By now, you've heard the news: Motorola (NYSE:MOT) surprised the Street and earned a penny in profit last quarter.

Except that it didn't.

According to this morning's press release, Motorola earned $0.01 per share on $5.5 billion in sales in the second quarter of 2009. That sales number's down 32% from last year's Q2. The profit number is up, but only by virtue of a series of "one-time" charges and benefits: $0.04 per share charged off for impairments and the costs of reorganization (layoffs and such).

Those losses are counterbalanced by $0.06 per share in gains from a legal settlement, tax benefits, a reserves adjustment, and gains from the firm's in-house cash management vehicle, the so-called "Sigma Fund." Absent these one-time events, the company would have lost a penny for the quarter.

Now that we've put that fallacy to rest, let's review the rest of the damage:

  • Motorola's Home and Networks Mobility division turned in the strongest earnings performance for the quarter ("strongest" being a relative term). Sales declined 27% year over year, while operating profit dropped 38%.
  • Enterprise Mobility Solutions took second place, with a 17% sales decline causing a 40% slide in profit.
  • Last and least was the firm's ailing Mobile Devices division, where sales plummeted 45%, and caused an actual loss for the quarter. 27% less of a loss than in last year's Q2, but a loss nonetheless.
  • Companywide, free cash flow was flat against the year-ago quarter, with the result that Motorola still burned through nearly $900 million in cash flow over the last 12 months.

This last division (the one that makes cellphones by the way) now holds less than a 6% market share globally, putting it in a virtual dead heat with LG and Sony's (NYSE:SNE) Sony-Ericsson joint venture in the race for third place. Samsung and Nokia (NYSE:NOK) occupy the next two higher rungs, with Research In Motion (NASDAQ:RIMM) and Apple (NASDAQ:AAPL) the next two lower -- but unlike Motorola, they actually produce healthy profits on their phones.

Foolish takeaway
Taking the news as a whole -- the illusory profit, the staggering declines in sales, and Motorola's dwindling position in the cell phone industry -- I have to wonder why investors thought today's report was reason to bid the stock up 8%. To me, it's getting harder and harder to make an attractive sales pitch to potential buyers of the cellphones division.

And the longer Motorola puts this off, the more money it loses.

So what do you think, Fool? Will Motorola be able to hock its cell phone division before the cash runs out? Or alternatively, can it recharge the division and make it good as new? Weigh your thoughts, then post your comments below.

Of course, this isn't all Motorola's fault:

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Fool contributor Rich Smith owns shares of Nokia. Apple is a Motley Fool Stock Advisor pick. Nokia is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.