Lehman Brothers: Motorola's 1Q06 Looks 'Brighter' (MOT, NOK)

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Includes: GOOG, NOK

In a note to clients today, Lehman Brothers analysts Tim Luke and Jeff Kvaal reviewed their meeting yesterday with Motorola management -- the note is excerpted below. Lehman has an 'overweight' rating on MOT, with a 'neutral' rating for the handheld sector:

In general, we believe that 4Q trends in core handset area remain solid but with upside to our estimates limited relative to recent quarters. We believe, however, that MOT's outlook for 1Q may be strengthening given a broadening array of new product introductions, implying potentially lower than seasonally 1Q declines. At current levels, we retain our constructive bias but recognize near term upside may be limited...

Following anticipated product launch delays until the latter part of 4Q05, we expect a material ramp from new products to occur in 1H06. We continue to believe that pent-up demand for Motorola's CDMA RAZR in the U.S. (particularly at Verizon) remains strong, however recognize that investor perception that Verizon delayed its launch may weigh on sentiment...

Our checks suggest Motorola has been gaining share at Verizon due to the strong performance of the E815 EV-DO device. Motorola expects its long relationship with Nextel will help its positioning with Sprint but did not comment on when the RAZR might launch at that carrier...

We are increasingly confident about Motorola's 1Q positioning and building ramp of multiple new products including the SLVR L7, the L6 and L2, the PEBL and more CDMA and WCDMA RAZRs. We therefore believe our estimates for 1Q for handset sales -17% (vs-12% in 1Q05) to $5.4Bill with total sales -13% at $9.1B with EPS of $0.26 may prove conservative...

We believe Motorola has lost some ground in the W-CDMA markets, partially due to the strength of Nokia's (e.g. 6630 and 6680) sell-through trends. Recent checks suggest an accelerated ramp in W-CDMA in Western Europe, where unit shipments of W-CDMA devices now represent 10%+ of total unit shipments. In W-CDMA, consumer adoption is being driven by lighter, smaller and cheaper devices.

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