Motorola Loses Market Share, Likely to Post Q2 Loss

In my previous article I discussed the overall trend of the mobile phone industry, and the players likely to benefit at the expense of Motorola (MOT). A couple of days later Motorola warned about sales and profits, almost inline with what I had previously analyzed and predicted about the company. To highlight a few of those predictions:

1) I predicted exactly that Motorola would guide revenue downwards by almost $1.5 Billion for the full year, but very surprisingly it happened before the end of First Quarter itself. Ed Zander now says revenue for 1Q 07 will be around $9.3 Billion instead of $10.5 Billion as forecast earlier. What was even more surprising was the fact that Motorola would post an operating loss of 9 cents a share

2) Also, as I mentioned, Motorola stock dropped to my expected levels of 17.5$ from 19$, while Nokia (NOK) appreciated from $21.5 to $23.

So what next from here?

The cell phone market outlook still remains robust, but some of my recent checks indicate heavy inventory being built up in Motorola and slight inventory levels in Nokia (NOK) too. Another check indicates Nokia’s sales to have dropped “mildly” in India and China.

Further checks indicate to me that Motorola’s mass market phone, “The Motofone”, launched in early January, might not have made any impact further deepening the company’s woes of gaining market share or maintaining profitability for that matter.

Motorola is likely to report an operating loss of $178-189 million from its continuing cell phone business operations, however the network and set top box business is likely to hold back the company from falling into deeper mess towards the end of the year. Nevertheless, more can be made only after seeing the balance sheet of Q1. Presently it looks like Motorola might have sold 55 Million handsets at an ASP of $104-107 down substantially from $119 in Q4 2006. They might have lost market share by at least 100 bps at the time of Q1 results, from a peak 22% seen by the end of Q4 2006

Is further downside seen for the Motorola?

Probably yes. At $16.5 the stock represents a trading technical buy, thanks to Carl Ichan for seeking a director seat and upping his stake, forcing Motorola to accelerate buyback and thereby preventing a vertical landslide. Ed Zander’s job is still not in jeopardy in near term as long as he keeps Ichan happy endorsing an accelerated stock buyback.

Trading Strategies for Motorola and Nokia

Although Nokia reached my first predicted target of $23 Friday, I recommend a “Hold”, while I downgrade Motorola from Neutral to “Strong Sell” on every technical pull back. Motorola represents a decent candidature towards shorting over the next 4-6 months for trapped investors to recover some lost money. Anyone who loves his or her dollar is better of having Motorola Puts for the earning season.

Disclosure: Author has a short position in MOT

MOT 1-yr chart

Comments

[hottpotat0:]

Silly rabbits tricks are for kids-MOTO is not messing around! If you take a serious look into what is going on you will be amazed! And- maybe pissed if you do not get on the bus-go to wimaxforum.org and look @ their member roster, you will see the future unfold before your eyes-MOTO is partnered up with not just other companies they are partnered up with other countries building and rolling out their WIMAX networks! All other forms of convergence will be left redundant when WIMAX takes over! it is not a question of if-but when-will WIMAX take control-the other telecoms who do not or refuse to convert or participate in WIMAX will become backhaul outfits if they are not bought out in the process!!! The Cell phone business is small potatoes compared to what is about to happen /is happening –owning the hardware and structure of the global WIMAX network will guarantee revenue and lots of it for decades to come!!! that is until we learn telepathy or mental convergence or some other crazy way of communicating-my point is this- Ichan knows what is happening and wants in-so do I-so do a whole lot of others-you can choose to deny what is taking place but that will not make you wealthy fighting the coming wave-another tip is there are some crazy israeli’s making most of the hardware being used-56% globally is their amount of gear others are buying using and installing “alvarion” is their name-----look out world SURF IS UP!!!!!!!!!!!

2007 Mar 25 08:09 AM

[Special Sit...:]

In the coming several months MOT seems to have the characteristics of dissapointment. Still, if Icahn is successful governing the board and is able to buy back more shares, there seems to be a great deal of potential upside in the next 1-2 years in this stock.

2007 Mar 25 01:24 PM