Motorola Mobility (NYSE:MMI) is leaving no stone unturned to regain its lost market share in mobile phones. It launched a slew of smartphones in 2010 powered by Google’s (NASDAQ:GOOG) Android OS, in competition with Research in Motion (NASDAQ:RIMM) and Apple (NASDAQ:AAPL), the two leading smartphone makers. Motorola’s decision to aggressively expand its smartphone offerings has been fruitful in some regards, as higher priced smartphones have given a strong boost to margin and helped turn the company’s mobile business profitable after it recorded three consecutive years of operating losses (2006-2009). However, sales and market share declines have continued (see Smartphone Shift Boosts Mobile).
Despite the gains from a growing smartphone market and strong adoption of Android OS, Motorola runs the risk of over-dependence on Android, leaving little scope for innovation – a hallmark for players like Apple.
While we anticipate Motorola’s mobile phone share will decline to 1.5% by the end of our forecast period, Trefis members, however, see more stability in the company’s market share (settling around 2.4% by the end of our forecast period). The member estimates imply ~20% upside to our MMI price estimate, indicating high sensitivity of Motorola Mobilty’s stock price to its mobile phone market share.
We currently have a price estimate of $25.45 for Motorola Mobility’s stock, about 5-10% ahead of market price.
Risk of Commoditization
Motorola Mobility manufactures most of its smartphones on Google’s 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.
New Initiatives Could Help Sustain Share
In order to counter its slowing market share, Motorola is shifting its focus towards international operations, as the competitive landscape remains particularly difficult in North America. The company is also expanding relationships with other wireless carriers in an attempt to reduce dependence on Verizon. Motorola’s new Atrix 4G handset is available on AT&T’s network, for example (see What to Expect for Motorola Mobility’s Market Share). Such initiatives, if implemented successfully, could help Motorola sustain its market share. This could result in ~20% upside to our $25.45 price estimate for Motorola Mobility’s stock, as projected by Trefis members in the chart above.
See our complete analysis for Motorola Mobility’s stock here
