By Scott Moritz

Motorola, the flailing No. 3 mobile phone maker, is dropping like a lead handset in industry rankings.

Skipping the No.4 slot, Motorola (MOT) is set to land at the back of the pack at No. 5, according to second quarter shipment numbers. Motorola shipped between an estimated 22 million and 23 million phones in the second quarter, say industry sources cited in a DigiTimes story Thursday. Those numbers compare with projections for 28.1 million phones shipped by LG and 24 million units from Sony Ericsson. Nokia (NOK) and Samsung are No. 1 and No. 2.

The stunning freefall in sales is happening at a faster clip than many observers expected. In March, Fortune.com reported that if Motorola’s weak sales trends continued, the Schaumburg, Ill.-based tech titan could fall to fourth place by year end.

Without any compelling new phones to followup on the Razr’s success, Motorola has been in free fall the past two years. The once-profitable handset unit, and formerly Motorola’s strongest business, lost half its marketshare since 2006 and plunged into the red. Earlier this year, Motorola announced plans to cut its losses and spin off its phone business. Even a recent headhunting mission to find a new CEO turned somewhat laughable when the targeted Hewlett-Packard executive announced that he was quite happy in his current job.

Motorola is expected to report second quarter results on July 31.

By Scott Moritz

Motorola’s (MOT) tailspin is looking more like a nose dive as the mobile phone maker’s market share dips more than 50% below its 2006 level.

At this rate, Motorola is on track to fall to the back of the five-player pack this year as its first-quarter phone sales fell to 29.9 million units. The slip gives Motorola a 10.2% share of the total cell phone market, down from 18.4% a year ago, according to a Gartner research report Wednesday.

Motorola’s phone business has tumbled since the Razr phone fell out of fashion in 2006. The company plans to spin off the money-losing business to shareholders sometime next year. And it’s little wonder why. The former top phone maker has seen Nokia (NOK) and Samsung take the No.1 and No.2 spots in the indusry. And Motorola’s time as No.3 seems limited - LG is hot on its heels with 8% of the market, up from 6.2% in the year-ago period.

So far, the new phones Motorola has introduced “were not competitive enough to maintain its place in the market,” says Garnter’s Carolina Milanesi.

Smaller fish, tougher pond

Despite a big fourth quarter, Sony Ericsson also fell, to 5th place with 7.5% of the market in the first quarter, according to Gartner. Part of the drag on Sony Ericsson was a drop in demand for middle-to-higher priced phones in Europe. Gartner says first quarter sales for all phone makers fell 16% below year-ago levels in Europe. This is the first drop in sales Garnter has ever recorded in the past 7 years of tracking the mobile phone market.

Overall, Gartner says the industry is still on track for growth between 10% and 15% this year thanks to strong demand in developing markets. That demand doesn’t completely offset declines in Europe, however, since it’s mostly for lower priced phones. So the higher volume growth will come at a lower total value, says Gartner.

“The value of the market will be lower than we stated in our forecast,” says Gartner’s Milanesi in a press release. “This is because the current economic slowdown and higher fuel costs will force consumers to defer phone purchases in mature markets, while higher food prices will lead to longer replacement cycles in emerging ones.”

So if Motorola had troubles before the spending crunch, imagine how the phone shop will fare now.

By Michal Lev-Ram

Is Motorola really considering getting rid of its cell phone business? Don’t count on it — at least not anytime soon. Despite mounting pressure from activist investor Carl Icahn to sell or spin off the money-losing division, the company still seems convinced it can revive the once high-flying division.

Since January, when it issued a vaguely-worded statement that it would explore “the structural and strategic realignment of its businesses,” Motorola has been been signaling it intends to hold on to the handset unit.

Case in point: At a recent Morgan Stanley technology conference, Motorola (MOT) chief executive Greg Brown said the key to a turnaround will be led by a new and improved lineup of phones.

“At the end of the day, I think that the recovery of that business will be primarily product portfolio led,” Brown said, adding that he is focused on bringing out a wide range of new devices across “different technologies, geographies, price points and tiers.”

Brown also told his audience that he is actively searching for an executive to run the company’s mobile devices business. “We want someone steeped with experience, ideally having some technology familiarity or orientation,” he said.

Brown himself has been running the handset unit since early February. The CEO says he now spends about 80% of his time on the division, which posted a fourth-quarter operating loss of $388 million in January

Some industry insiders say they’re not surprised.

“Their message has consistently been that they were going to fix it themselves,” says Robert Laikin, CEO of cell phone distributor Brightpoint (CELL). “I never thought they were going to sell it.”

Others say Motorola tried selling its mobile devices unit but couldn’t find any takers. According to recent reports, both LG and Sony Ericsson have said they are not interested in buying the cell phone business.

In the meantime, Icahn raised his stake in Motorola to 6.3%, up from 5%. Gearing up for the company’s annual shareholder meeting in May, Icahn is pushing to put four favored executives on the phonemaker’s board, including Keith Meister, who manages the shareholder’s various businesses. Icahn has said his proposed directors will “assist Motorola” in executing the company’s “long over due decision regarding the separation of its mobile devices business.”

Motorola has asked its shareholders to reject Icahn’s nominees. A company spokesperson also said Motorola continues to evaluate its options in regard to the cell phone business.

It’s clear Brown is trying to buy more time to clean up the mess himself. If the company’s mobile division is able to show signs of improvement, that will make it more attractive to potential buyers or partners. Then again, if Brown manages to revive the cell phone unit business himself, why he would want to get sell off his fixer-upper is finally starting to show signs of life again?

Either way, Motorola’s CEO acknowledges it could take into 2009 for the company to get back on track. By then, other phonemakers — including Nokia (NOK), Samsung, Sony Ericsson and LG — could continue to eat away at what’s left of Motorola’s worldwide and U.S. market share. As for Icahn, you can bet he’ll keep agitating.

By Michal Lev-Ram

LAS VEGAS — While Korean mobile phone manufacturers LG and Samsung Electronics made significant headway in mobile sales last year, they’ve come empty-handed to the Consumer Electronics Show, a showcase for companies to introduce their hottest new gadgets.

Ehtisham Rabbani, vice president VP of product strategy and marketing for LG’s mobile phone business, said cell phone sales rose 28 percent in 2007 but he was vague about what new mobile gadgets consumers could expect to see in 2008.

“We plan to keep doing what we’ve been doing in 2007,” says Rabbani.

Samsung, meanwhile, will unveil plenty of consumer electronics like Wi-Fi enabled HD video camera and new flat screen televisions in Las Vegas, but the only “new” phones were new only to the U.S. market as they’d already been introduced in other countries.

In 2007, LG — the fifth largest mobile phonemaker — unveiled two new touchscreen devices, the Venus and Voyager. Samsung, meanwhile, overtook Motorola (MOT) as the No. 2 cell phonemaker in the world late last year behind Nokia.

“Samsung gained a lot this year partly because Motorola has been doing so poorly,” says Tina Teng, a wireless analyst with technology research firm iSuppli. “It’s a big win for them.”

Teng says that in addition to Samsung benefiting from Motorola’s recent poor performance, the Korean company also prospered by concentrating on mid-to-high range handsets to gain market share in a highly profitable segment. She says Samsung is now the No. 2 player in the European market — Nokia’s (NOK) home turf. Key to Samsung’s success there has been stylish, multimedia-centric mobile phones.

Both Korean phonemakers could have an advantage over Motorola in the fast-growing Indian market because they already have brand recognition in that country due to their lines of household appliances like refrigerators, televisions, and washing machines.

While Samsung’s market share has been growing in Europe and Asia, it has yet to have a big hit in the U.S. market. And LG, while strong in sales of CDMA phones sold primariy in the U.S., Japan and Korea, it’s weak in development of the GSM phones used in most countries.