More on Motorola Valuation

Last I month I asked the question "Are Motorola (MOT) Shares a Bargain at Nine Bucks?" To help answer that I decided to do rough valuations for each of the company's major business segments (mobile devices and networking/mobility). Carl Icahn has been involved with Motorola (in fact he won two board seats from the company this week) and has been calling for the firm to spin off its cell phone business, which they have agreed to do sometime next year. Hence, my desire to value each segment separately.

I came up with an ~$8 value estimate for the non cell phone division (Motorola Valuation - Part 1). With Motorola (MOT) trading at $9 and change right now, the market is essentially saying the cell phone business is worth next to nothing. Below are my estimates for that segment. My main assumption is a 5% operating margin (half of the 2004-2006 average due to more intense competition nowadays) and relatively steady sales from here on out. As always, I try to be realistic, and this is by no means an extremely optimistic projection.

As you can see, the cell phone segment might not be worth anywhere near what it would have fetched between 2004 and 2006, but it does appears Wall Street is too pessimistic about Motorola. Investors are getting the business for less than $2 per share (according to my numbers), which should prove conservative if the new CEO for the phone business can get it back into the black as early as next year.

If you add my two segment valuations together, you get a per share value of $11.50 for Motorola, which is about 20% above current levels. I can understand Carl Icahn's interest, although he clearly was too early on this one, getting in at much higher levels.

Full Disclosure: No position in MOT at the time of writing.

Comments

[samij]

i think most would say that the realistic projection is that motorolas' sales are going down. seriously, they haven't introduced anything of interest in couple of years! the industry is going fast forward with touch screens, gps, cameras approaching usable etc, and motorola has absolutely nothing to offer!

realistic projection start of from say 2/3 of the current sales. pessimistic would start from half the sales. you'd also need to factor in the costs for the company to downsize its operations to mach that level, ie, no profits for the couple of years to come.

[mobile911]

I just hope Moto get their drivers and software working for their RAZRs, KRZRs, etc. It's always a pain to get any music, videos, ringtones onto their phones. They've even purposedly de-featured mp3 on RAZRs. Their phones already have features we can't use. FIX THE SOFTWARE AND UNBLOCK THE FEATURES.