Novice Investing - Finding A Mojo at Motorola

Date: Friday 09th 2008f May 2008 02:38:13 PM

Finding A Mojo at Motorola - 03/06/2008

By: Hari Wibowo

Having seen its shares pumelled in the single digits, Motorola Inc. (MOT) needs to figure something out fast. So do investors' patience. Motorola shares is back to where it was in the 2003. Will Motorola shares visit $ 8 per share ever again? It is dangerously turning so. Despite that, let's dig out Motorola's latest annual report to analyze the company further.

Most people will know Motorola for its handset division, which makes widely popular Motorola phone such as the Razr. However, Motorola has some other businesses that are worth considering. As of 2007, Motorola divided its business into three segments; Mobile Devices, Home and Network Mobility and Enterprise Mobility Solution.

Based on Motorola's annual report, Mobile Devices designs, manufactures and sells wireless handsets with integrated software and its accessories. In other words, the Razr phone belongs to this category. Meanwhile, Home and Network Mobility is related to the design and manufacture of digital video Internet Protocol, broadband access infrastructure system and others. Finally Enterprise Mobility Solution is connected with digital two-way radio, voice, data communication products and so forth. If you told me what this is, I have no firm idea. Anyway, the table below shows revenue comparison for each segment:

Revenue	Mobile Device	Home & Network	Enterprise Mobility
Year 2006	$ 28.4 Billion	$ 9.2 Billion	$ 5.4 Billion
Year 2007	$ 19.0 Billion	$ 10.0 Billion	$ 7.7 Billion
Increase/Decrease	- 33%	+ 9%	+ 43%

Things doesn't look good on the mobile device segment. Intense competition for wireless handset, has shaved 33% of Motorola's revenue. That is a huge number of revenue. Other business segment fared better with revenue growing decently compared to 2006. Still, Mobile Device is

Motorola's core business. And at one point in 2007, there were reports that Motorola is exploring the possible sale of its mobile device division. Many have said that this division can fetch $ 5-$ 10 Billion but it will leave Motorola with nothing much left. Essentially, Motorola mobile device is what makes it Motorola. The brand name has stuck in the mind of consumers and spinning off to a new entity will only make its struggle even more.

Having said that, what can be done to fix Motorola's mobile device business? There is no way out for Motorola other than fixing its mobile device business. A 33% tumble in revenue of such a big business requires a very big misstep in their execution. Apparently, Motorola still couldn't find a big hit after its success with the Razr. However, the fact that it can't produce any other decent phones is puzzling. This shows its huge reliance on Razr phone sales. But we feel that if Motorola can produce several decent mid to high end phones, it should do well. For low end phones, as long as it has all the basic features and comparable price, Motorola should do well in that segment. Product selection perhaps has not been given the most attention by Motorola

With its current share price in the single digit, Motorola is valued at $ 22 Billion. Back in 2005 and 2006, Motorola can book in a net profit of $ 4.58 Billion and $ 3.66 Billion respectively. That would double current market valuation. However, its mobile device division is struggling mightily. At this point, the drop in Motorola shares is warranted. Investors can only bet that Motorola can turn this business around if they would like to get a good return on their investments.

END

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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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