Motorola Mobility (MMI), which recently spun-off from Motorola, has struggled in the mobile phone market since 2006, losing market share due to stiff competition from Apple (AAPL), Research in Motion (RIMM) and Nokia (NOK). Not since the release of RAZR, which was once the top selling mobile phone in the U.S., has the company managed to produce a ‘killer’ phone. Here we look ahead and explore both upside and downside for Motorola Mobility’s mobile phone market share.
The mobile phone business accounts for 25% of our $25.45 price estimate for Motorola Mobility stock. Our price estimate stands about 10% above market price.
-10% Downside – Further Market Share Loss
Motorola Mobility manufactures most of its smartphones on Google’s (GOOG) Android OS, which has gained substantial market share in the smartphone OS market over the past year. Although Android’s success lifts all manufacturers using its platform, these companies risk commoditization of their phones as they lose control of operating system developments and innovations.
Innovation is an important aspect of the smartphone industry and a critical factor in the success of players like Apple (see Apple Still Has the Upper Hand in the Smartphone OS Battle). After RAZR, Motorola has lacked innovation, and its global mobile phone market share has consequently dropped from around 22% in 2006 to 2.5% in 2010. We expect this decline to continue in the future, with market share hitting about 1.5% by the end of our forecast period.
However, should continued competitive pressure and lack of successful product launches spur greater market share declines towards 0.9% by the end of our forecast period, there could be roughly 10% downside to our $25.45 price estimate for Motorola Mobility stock.
20% Upside – Market Share Sustainability
Motorola Mobility has pursued new initiatives to counter the market share slowdown. The company has placed new emphasis on international operations, given a particularly difficult competitive landscape in North America. Accordingly, North America’s contribution to Motorola’s overall revenues (before the spin-off) dropped from 69% in Q4 2009 to 63% in Q4 2010. 
During Motorola’s Q4 2010 earnings conference call, the company acknowledged concerns of a slowdown in sales of its phones at Verizon (VZ) stores in the wake of Verizon’s introduction of Apple’s iPhone.  Hence, Motorola Mobility has pushed to expand relationships with other wireless carriers. For example, it started selling Atrix 4G smartphone on AT&T’s (T) network.
If these initiatives prove successful, and Motorola Mobility can maintain market share around 2.5% going forward, it would imply 20% upside to our $25.45 price estimate for Motorola Mobility stock.
- Data available in Motorola’s quarterly filings
- Motorola Q4 2010 earnings conference call transcript, January 2011
Disclosure: No position