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Motorola's Smartphone Strategy is Paying Off

Motorola ( MOT ) recently announced third quarter earnings that highlighted that it continues to benefit from its push in to the smartphone business. This is a positive development for Motorola which has lagged smartphone competitors like Apple ( AAPL ), RIM ( RIMM ) and Nokia ( NOK ). With 22 new smartphones models launched since the beginning of the year, smartphones now represent 42% of the total mobile phone unit sales for Motorola.

Due to a greater smartphone sales mix and better profitability, we've updated our Trefis price estimate for Motorola's stock from $8.39 to the $9.08, about 13% above the current market price.

New Models Drive Smartphone Sales

Motorola's smartphone unit sales mix increased from 27% in Q1 2010 to 42% in Q3 2010. We attribute this jump to the rapid introduction of new smartphones, including 12 new models launched last quarter - Droid Pro, Citrus, Bravo, Flipside, Milestone 2 and Defy.

Sales Mix and Gross Margins Lift Forecast

Due to Motorola's increasing smartphone focus, the company's average mobile phone pricing has increased significantly from $130 in 2009. The average price for Motorola mobile phones was $205 in Q2 2010 and increased to $224 in Q3 2010. As a result, we now expect an average price of $214 for the full year 2010.

We forecast Motorola's mobile phone prices to increase gradually to $236 by 2014 before starting to decline steadily. We believe that though a higher smartphone mix will increase the average blended mobile phone price in the near term, declining prices in smartphones will lead to lower average mobile phone prices following 2014 as represented in the chart below.

In a less conservative scenario, if average prices increase further to reach $275 by the end of Trefis forecast period, we believe that this adds an additional 5% to Motorola's value.

Motorola's mobile phones gross margins also benefited from the improved sales mix increasing from around 28% in Q2 2010 to around 31% in Q3 2010. We now expect gross margins to be around 29% for 2010 and reach a peak of around 36% by 2014 before declining to 34% by the end of Trefis forecast period.

You can see the complete $9.08 Trefis Price estimate for Motorola stock here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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