Motorola Must Hop on the Smart Phone Bandwagon Now

by: Ockham Research August 20, 2008 | about stocks: MOT    

Ockham Research

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Motorola (MOT) has been one of the world’s largest wireless device makers for some time now but it has been losing market share steadily. In fiscal 2006, Motorola was the second largest cell phone maker but subsequently was overtaken by Samsung (SSNLF.PK) and fell to third. This trend seems to be enduring as a report out of NPD Group finds that Motorola’s plunge continues—its market share has dropped from 32% last year to 21% currently. Although Motorola phones remain the most popular in this U.S. based survey, the results should trouble MOT management as it confronts a worrisome trend in the mobile phone market.MOT_20080819_000593

This is the third quarter in a row that has shown a year-over-year decline in cell phone sales, and this quarter claimed the lowest total sales since NPD Group began tracking this data in 2005. The 28 million cell phones sold in the second quarter represent a 13% decline from last year. However, total revenue only declined by 2%, meaning the average cost per cell phone is up 14%. Motorola’s most iconic and successful phone, the Razr, was popular largely because of its simplicity and usability.

Now consumers are increasingly looking for functionality which leads them to smart phones. Smart phones such as the Blackberry (from RIM (RIMM)) and the iPhone (from Apple (AAPL)) as a group have seen a doubling in sales over the past year. There is nothing to entice a Razr aficionado to upgrade to a new Razr because the old one works and does basically the same thing as the new one. Could it be that the market was and is so saturated with simple Motorola type cell phones that people are buying more functional devices? The data supports the fact that when people want a new device they go all the way with one of the more expensive but feature-packed smart phones.

MOT got a nice bounce when the company announced a new head of the headset division—which is soon to be spun off. There are high hopes for Dr. Sanjay Jha—formerly the chief operating officer of Qualcomm (QCOM). He is obviously well respected as the market bid the stock up 11.5% the day the company announced his hiring in early August. He will be in charge of an ambitious turnaround effort to make MOT’s products more desirable—not to mention profitable—as the headset division has been bleeding red ink. One piece of advice, instead of increasing the number of cell phone models Motorola produces—as it has this year from 40 to 50 models—would it not be better to make fewer, higher quality models? Also, MOT must get on the smart phone bandwagon and soon! Motorola would claim that the “Q” model is a smart phone but—as a former owner—I can tell you that it is little more than a camera phone.

MOT appears to be properly valued right now at around $10 per share. We have a rationally expected price range of between $9 and $14, which is essentially based on what the stock market has traditionally been willing to pay for a given level of revenue and earnings for the company. Thus, Ockham has a Hold rating on Motorola and we see nothing in either its business lines or products that excites us. MOT will need Dr. Jha to implement a winning strategy because it has dug itself into a bit of a hole in the headset business.

Related Articles

This article has 2 comments:

  •  
    Aug 20 04:19 PM
    "make fewer, higher quality models". Malcolm Baldridge, where are you? Six Sigma, TCS, etc
    The RAZR is iconic alright, JUNK. I have a drawer full of broken ones.

    what's the concern over the cell phone div anyway, it will be spun off.
    Reply | Link to Comment
  •  
    Aug 20 04:42 PM
    50 phones are coming, of course some of those are going to be smartphones, and of course at least one of them will be intended to compete with the iPhone. See the leaked info on Alexander, Atila, Napoleon (internal code names).

    And how can you have owned a Q and state it isn't a smart-phone? It most certainly is... but the original Q had issues. It's a Windows Mobile and Outlook based smartphone, not Blackberry email smartphone. That is what really hurt Q and gave it a bad reputation (Windows Mobile 5).

    Windows mobile was immature when the Q came out (crash/freeze phone reboot city), and Blackberry was really engrained for wireless email the kinks were already worked out by the time the Q was released.

    The new Q devices are better, perhaps mostly because Windows Mobile is much better now, more stable and better features. Even Blackberry email is now supported (based on an article I recently read).

    I think better advice to Motorola Mobile Devices, strive for an iPhone or better user interface... Sticking with Windows Mobile is ok as long as you can still add enough on top of it to make it easy to use and attractive... as long as Windows Mobile isn't so bloated that it makes the hardware too expensive (vs. competitors).

    Key features everyone's going to want to have in the near future... (requires a large screened phone, and data plan or wi-fi)
    Full GPS / maps / destinations
    Full web page browsing (mobile pages are lame)
    Video streaming, and uploading to the web
    -maybe- Video calls
    Reply | Link to Comment
More Comments on MOT ยป
Top Rated Comment Streams:

Numbers are net rating-

See all Top 100 »
More by Ockham Research

Investment Resources
Money Management
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Cell Phones
Digital Cameras & Printing
Digital Home
DVDs