Is Motorola Worth More Dead Than Alive?

There were some weird gyrations going on Tuesday in the mobile phone sector, with sharp declines for Research In Motion (RIMM), Apple (AAPL) and Palm (PALM), but big gains for Nokia (NOK) and Motorola (MOT). There are considerable cross-currents in the sector; but the rebound in MOT seems especially odd given the company’s ongoing struggles and the fading 2009 outlook for the handset sector.

One factor that may be influencing Motorola shares is a research note Tuesday morning from J.P. Morgan’s Ehud Gelbaum. On the surface, it doesn’t sound like a bullish stance: Gelbaum resumed coverage of Motorola, cutting his rating to Neutral from Overweight. (Morgan had been advising Motorola on its now-postponed spinoff of its handset business.) Gelbaum says returning the company’s handset business to profitability is a “doable but Herculean task.” But he also notes that the company has $1.52 a share in cash, and that the value of the remaining four businesses totals more than $7 a share, well above the current share price. Gelbaum notes that stocks rarely traded up to their sum-of-the-parts valuation when the outcome of a restructuring remains in doubt. The stock, he says “represents only option value on the restructuring’s success as we expect grim results for the next three quarters.” But bargain-hunter may have seen a stock trading at a considerable discount to its component parts, and dived in.

Gelbaum sees Motorola’s revenues next year dropping 17.4% to $25.2 billion, from $30.5 billion this year, and $35.6 billion in 2007. He sees profits of 2 cents a share next year, down from 6 cents this year, rebounding to 32 cents in 2010.

Meanwhile, Gartner said it expects “low single digit growth contraction” in the handset business in 2009, which is consistent with Nokia’s recent prediction for a down year in 2009 versus 2008. Gartner said that the device market will “remain challenging through at least the first half of 2009.” For Q3, Gartner reports, units increased 6% from a year earlier. Nokia lead the market with 38.2% market share, up from 37.8% a year ago. Samsung held 17.1% share, up from 14.4%; while Sony Ericsson had 8.1%, down from 8.7%, and Motorola’s share dropped to 8%, from 13%.

MOT Tuesday closed up 44 cents, or 12.4%, to $3.99.

Comments

[TinyTim:]

what, no mention of Icahn??

2008 Nov 26 05:03 PM