Diversified communications hardware company Motorola (NYSE: MOT), the world's No. 2 mobile phone maker, announced an agreement today with electronic manufacturing services (EMS) company Celestica (NYSE: CLS) as part of its ongoing efforts to outsource its manufacturing. The deal includes the sale of two of Motorola's factories to Celestica, which will manufacture about $1 billion worth of mobile phones, pagers, and other products and equipment for Motorola over the next three years.

Today's agreement follows a much larger deal the company signed with Flextronics (Nasdaq: FLEX) in May. Outsourcing manufacturing to an EMS is generally a good move for a company like Motorola, as it allows the company to unload heavy assets, such as manufacturing plants, and focus on product design and sales, while letting the EMS do the dirty work of actually making things. Previously, Motorola has indicated that it wants to outsource 35% of its manufacturing this year and 50% by next year. Ideally, the cost savings brought about by contracting with an EMS enables a company to sell the same products at higher margins.

Motorola's mobile phone margins
Did someone say margins? The market is practically obsessed with the operating margin of  Motorola's handset business, as shareholders know all too well. Shares of the Schaumburg, Illinois-based company fell hard in early October when Motorola announced that mobile phone operating margins would not reach 10% by the fourth quarter, its previously announced target.

As a result, today's move by Motorola is certainly necessary for the company and may improve its manufacturing efficiencies. But it's hardly enough to give the market faith in the company's mobile phone business.

New phone sales
Motorola is still recovering from some mistakes it made earlier this year. The company got hammered when many first-time mobile phone buyers bought cheaper models from competitors, forcing the company to cut prices on its higher-end phones. In addition, in Europe the company essentially missed the low-end market for GSM phones, and suffered precipitous sales drops.

As a result, Motorola needs to design new, successful products as much as improve its manufacturing efficiency. The company's V-Series and Timeport models at least represent an overdue shift from the dull designs that worked for Motorola's business customers several years ago. Nevertheless, Motorola's mobile phone sales growth has been slower than the overall handset market's growth in recent quarters, slumping to only 4% in the third quarter.

Early last month, a Motorola executive told Reuters that the company is putting profits ahead of market share, and argued that that's what the stock market wanted. Presumably, today's announcement is part of that effort to increase profitability. But unless the company can reverse its earlier mistakes and develop some popular phones, greater profitability on slumping sales is unlikely to thrill most investors.