Novice Investing - No Mojo for Motorola

Date: Sunday 20th 2008f July 2008 12:52:59 PM

No Mojo for Motorola - 03/22/2007

By: Novice Investing Staff

When you missed revenue by $ 1 Billion in a span of two months, things must be awfully wrong. For the first quarter ending on March 2007, Motorola Inc. (MOT) now forecasts revenue of $ 9.25 Billion versus $ 10.5 Billion previously. As a result, Motorola now expects to incur a loss of 8 cents per share. Back in January, Motorola too reduce its revenue estimate for the quarter. Therefore, business seems to deteriorate faster than the company's initial guidance back in January. Shares currently trade close to its 52 week low at $ 17.82 per share.

Since, introducing the widely popular Razr, Motorola has been having trouble duplicating Razr's success. In 2006, Motorola gained market share but Chief Executive Ed Zander reiterates that Motorola is going to focus on profit at the expense of market share. Back in 2004 when Zander took over the reign, Motorola is in similar situation where the company was losing market share and not producing any profits.

Motorola balance sheet is also cleaner than the 2004 era where now it spot a $ 12 Billion positive net cash ( $5.02 per share). In the beginning of 2004, Motorola has 'merely' $ 1 Billion of positive net cash. Operating cash flow had also increased substantially from $ 1.99 Billion in fiscal year 2003 to $ 3.48 Billion in fiscal year 2006. Clearly, prior to this announcement, Motorola has thrived under Zander.

Where is Motorola going next? That is hard to judge. EPS for 2005, 2006 is $ 1.79 and $ 1.30 respectively. If EPS can come in at $ 1.79 (which will not be achieved in 2007), Motorola has a fair value of $ 26.4 per share. Missing $ 1 Billion of revenue estimate within two months is the main problem here. We expect things to get worse before it gets better. The next few quarters will be crucial for investors. The good thing is that Motorola share price had been hit in recent months, which may present buying opportunity should the business rebound.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Motorola Inc. (MOT) or any other securities.

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