Motorola Mobility (NYSE:MMI) plans to announce its Q3 earnings Thursday. The key trend to watch will be the company’s smartphone mix, which declined for the first time last quarter since Motorola started selling smartphones in late 2009. We expect Motorola’s margins to take a hit as it faces stiff competition from Huawei and Nokia (NYSE:NOK) in low-end smartphones and Apple (NASDAQ:AAPL) and Research in Motion(NASDAQ:RIMM) in the high-end and mid-range smartphone market and struggles with product delays.
See our full analysis for Motorola Mobility
Pricing and margin pressures could continue
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, increasing smartphone mix had helped Motorola Mobility lift its average pricing and gross margins. However, the decline in the smartphone mix last quarter meant that the average pricing declined from $229 in Q1 2011 to $221 in Q2 2011.
Motorola also reduced the price of Xoom to $499 from $799 at Verizon (NYSE:VZ) in order to compete with the iPad and the Galaxy Tab. [1]
We expect this trend to continue this quarter as well with the launch of several sub-$200 smartphones for emerging markets which may boost units but hurt average selling prices. [2] [3] Average pricing for mobile phones is an important driver for Motorola as a decline in gross margins will weigh on its valuation.
Product delays not helping matters either
Motorola launched Bionic, a high-speed 4G device for Verizon, in September after a prolonged delay from its original target for a second quarter launch. [4] An updated version of the Motorola’s Xoom tablet, which was announced in January for Verizon’s 4G network, was also delayed until its recent launch in late September. Motorola needs to grow its mobile phone sales number to put a halt to its declining market share. Its mobile phone market share has declined from a peak of 22% in 2006 to just above 2% in 2010. Product delays are a major risk to Motorola’s market share, which allows competitors to tap the smartphone market trend earlier than Motorola.
Our price estimate for Motorola Mobility stock is $21, which is about 45% below the market price.
Understand How a Company’s Products Impact its Stock Price at Trefis
Notes:- Verizon lowers full retail and on-contract price of the Motorola Xoom, droidmatters, July 25th, 2011 [↩]
- Motorola Mobility Launches Three Stylish Dual-SIM Mobile Phones in India, Motorola Press Release, August 10th, 2011 [↩]
- Motorola Mobility Brings Two Chic, Budget Friendly Android™ 2.3 Smartphones to India, Motorola Press Release, September 13th, 2011 [↩]
- Verizon and Motorola Raise the Bar with DROID BIONIC by Motorola, September 7th, 2011 [↩]
