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In order to gain traction in the hardware market, Google Inc.’s Motorola Mobility introduced its new smartphone, Moto X, which is expected to be released in the U.S. by the end of this month. Following the news, Google’s share price surged 1.86%.

Moto X is the first smartphone designed by Motorola since it was acquired by Google. Powered by its Android OS, Moto X will come with a 4.7 inch display, better screen resolution, a camera designed for a quick boot-up and a better battery life.

Features in the Moto X include design customization options whereby users can personalize their handset with their choice of colors and materials. It also has a Touchless Control feature, which uses Google Voice to add voice-recognition capabilities and turns on the phone even without touching.

The phone will cost $199 with a two-year contract and be available on all four major U.S. carriers and US Cellular.

Google had bought Motorola for $12.5 billion in 2012 and stated that it would continue to run as a separate unit, with its phones based on the Android OS. The deal was the biggest in its 13-year history and propped up Google’s portfolio with more than 17,000 patents. To Google’s misfortune, Motorola has been continuously losing market share to its competitors and has been unable to regain it.

In the last couple of years, the once-significant cell phone maker, Motorola Mobility, fell behind in the competitive smartphone market, which is now dominated by Apple Inc’s (AAPL - Analyst Report) iPhone and Samsung’s Galaxy range, which runs on Google’s Android platform.

According to a report by research firm IDC, Android and Apple’s iOS operating systems together held approximately 92.3% of smartphone market share in the first quarter of 2013. Moreover, Apple and Samsung together hold a 62.2% share of the U.S. smartphone market, while Motorola has a mere 7.8%, which was down 7.1% from the prior quarter.

As a result, it becomes important for Motorola to introduce competitive products that can address the needs of its target market. We believe that the Moto X features position the phone at the lower end and expect Google to come up with better versions as time goes by.. At any rate, Motorola still has some way to go to retain its lost glory.

Google is a market leader in online advertising and its mobile strategy has been bang on target so far. Its Android OS has gone a long way toward cementing its position in the mobile segment.

However, the Motorola hardware segment has not done well. In the last quarter, the segment was down 2.0% sequentially and accounted for around 7% of revenues. Management did not say much about Motorola’s future plans.

Google currently carries a Zacks Rank #5 (Strong Sell). Stocks that have been performing well in its sector and are worth considering include Earthlink (ELNK - Snapshot Report) and Facebook (FB - Analyst Report). While Earthlink carries a Zacks Rank #2 (Buy), Facebook carries a Zacks Rank #1 (Strong Buy).

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