A Large Portion of Motorola Mobility's Value is Cash

In acquiring Motorola Mobility (NYSE:MMI) for $12.5 billion in cash, Google (NASDAQ:GOOG) is getting three business lines (mobile phones, tablets, digital TV boxes) and $3.2 billion in cash. So Google is really paying just over $9 billion for the underlying businesses and Google will have about $30 billion of cash left over after the transaction.

Google's acquisition of Motorola Mobility puts it more directly in competition with other mobile players like Apple (NASDAQ:AAPL), Nokia (NYSE:NOK) and Research in Motion (NASDAQ:RIMM).

Driver 1: Mobile Phone Market Share

Motorola's mobile phone market share increased from 16.2% in 2005 to 22.0% in 2006, and then decreased drastically to 2.5% in 2010.  The spike from 2005 to 2006 was because of popularity of Motorola's RAZR phone among consumers.  Trefis forecasts that market share for Motorola will continue to decrease, although at a slower rate.

Driver 2: Mobile Phone Pricing

Motorola's average mobile phone pricing increased from $147 in 2005 to $210 in 2010 due to the introduction of a wide range of Android-based smartphones.  Trefis forecasts that average pricing could actually increase in the near term, before seeing a decline in the outer years.

Driver 3: Mobile Phone Gross Margins

We have estimated the gross margin for the mobile phone division to be around 24% in 2011.  We expect that Motorola's shift to smartphones will lead to an improvement in its mobile phone gross profit margins.  However, as smartphones become increasingly commonplace over the next few years, we expect that Motorola's margins will once again decline. See our complete analysis for Motorola Mobility's stock.