Motorola enacted a strategic split earlier this month. The two
new companies include Motorola Mobility (
) and Motorola Solutions (
). Motorola Mobility consists of mobile phones, digital TV boxes
and broadband modems, while Motorola Solutions primarily features
radio and other security devices for government and commercial
clients. In light of the recent announcement, we are launching
coverage on the two companies.
Updates to Our Forecasts
Our analysis contains historical gross margin estimates for both
Motorola Mobility and Motorola Solutions. For example, we had
previously estimated the gross margins for Motorola's mobile phone
business as 29% for 2010; we now estimate it to be around 24% for
2010. We have also updated indirect expenses like SG&A,
R&D, Capex, etc. based on the new information. All in all, we
have arrived at a
price estimate for Motorola Mobility stock, well below market
price. Our price estimate for Motorola Solutions stands at
, roughly 10% below market price.
Upside Scenario for Motorola Mobility Stock
Since our price estimate for Motorola Mobility stock is well
below market price, we examine here a potential upside scenario for
the company. In the past, Motorola has faced stiff competition from
), Research in Motion and Nokia (
) in the mobile phone market, causing its market share to
decline from 22% in 2006 to around 4.5% in 2009. We estimate this
number declined further to 2.4% at year end 2010.
These are not good signs for Motorola, which has tried to change
its fortunes by introducing a flurry of smartphones in 2009 and
2010. The iPhone launch on Verizon's network, which will start
selling on February 10th, could be another problem for Motorola.
Aside from putting further pressure on Motorola's market share, the
development could also force the company to increase marketing
expenses to compete (See
Can Motorola's Mobile Business Keep Pace in
). We project that the company's market share will continue to
decline to around 1.5% by the end of our forecast period. However,
if Motorola could withstand these competitive pressures and
maintain its market share at 2010 levels of around 2.4%,
there could be an upside of around 25% to our price estimate for
Motorola Mobility stock.
To achieve this upside, Motorola Mobility will have to sell more
mobile phones than projected in our base estimate. As Motorola has
increased focus on smartphones, potentially higher smartphone sales
could also prompt upside in average pricing and, consequently,
In addition to the market share scenario described above, if
Motorola manages to increase its average phone pricing to $300 by
the end of our forecast period (vs. our base projection of $227)
and gross margins increases to 38% (vs. our 30% estimate) our price
estimate for Motorola Mobility stock will approach the current
You can see the complete $19.32 Trefis Price
estimate for Motorola Mobility stock here.
You can see the complete $33.33 Trefis Price
estimate for Motorola Solutions stock here.
Register to win a free iPad. Visit our home page