The low-end category of the mobile phone industry is known as feature phones, while smartphones represent the high-end. Feature phones offer a low cost option, albeit with far less computing power than smartphones. Some providers, like Nokia (NYSE:NOK) and Motorola Mobility (NYSE:MMI), made a name for themselves in the feature phone category but then shifted focus towards the high end. Others, like Research in Motion (NASDAQ:RIMM) and Apple (NASDAQ:AAPL), jumped straight into the deep end and have maintained a steady focus on smartphones.
Mobile phone companies are continually placing more emphasis on high end smartphones. Why? Besides the obvious rise in consumer demand for smartphones, manufacturers earn a higher profit margin on this business. Here we take a closer look at the case of Motorola Mobility, and the rising importance of smartphones to its operations.
We currently maintain a $25.45 price estimate for Motorola Mobility stock, in line with market price.
Smartphone Growth Exceeding Expectations
IDC anticipates that the smartphone market will grow more than 4x faster than the overall mobile phone market, with 50% growth in 2011. [1] This is obviously no new trend, as the smartphone market grew about 75% between 2009 and 2010 (from 174 million units to 303 million). [2]
Smartphones Lifting Company Profits
Motorola is an interesting example of how the introduction of smartphones in 2009 revived company fortunes. In 2010, the company turned operating losses for its mobile phone business to profits after three long years. [3] Its gross margins also jumped from around 10% in 2008 to 24% in 2010.
Below we illustrate the trends in mobile phone and smartphone units sales by Motorola since Q4 2009. [4] The charts below highlight the increasing importance of smartphones to the mobile phone operations of established players like Motorola. As it stands today, mobile phones represent 25% of our $25.45 price estimate for Motorola Mobility stock, the largest contribution from any single product line.
Recall, Motorola Mobility spun off from Motorola in January 2011.
Mobile Phone vs. Smartphone Sales
Mix of Smartphones Sold Relative to Overall Mobile Phone Sales -
See our full analysis and $25.45 price estimate for Motorola Mobility
Notes:- IDC: Smartphone market prediction, March 29th 2011 [↩]
- IDC: Smartphone market growth in 2010, February 7th 2011 [↩]
- Reuters: Motorola turned profitable after 3 years, October 28th 2010 [↩]
- Data provided by Motorola in their quarterly filings [↩]
