Where Mobile Phone Prices Are Heading

 |  Includes: AAPL, BBRY, GOOG, NOK
by: Trefis

Motorola (NYSE:MOT) has been facing tough competition from RIM’s (NASDAQ:RIMM) BlackBerry, Apple’s (NASDAQ:AAPL) iPhone and Nokia’s (NYSE:NOK) N-Series of smartphones. As Motorola increases its mix of smartphones to adapt to higher smartphone demand, the company could actually see an increase in the average price of a Motorola phone while the average price of phones for its competitors continue to decline.

Below we explain the significance of the mobile phones business for Motorola’s stock and why we believe that Motorola mobile phone pricing could increase through 2011.

Mobile Phones 27% of Motorola’s Stock

Motorola’s mobile phone business constitutes 27% of the $7.19 Trefis price estimate for Motorola’s stock. Despite selling 55 million mobile phones in 2009, the company had mobile phone market share of only 4.5%.

Motorola introduced the Droid and Cliq smarpthones in 2009 but only 2 million of the 55 million Motorola phones sold during the year were smartphones. We expect that Motorola’s smartphone mix of phones sold will continue to increase over time.

Higher Prices from Increasing Smartphone Mix

Motorola plans to launch 20 new smartphones in 2010 with expected sales of around 11-14 million smartphones. This would mean that smartphones will constitute around 25% of the total mobile phones that we expect Motorola to sell in 2010. We believe this ratio will reach 50% by 2011 and that Motorola will sell a total of 53 million mobile phones in 2011.

Motorola’s average mobile phone pricing was $130 in 2009 and we believe that an increasing mix of higher-priced smartphones will push up average mobile phone pricing for Motorola to $143 in 2010 and $150 in 2011.

However, as Motorola increases its smartphone ratio past 50% in the years beyond 2011, it could see a decline in average pricing due to increasing commoditization of smartphones.

We expect that average mobile phone prices for Motorola’s smartphone competitors will fall over the next few years. For example, we expect Apple iPhone pricing to decline from $582 in 2009 to $365 by the end of Trefis forecast period. Similarly, we expect RIM BlackBerry to reduce its pricing from $341 in 2009 to $223 by the end of Trefis forecast period.

You can modify our forecast for Motorola Mobile Phone Pricing above to see how Motorola’s stock could be impacted if an increase in Motorola’s smartphone mix were to improve pricing even more than we forecast.