Motorola: Better Pricing, Margins Expected to Offset Cellphone Share Declines

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Motorola’s (NASDAQ:MOT) recent quarterly earnings suggest that the company is continuing to lose mobile phone market share to players like Apple (NASDAQ:AAPL), RIM (NASDAQ:RIMM) and Nokia (NYSE:NOK). We expect that a rising mix of Motorola smartphones will help drive up Motorola’s average selling prices and gross margins, helping to offset some of the negative impacts of falling market share.

We estimate that Motorola’s mobile phone business constitutes around 26% of the $7.30 Trefis price estimate for Motorola’s stock. Below we highlight our Motorola market share forecast, and how we expect pricing and margins to trend.

Mobile Phone Market Share to Decline To 1.4%

Motorola sold only about 55 million mobile phones in Q4 of 2009 compared to our estimate of 62 million. Out of these 55 million phones, Motorola sold only 2 million smartphones despite the company’s marketing efforts to promote the Droid and Cliq.

The outlook for Motorola’s mobile phones business remains grim despite its plan to launch 20 smartphones in 2010, with expected sales of around 11-14 million as indicated by the management.

We expect Motorola’s market share to decline from 4.5% in 2009 to 1.4% by the end of the Trefis forecast period.

You can modify our forecast above to see how Motorola’s stock would be impacted if its mobile phones market share increases, driven by higher sales from smartphones in the future, rather than decrease as we forecast.

Mobile Phones Pricing to Increase to $200+ in 2011

Motorola’s average selling price for mobile phones increased by $3 in 2009 to $130 owing to an increasing mix toward smartphones that are priced higher than normal feature mobile phones.

We expect average mobile phone pricing to increase to more than $200 in 2011 and remain high over the Trefis forecast period due to higher priced Motorola smartphones.

You can modify our forecast above to see how Motorola’s stock could be impacted if higher average selling prices were to not to materialize as we forecast.

Mobile Phone Margins Expected to Recover

Motorola’s mobile phone gross profit margin continued to decline reaching 18% in 2009, down from nearly 30% just a few years earlier. We forecast that margins will increase to about 32% over our forecast period as mix of smartphones increases.

You can modify our forecast above to see how Motorola’s stock will be impacted if it’s able to sustain its margins in the future.

You can see our complete model for Motorola’s stock here.