor appeared this week, as the handset and infrastructure vendor continued its upward sales trajectory and reclaimed more global phone share but fell short of its revenue guidance and saw its profits fall 45%.

Motorola recorded Q3 revenues of $10.6 billion, $500 million short of its own guidance, though still a 17% increase over last year’s third-quarter sales. Profits fell from $1.75 billion last year to $956 million last quarter, but much of that shortfall was expected because of discontinued operations and other one-time expenses.

Given that Motorola has recorded quarter after quarter of continued growth, mainly from its handset division, Wall Street took the news in a bad way, sending Motorola’s share down 7% in after-hours trading Tuesday, though the stock recovered slightly this morning. Motorola, however, still showed every sign of growing, particularly in its handset division. The vendor estimated its phone market share increased to 22.4% in the three months ending in September, up slightly from 22.4% in the second quarter and from 18.6% a year earlier. Its global handset shipments also increased to 53.7 million—yet again a new shipping record.

But there were even some disappointments on the handset side. CEO Ed Zander said that iDEN handset sales have fallen as Sprint and other customers reduced its inventory in expectation of new dual-mode iDEN/CDMA phones in the fourth quarter. Zander added that sales pressures are coming from Europe, where its RAZR line is facing off against newer 3G handsets. Motorola has yet to release a UMTS version of its popular RAZR device, which has now shipped more than 50 million units, but Zander said one is under development, and Motorola also plans a high-end multimedia-centric device called the RAZRMaxx, which will have both UMTS and high-speed downlink packet access support. Overall, however, Q3 handset sales increased 26% to $7 billion.

Networks and enterprise sales stayed steady year-over-year at $2.7 billion, but operating profits were down from $465 million to $365 million because of business reorganization charges from the merger of the networks and enterprise business units and poorer performance in Europe, where Motorola said carriers are holding off on GSM investments. Motorola, however, may seem some significant sales gains in this division in the coming years. It acquired Symbol Technologies for $3.9 billion, creating an instant enterprise business. It also partnered with Chinese vendor Huawei for a UMTS joint venture, which may spur sales in its lagging 3G business.

Most significantly though, the company, along with Samsung, landed a contract with Sprint to build out a multi-billion-dollar Mobile WiMAX network and next year expects to begin recording its first revenues off of the new technology.