Droid Demand Drives Motorola

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 |  Includes: GOOD, GOOG
by: Zacks Investment Research

Demand for Motorola Inc.’s (MOT) Droid phone shot up significantly due to its unique design, new multimedia features, exciting new widgets and a security upgrade. Droid, based on Google Inc’s (NASDAQ:GOOG) Android operating system, delivers a rich consumer experience with warp-speed Web browsing, a huge screen and Motorola's expertise in design and voice quality.

However, the leap in Droid demand has put Motorola in a fix as it is facing severe industry-wide supply chain constraints similar to those experienced by its competitors HTC Corp. (HTC), Verizon Wireless, a venture of Verizon Communications Inc (NYSE:VZ) and Vodafone Group Plc (NASDAQ:VOD) for its Droid phone due to a shortage of screens from Samsung Electronics.

The handset market is extremely competitive. Motorola intends to launch two to four new phones in a few days with front facing cameras that would come handy for mobile video-conferencing. On the other hand, Apple Inc (NASDAQ:AAPL) is also launching its next iPhone with a front-facing camera on June 24, 2010. Similarly, Sprint Nextel Corp. (NYSE:S) has launched a high-speed phone with video conferencing capability, on June 4, 2010.

As of now, Motorola’s smartphone portfolio consists of 8 3G phones, all of which received encouraging market traction. These devices together generated sales of 2.3 million units in the first quarter of 2010. Based on the Android ecosystem, these handsets feature an intuitive user interface and an efficient combination of Internet access, messaging and multi-media applications.

Currently, more than 6,000 multimedia and social networking applications are available on the Android ecosystem. Motorola is leaving no stone unturned to expand this platform using its proprietary MOTODEV program. Management also declared that another 20 3G high-end mobile handsets are in the pipeline during fiscal 2010 with a targeted volume of 12 million to 14 million.

We believe effective cost control measures, massive demand for wireless broadband services and recently introduced high-end 3G smart-phones will support the stock price in the near term. We maintain our Neutral recommendation on the stock.