Motorola Mobility Earnings Preview: Can it Turn a Profit in 2011?

by Trefis Team
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Trefis
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Motorola Mobility
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Motorola Mobility (NYSE:MMI) plans to announce its Q2 earnings Thursday. The key trend to watch is smartphone sales, which could pave the way for it to climb out of the red for the rest of the year. Motorola has struggled to maintain its profitability in the past as it faces stiff competition from rivals Apple (NASDAQ:AAPL), Research in Motion (NASDAQ:RIMM) and Nokia (NYSE:NOK) in the mobile phone market and struggles with its own product delays.

Our $23.50 price estimate for Motorola Mobility stock, which is about 5% below the market price.

Smartphone mix increasing…

Motorola’s smartphone mix has increased ever since it launched its first smartphone Droid in late 2009. Motorola has been able to increase its smartphone mix significantly to 44% in Q1 2011 from 27% in the same quarter last year, which has helped it increase its average mobile phone prices from $193 to $229 during the same period. [1]

Motorola launched the Atrix 4G in Q1 and Motorola XPRT that it launched in Q2. In a recently announced deal with Sprint (NYSE:S), Motorola will launch 10 new smartphones in 2011 on Sprint network. (see New Smartphones to Help Motorola Reach $25) This means that the smartphone mix should continue to increase for Motorola, benefiting the average pricing and profitability for the next few years.

…Product delays continue to be a risk

Motorola also 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. The major risk to Motorola’s market share are the product delays, which allows competitors to tap the smartphone market trend earlier than Motorola.

Some of its products including Droid Bionic smartphone and Xoom LTE version of the tablet were supposed to launch in Q2 and will now be rolled out over the summer (see Smartphone Delays a Slight Setback for Motorola Mobility). Even though average pricing and margins continue to increase, declining sales and market share is clearly a risk, which could make it hard get out of the red.

See our complete analysis for Motorola Mobility

Notes:
  1. Data complied from Q1 2011 SEC results by Motorola Mobility []
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