Motorola Inc.’s (MOT) flagging wireless business is likely to get a shot of adrenalin before the end of the year with the release of a new handset lineup based on Google Inc. (GOOG) software, according to one brokerage. Motorola shares are getting a boost from Bank of America/Merrill Lynch analyst Tai Liani, who this morning raised his rating on the stock to Buy from Neutral, setting a price target of $9, up from $7. The company is betting that it is. “People familiar with the matter” tell The Wall Street Journal that Verizon (VZ) and T-Mobile USA plan to offer Motorola mobile phone handsets running the OS by the end of the year.

Both devices are said to feature a touchscreen and slide-out keyboard and a “social communications” focus. Which sounds somewhat compelling, though it would probably be more so if the market weren’t already enamored with Palm’s (PALM) Pre, Apple’s (AAPL) iPhone 3GS and its $99 brethren, the iPhone 3G. That said, I suppose there’s always a chance that Motorola (MOT), using Android, could turn out a handset that apes those devices and returns the company to the glory days of the RAZR or at least points it in the right direction.

Merrill Lynch cites four reasons for the upgrade, most of which boil down to a belief that the company is on the verge of staging a turnaround in its troubled handset business:

• There are new handsets coming in Q4, including smart phones based on the Google (GOOG) Android operating system.
• The stock’s revenue multiple should improve as the handset portfolio shows progress. He is modeling a rebound to 8% handset market share in 2010, from 6% now, which would take the company back to 2008 levels.
• Aggressive cost controls should exceed the company’s target of $1.7 billion for this year. He expects drastic cuts in wireless infrastructure R&D spending.
• He also notes that the company’s non-handset businesses are slow growth but very profitable, and account for 60% of total sales.

MOT today is up 22 cents, or 3.7%, to $6.25.

Certainly, Motorola desperately needs something like that. A weak product portfolio has already reduced its share of the handset market to 6.5 percent, about half what it held a year ago. And with the econalypse in full swing and consumer spending declining, Motorola’s prospects in the mobile handset don’t appear very promising.

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