Motorola’s Xoom Could Lose its Zoom in Tablet Market

Motorola Mobility’s (NYSE:MMI) sales of Xoom tablets lags behind that of Apple’s iPad. While Motorola shipped more than 250,000 Xoom tablets in the first quarter of 2011, Apple sold around 1 million iPads in the first weekend of its launch last year. We think Motorola will benefit from the tremendous growth expected in the tablet market in the next few years, but it faces competitive threats from Apple’s iPad, Research in Motion’s (NASDAQ:RIMM) PlayBook, and new products from companies like Samsung, Dell (NASDAQ:DELL) and LG.

With features and pricing comparable to that of the iPad 2, whether Xoom will be able make the cut into the tablet market remains to be seen. While we anticipate the Xoom sales will reach 3.7 million by the end of our forecast period, Trefis members predict the sales will reach closer to 4.3 million. The member estimates imply a marginal impact on MMI stock since Xoom & other tablets constitute only around 10% of our price estimate for Motorola Mobility’s stock.

Our price estimate of $24.59 for Motorola Mobility’s stock implies a slight discount to current market price.

Faster Growth in Tablet Market

According to IDC, the tablet market could increase from around 45 million in 2011 to 71 million in 2012. ^[1] We expect Motorola’s tablet sales will increase at a slower rate over our forecast period. This is because other bigger players like Cisco, Toshiba and HP will also enter the tablet market, in addition to Apple iPad, RIM Playbook, Dell and LG. The iPad 2 could create further pressure on Motorola.

Great Features But High Pricing

Xoom is powered by Google’s Honeycomb OS, designed specifically for tablets, and is considered comparable or better than the iPad in terms of multi-tasking and features offered.  ^[2] Xoom uses Nvidia’s Tegra 2 dual processor versus a single processor for the iPad. We estimate the average price of a Xoom tablet is $550 which is comparable to the average price of $585 for Apple’s iPad. In order to better compete with the iPad, Motorola will have to either increase Xoom’s features multi-fold or reduce its prices for consumers to see clear value in its product.

In our earlier article, we explored how increasing availability of wi-fi could diffuse the value proposition of high-end tablets like Xoom that offer 3G/4G network compatibility, and shift more consumers toward low end models.  (See Motorola Mobility Betting Big on High End Tablet Customers)

Our complete analysis for Motorola Mobility’s stock is here.

1. IDC’s Worldwide Quarterly Media Tablet and eReader Tracker, Jan 18, 2011 [↩]
2. Eight reasons the Motorola Xoom beats the iPad, ComputerWorld, March 1, 2011 [↩]