Motorola Mobility Preview: What We’re Watching Next Week

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Motorola Mobility

Motorola Mobility (NASDAQ:MMI) is expected to announce its Q4 FY 2011 earnings January 26th. The company has set low expectations for the quarter in its preliminary results released earlier this month. [1] Motorola has attributed lower-than-expected results to high competition in mobile devices market as well as employee distraction due to the pending acquisition by Google (NASDAQ:GOOG). We can gauge the increased competitiveness in the smartphone market as Samsung reported robust results for Q4, while Apple (NASDAQ:AAPL) is on its way to deliver strong Q4 results riding on the success of  the iPhone 4S. [2]

See our complete analysis for Motorola stock here

Market Share to Decline

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We earlier expected the company would continue its sequential growth in mobile phone shipments and deliver better performance this quarter as handset vendors have historically seen good mobile phone sales in the holiday quarter. However, mobile phone shipments disappointed by coming in lower than the previous two quarters.

According to Motorola, it shipped around 10.5 million mobile phones, a decrease of almost 9% quarter-on-quarter and 8% year-on-year. This will undoubtedly cause its shrinking market share to decline further as Apple and Samsung continue to perform exceedingly well.

Samsung has raced ahead in the smartphone market over the past year with its market share having increased from a meager 9% in Q3 2010 to 24% in Q3 2011. [3] The strong Q4 results will ensure that Samsung’s lead in the smartphone market is maintained. [2] Apple’s market share, on the other hand, declined a little from 17% to 15% during the same period. However, with the success of iPhone 4S, Apple is poised to deliver strong Q4 results and gain back its market share.

Motorola’s market share in the overall mobile market has, however, remained more or less stagnant at around 2.5% over the same period.

Smartphone Mix Improves

While the overall mobile phone sales disappointed, the lone saving grace for the company is the smartphone mix that will come in much higher than the previous quarters. The smartphone mix in the last few quarters was hovering around 40% but this quarter we may see it cross 50%. Motorola shipped around 5.3 million smartphones during the quarter, an increase of more than 10% over last quarter, and it continues to see sequential growth for the year. (see Motorola Mobility’s Higher Smartphone Mix Saves the Day) With smartphones driving the overall mobile phone market, this is good news for Motorola, going forward.

Since smartphones are priced higher than feature phones, the average selling price of mobile phones will also register an increase. So, although revenues will disappoint by coming in lower than our $3.5 billion estimate, a greater smartphone mix among the mobile phones sold has ensured that revenues will still be higher compared to previous two quarters.

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Notes:
  1. Motorola Mobility Provides Business Update, Company Press Release, January 6th, 2012 []
  2. Smartphones power Samsung to record Q4 profit, Reuters, January 6th, 2012 [] []
  3. Strategy Analytics: Samsung Becomes World’s Number One Smartphone Vendor in Q3 2011, October 27th, 2011 []