Motorola, Inc. (NYSE:MOT) shares fell over 20 percent today after the company posted a disappointing operating loss in the current quarter due to continued weakness in its cell phone business. The mobile device maker warned of further market share losses this quarter and backed off its forecast for its mobile devices division to return to profitability during 2008. Shareholders are now questioning whether the company will be able to pull itself out of its current downward spiral and turnaround its cell phone business at all.

The news is likely to disappoint activist investor Carl Icahn, who has amassed a four percent stake in the company. The billionaire investor continues to insist that Motorola shares are undervalued with the cell phone business showing no value at all. As a result, he contends that the company should spin-off the cell phone business from the rest of the businesses in order to unlock value for shareholders. Unfortunately, now may not be the best time as a turnaround is expected to take much longer.

However, Motorola’s cell phone business may prove difficult to turnaround. They are losing market share, which makes them smaller, which makes them less competitive on costs, which makes their phones less compelling, which loses more market share. In other words, the company is likely to see its margins on cell phones shrink, which may force it to raise prices. This will only cause problems, particularly in our current economic condition where consumers are pinching pennies.

Right now, Motorola executives say they are focused on cutting costs and getting the mobile devices business back to profitability. Meanwhile, shareholders may be beginning to regret not putting Carl Icahn on the board of directors when they had the chance not long ago. For now, they will have to remain content and deal with a dropping share price.

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