Motorola Mobility (NYSE:MMI) is well-known for its mobile phones, and also recently entered the tablet market with the launch of the Xoom tablet. The company competes with players like Apple (NASDAQ:AAPL), Research in Motion (NASDAQ:RIMM) and Nokia (NYSE:NOK) in the mobile phone market. However, the Xoom tablet will pit Motorola Mobility against a slew of tablet players like Samsung, Dell (NASDAQ:DELL) and LG, in addition to Apple and RIM.
Below we highlight three key trends that will go a long way towards driving Motorola Mobility’s value in the years to come. We maintain a $25.45 price estimate for Motorola Mobility stock, implying a roughly 5% premium to market price.
Smartphone Market Growth
Motorola Mobility started selling smartphones in October 2009 with the introduction of the Droid. Then, in 2010, the company introduced more than 20 smartphones. Although Motorola’s market share is still declining, the company benefits from higher pricing and higher gross margins associated with smartphones.
The overall smartphone market growth is the most important catalyst for Motorola. Motorola’s profits will keep improving as long as the smartphone market grows faster than the overall mobile phone market. According to market research firm IDC, the smartphone market grew by around 75% from 174 million in 2009 to 303 million in 2010.  This is well ahead of the overall mobile phone market, which grew at 18%, from 1.17 billion in 2009 to 1.39 billion in 2010. 
Android Becoming the Dominant Mobile Operating System
Motorola Mobility manufactures most of its smartphones on Google’s (NASDAQ:GOOG) Android OS. Android has been able to gain substantial market share in the smartphone OS market over the past year.  While the increasing popularity of Android benefits players like Motorola Mobility, it does risk making Motorola’s smartphones a commodity as Motorola loses control of operating system developments and innovations. Innovation is an important aspect of the smartphone industry and a critical factor in the success of players like Apple.
Fast Tablet Market Growth
According to IDC, the tablet market could grow rapidly from around 17 million in 2010 to 45 million in 2011, and then to 71 million in 2012.  Motorola recently entered the tablet market with the launch of Xoom, the first tablet on Android’s version 3.0, Honeycomb, which was specifically designed for tablets.
The platform includes attractive features like support for big screens (7 inch to 9 inch), a totally new user interface, extensive multi-tasking and multiple home screens. The tablet market growth prospects are a huge benefit to Motorola Mobility – tablets account for 20% of the company’s stock value by our estimates, even though the company only recently entered the tablet market.Notes: