Can Motorola Mobility Sustain Market Share Beyond 2011?

March 3rd, 2011 by Trefis Team
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Motorola Mobility (NYSE:MMI), which makes money by selling mobile phones, set-top boxes and broadband modems, has now entered the tablet market with the launch of the Xoom tablet. The company competes with players like Apple (NASDAQ:AAPL), Research in Motion (NASDAQ:RIMM) and Nokia (NYSE:NOK) in the mobile phone market. The Xoom tablet will pit Motorola Mobility against a slew of tablet players like Samsung, Dell (NASDAQ:DELL) and LG, in addition to Apple and RIM.

Xoom will be the first tablet on Google (NASDAQ:GOOG) Android’s newest version 3.0, called Honeycomb, which is specifically designed for tablets. The platform includes attractive features like support for big screens (7 inch to 9 inch), a totally new user interface, extensive multi-tasking and multiple home screens among other features.

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A few weeks back, we discussed our initial take on the impact the Xoom tablet could have on Motorola Mobility, estimating that the tablet business accounts for roughly 20% of the company’s stock value (see Xoom and Tablets to Make up 20% of Motorola Mobility’s Value). Our price estimate for the company, at $25.45, currently stands almost 15% below market price.

Faster Tablet Market Growth Provides Some Upside…

We expect that Motorola Mobility will be able to sell around 4 million tablets in 2011, with annual sales reaching about 8.5 million by the end of our forecast period.

We arrived at this 4 million figure through our expectation that Motorola Mobility can garner a 30% share among Android-based tablets. According to IDC, the tablet market is expected to grow from 17 million in 2010 to 45 million in 2011, [1] and Android-based tablets should be able to garner 30% share of this market. [2] Hence, we could see around 13.5 million Android-based tablet unit sales in 2011, and a 30% share among Android tablets would mean that Motorola could sell around 4 million tablets in 2011.

See our full analysis and $25.45 price estimate for Motorola Mobility

However, another report indicates that the tablet market could record much higher growth, at 224%, in 2011. [3] This means that the tablet market could reach around 55 million in 2011, a scenario in which we believe Motorola could sell 5 million tablets in 2011. This scenario would imply 3% upside to our $25.45 price estimate for Motorola Mobility.

.. But Sustained Market Share Could be the Key

We expect Motorola Mobility’s tablet market share to decline going forward – we anticipate that the company’s tablet units sales will grow by 30% in 2012, while IDC expects a 60% tablet market growth in 2012. [1] Hence, Motorola Mobility will need to sell tablets at a much faster clip if it wants to keep pace with the market. The company would actually need to sell an estimated 6.4 million tablets in 2012 to accomplish this (vs. our base case estimate of 5.2 million). This scenario would imply an incremental 4% upside to our $25.45 price estimate for Motorola Mobility.

Notes:
  1. IDC report on tablet market, January 2011 [↩] [↩]
  2. Computer World sourcing IDC as the source, iPad lead shrinks as tablet sales grow, January 2011 [↩]
  3. Barrons article quoting Goldman Sachs as the source, February 2011 [↩]