Motorola Mobility (NYSE:MMI) recently announced its Q2 earnings in which its smartphone mix declined for the first time since Motorola started selling smartphones in late 2009. The smartphone mix declined to 40% in Q2 2011 from 44% in Q1 2011. This finding has a number of negative repercussions for Motorola Mobility, which is already struggling to compete with Apple (NASDAQ:AAPL), Research in Motion (NASDAQ:RIMM) and Nokia (NYSE:NOK) in the smartphone market.

After the earnings announcement, we have revised our price estimate for Motorola Mobility stock from $23.50 to $21. Our price estimate is about 5% below market price.

Pricing and margin pressures could emerge

The mobile phones unit is the most valuable business for Motorola Mobility accounting for about 32% of our price estimate for its stock. Since 2009 through the last quarter, the increasing smartphone mix helped Motorola Mobility lift its average pricing and gross margins. However, the decline in the smartphone mix this quarter meas that the average pricing declined from $229 in Q1 2011 to $221 in Q2 2011.

Average pricing for its mobile phones is an important driver for Motorola as its decline gross margin pressure will weigh on its valuation.

Product delays not helping the cause either

During the earnings conference call, Motorola mentioned that its high profile smartphone Droid Bionic and LTE version of its Xoom tablet will now be available in September this year, which was expected to launch earlier. ^[1] Product delays are again a risk, something that we discussed in our  pre-earnings note titled Motorola Mobility Earnings Preview: Can it Turn a Profit in 2011?

We expect to see Motorola Mobility shares under pressure.

See our complete analysis for Motorola Mobility

1. Motorola Mobility Q2 2011 earnings conference call transcript, SeekingAlpha, July 28th, 2011 [↩]