Motorola Inc. swung to a loss in the second quarter on a 40.2 percent drop in revenues in its mobile devices unit due to poor handset sales. The Schaumburg, Ill.-based company also announced plans for $1 billion in cost-cutting and layoffs in 2008.

Motorola's loss was expected after the company last week warned that it would not meet its original second-quarter forecast of $9.4 billion in sales, and would post a loss.  

The company did not provide specific guidance for the third quarter but said it expects earnings per share to be “flat to slightly up” compared to second-quarter earnings.  Analysts are more optimistic, with an average earnings estimate of 5 cents per share in the third quarter, according to Bloomberg LP.

The company’s net loss for the quarter ended June 30 was $28 million, or 1 cent per diluted share, compared with net earnings of $1.4 billion, or 55 cents per diluted share, a year ago. The results were worse than the 1-cent-per-share gain that analysts had forecast after Motorola revised its outlook July 11.

Second-quarter sales fell 19.3 percent to $8.7 billion compared with $10.8 billion in the year-ago period, as demand for Motorola handsets declined, particularly in Asia, and in the Europe, Middle East and Africa region.

For the full year 2007, Motorola no longer expects its mobile devices unit to be profitable. The company’s market share in that segment has dropped substantially to 13.5 percent in the second quarter from 22.1 percent a year ago. The unit’s sales fell to $4.3 million from $7.1 million a year ago.

At the same time, the company’s home and networks mobility sales grew 9 percent to $2.6 million from $2.3 million a year ago.  Its government and public-sector mobility sales jumped 42 percent to $1.9 million from $1.4 million.

While Motorola’s consumer and business mobility solution segments performed well, analysts say the company must revitalize its handset portfolio to restore profits.

“Motorola’s fortunes in recent years have been dictated by the health of its mobile devices business, which represents more than 50 percent of the firm’s sales,” John Slack of Morningstar Inc. in Chicago said. “We see no quick fixes for Motorola, but we do believe it can emerge from its troubles a stronger company.”

Motorola President and Chief Operating Officer Greg Brown says the company is continuing to invest money in the design and engineering of mobile devices.

“We are really prioritizing and optimizing the [research and development] that’s there,” Brown said. “We are very careful and pragmatic not to cut meat into the bone and not to sacrifice the very product portfolio that’s critical to our recovery.”

 For the first six months of the year, Motorola reported a loss of $209 million, or 9 cents per diluted share, compared with earnings of $2.1 billion, or 82 cents per diluted share in the first half of 2006. Sales fell 11.2 percent to $18.2 billion from $20.5 billion in the first two quarters of 2006.

Motorola shares were up 22 cents, or 1.2 percent, to $18.22 at the close of trading Thursday.