Google (NASDAQ:GOOG) plans to acquire Motorola Mobility (NYSE:MMI) in August this year for a valuation of $12.5 billion, which was a whopping premium of 60%. Till the acquisition is completed, Motorola Mobility will continue to function as an independent company. Last week, Motorola announced that it has again lowered the entry price for its Xoom tablet and rolling out a new “family edition” that will sell for $379. [1] Motorola hasn’t had much of a success in the tablet market and could only sell 690,000 tablets in the first half of the year. [2]
See our full analysis for Motorola Mobility
We believe that lowering the price of the tablet will not make much difference to Motorola as the competition in the lower end of the tablet market is equally fierce. Amazon (NASDAQ:AMZN) introduced the 7-inch Kindle Fire tablet last month for a throw-away price of $199, while Research in Motion (NASDAQ:RIMM) also slashed its PlayBook tablet price by $200 to $299.
It will be almost impossible for non-iPad players to match Amazon’s low cost strategy, something which we discussed in our earlier note titled Non-iPad Tablets Have Most to Lose from Kindle Fire.
The tablets business accounts for less than 4% of our $21 price estimate for Motorola Mobility stock. Hence we believe any aggressive price cut strategy from Motorola will not matter. Our price estimate for Motorola Mobility stock is about 45% below market price.
Understand How a Company’s Products Impact its Stock Price at Trefis
Notes:- Motorola Mobility and Best Buy Announce Motorola XOOM Family Edition – For Kids of All Ages, Motorola Mobility press release, October 14th, 2011 [↩]
- Data provided in Motorola’s SEC filings [↩]
