Are Motorola Shares a Bargain at $9?

I haven't considered Motorola (MOT) a viable investment opportunity for a long time, mainly due to the overly competitive market environment for the company's core cell phone business. Not too long ago Nokia (NOK) and Motorola dominated the cell phone market and both stocks did well.

In recent years, however, the market landscape has changed. Smart phones like the Blackberry, iPhone, and Treo have taken share. A slew of Asian manufacturers have also played a role, with Samsung, LG, and Sanyo (SANYY.PK) selling far more phones in the U.S. than they ever have before. As a result, MOT has seen cell phone share sag, profits plummet, and a stock price of about $9, down 65% over the last two years.

With the help of activist shareholder Carl Icahn, Motorola has been persuaded to split up the company. The cell phone business is bleeding red, distracting investors from the company's profitable home and enterprise broadband and mobility divisions. In 2007, the cell phone business lost $1 billion on sales of $19 billion. The other business lines (cable modems, set top boxes, etc) actually earned $1.9 billion on revenue of $18 billion. Few people probably realize that cell phones are only half of the story at Motorola. Perhaps a spin off will help with that.

Down around $9 per share, I couldn't help but want to take another look at the stock. Along with a market value now of only $22 billion, MOT actually has net cash of more than $4 billion, or about $2 per share. I'll share some of my numbers with everyone in coming days, but until then feel free to share your thoughts on Motorola as a value play down here in the single digits.

Full Disclosure: No positions in the companies mentioned at the time of writing.

Comments

[bluesmoke:]

Given the competition, bottom fishing in this market is a very dangerous game. I think even Carl may be in over his head on this one, and I like the guy.

2008 Mar 28 10:12 AM

[who:]

Depends what is MOT represent after the split and whether mobile phone unit changes its strategy to rely on small no. of models.

Nokia has so many more models with different takes and not just in model size provides a model for everyone. They also issue new models regularly may be because they have a market orientated product development team.

2008 Mar 28 01:32 PM

[jkakaiya:]

If MOT comes up with another SMART PHONE series and reduces their loss for mobile phone business, other communication infrastructure business is already profitable. Someone needs to lead MOT to a new level. Icahn may provide the much needed push the company management or change them to reach at higher level of performance. The $9 stock price is bargain.

2008 Mar 30 08:40 PM