Something amazing is happening at cell-phone maker Motorola (NYSE:MOT). Actually, two amazing things. First, the company is finally getting some respect from Wall Street for turning around its business and producing big, heaping piles of cash, quarter after quarter. That's one story. Perhaps the more interesting story, however, is how Motorola is going about achieving its success: by taking the low road to profits.

As fellow Fool Alyce Lomax pointed out back in September, Motorola has undertaken the dangerous move of undercutting its rivals -- from top-of-the-line Nokia (NYSE:NOK) to the el-cheapo-but-quality phone makers in Korea and Japan -- on price. Although Motorola has certainly enjoyed success with its line of pricey Razr phones, its real claim to fame in recent months has been its move to offer supercheap cell phones to the masses.

In preparing today's Foolish forecast for the company, my first stop was to check in on Motorola's margins picture. I began my research by looking at gross margins -- the sales Motorola makes, minus the costs it incurs to manufacture the goods it is selling. That's what first clued me in to just how wide-reaching was Motorola's plan to compete on price. Searching back as far as December 2003, I found that in every single quarter save one (October 2004), the company has posted worse gross margins than it did in the previous year's quarter.

Imagine my surprise, then, when halfway toward penning a piece castigating Motorola for sacrificing its business for the sake of market share, I saw this:

10/05

7/05

4/05

12/04

10/04

7/04

GM

32.4%

32.6%

32.7%

33.6%

34.4%

34.5%

OM

12.6%

11.4%

10.6%

11.9%

10.2%

10.0%

Net

18.6%

10.6%

8.5%

7.4%

6.4%

(2.7%)
GM = Gross Margin. OM = Operating Margin.
Data courtesy of Capital IQ, a division of Standard and Poor's.

The results here are truly amazing. Ordinarily, when a company's gross margins fall -- meaning that it makes less profits on its sales -- the amount of profits remaining to fall toward the bottom line of the company's income statement also declines. But that's not the case at Motorola. On the contrary, it seems that the more its gross margin contracts (and the more goods it sells), the more pure profit falls to the bottom line. The secret appears to lie in that middle line: operating margins. Motorola is controlling its costs for research and development and for administrative expenses. As a result, profits from each incremental sale are falling unimpeded to the net-income line.

That brings me to the point of this column: When Motorola reports its earnings after the market closes on Thursday, you should focus on its operating costs. So long as the company keeps those locked down, this success story should continue.

There's plenty more to know about a big business such as Motorola. Read all about it in:

Foolcontributor Rich Smith ownsshares of Nokia but not of any other company mentioned in this article. The Motley Fool has a disclosure policy.