Dim Prospects for Motorola Mobility’s Potential 7-Inch Tablet

Motorola Mobility (NYSE:MMI) could come out with a 7 inch tablet by the end of the year after its 10 inch Xoom tablet failed to make a splash in the tablet market. ^[1] Motorola shipped only around 440,000 tablets in the last quarter while Apple (NASDAQ:AAPL) shipped 9.25 million iPads during the same period. This is better than Research in Motion’s (NASDAQ:RIMM) 200,000 PlayBook tablets shipped in the recently ended August quarter, but still barely makes a splash in the iPad dominated market. ^[2]

Incidentally, last month Google (NASDAQ:GOOG) proposed to acquire Motorola Mobility for a valuation of $12.5 billion, mainly for its patents, but this could add an interesting angle if Google puts its weight and resources behind the tablet business.

We value Motorola Mobility stock at $21, which is about 40% below market price.

Apple continue to dominate the 10 inch tablet market

Apple’s iPad is a 10 inch tablet, and we believe that in order to avoid direct competition with the iPad, companies could start manufacturiung 7 inch tablets. The dominance of the iPad in the 10 inch tablet market is such that even RIM was possibly forced to shelve its plans of manufacturing a 10 inch tablet dubbed PlayBook 2 (see Why RIM Would Throw in the Towel on Playbook).

Motorola Mobility is finding itself in the same boat with its expected sales for its 10 inch tablet looking bleak. We expect Motorola to sell only about 1.4 million Xoom tablets in 2011 compared to about 37 million iPads.

Will 7 inch tablets fail?

We believe that the 7 inch tablet will not solve Motorola Mobility’s tablet problems. Although it will help Motorola avoid direct competition with Apple, it is not as useful as a 10 inch tablet and poses design difficulties. In our earlier note titled Do 7-Inch Tablets Stand a Chance?, we discussed in detail why Steve Jobs called the 7 inch tablet “Dead on Arrival”. In particular he highlighted that it is a tweener — too big to be a smartphone and too small to be an effective tablet. Given trials among our team at Trefis, we agree with this view and think it will be difficult to make meaningful inroads here.

See our complete analysis for Motorola Mobility stock here

1. Exclusive: unannounced Motorola Android tablet caught on film, possibly a 7-incher, This is my next, September 19th, 2011 [↩]
2. Tablet shipments data taken from company’s press release [↩]