Don't Cancel Motorola's Funeral Just Yet

On August 15, an article was published in the Silicon Alley Insider titled “Motorola's Funeral Canceled: On Slow Road To Recovery, Says Citi.” Motorola (MOT) will be spinning off its mobile division, bringing in new management and launching over 30 new products in the near future. Since beating the street on July 31 by 5 cents, the stock price has rallied over 40%. Many analysts remain impressed as this company seems to be getting its act together in its turnaround strategies, at least for one quarter anyway. Carl Icahn even boosted his stake by around 30 million shares.

Once having commanded more than one-fifth of the global handset market, Motorola ended the recent quarter with less than 10% market share. In addition, shelf-space at major carriers is declining rapidly. It seems like Motorola is on track to become a lot more like Nokia (NOK), who does not have one 'great' product, but rather a portfolio of 'good' ones. Hence, that’s why the company is planning to introduce so many new phones. Yet although this strategy has worked for many companies in the past, Motorola has not really developed many phones that people actually want to buy. Case in point, the ROKR partnership between Apple (AAPL) and Motorola didn’t go exactly as planned. What Apple did next is history.

Another problem with focusing on developing so many products is that production and development costs will increase substantially; this is a particular concern with the mobile division on the verge of being separated, which means any synergies between the two companies in R&D, production, sales, servicing and marketing will be lost. Perhaps what Motorola needs to focus on is not a slew of products, but one product that will define the next generation, like Research In Motion (RIMM) and AAPL.

Motorola has many unanswered concerns that need to be resolved in order to get my vote:

• What’s the new company chief’s strategy?
• Although net positive, mobile devices had a recent operating loss of $346 million.
• Cost savings of $1 billion in 2008 is great for earnings short-term, but certainly not sustainable long-term.

Perhaps Motorola will get it right this time, but before seeing more consistent quarters and a more polished corporate strategy, there are simply better options to invest in the Telecom space – NOK, AAPL, RIMM, LG (LPL).

Disclosure: None

Comments

[OrdinaryGuy:]

Mr. Sun:

To pronouce the death of MOT as you do is to also allude to having very good inside information, which you have not demonstrated you have. Its a good thing niether you or anyone else has a monopoly on rational thought and genuine analysis.

As an insignificant holder of MOT stocks, I believe it would take a lot more than your misdirected pronouncement to kill a thing that has a bright future.

Keep trying though, if it makes you happy.

2008 Aug 18 09:34 AM

[Howard Sun:]

OrdinaryGuy - Read the article and you'll note that I'm not pronouncing the "death" of this company. And even if I was, I wouldn't need "inside information" to do it. Almost everybody has access to the same information, it's what you do with the information that deems you a good investor (or not).

If you have an argument as why we should buy MOT, please present it; otherwise your comments are no more than biased shareholder opinion.

2008 Aug 18 10:27 AM

[JohnLL:]

When you are elected to run Motorola by the board of directors, then you can do something with your plans. In the mean time, press credentials are no substitute for business management. In contrast to YOUR OPINION, everyone else thinks that Motorola is making progress. When you write something, please clearly identify YOUR OPINION as your opinion as opposed to facts.

2008 Aug 18 10:28 AM

[notsosmart:]

the best advice is-dont believe anybody about anything.all have an agenda.think for yourself.should you believe this advice?i dont know.

2008 Aug 18 02:47 PM

[viva:]

Obiously, they are bigger than their cell phone business.. but the Razr V3 phone stinks, so I am reminded of Peter Lynch's words (paraphrased), "If the product stinks, don't buy the company."

2008 Aug 18 10:27 PM

[TinyTim:]

Moto has been trying to sell the cell phone div for many months. no takers. the phones are flimsy. Icahn is pushing the issue.
I don't know about new mgmt unless you mean Icahns boys.
The set-top box business (GI) is commodity.
Moto may have to fall back on its original product-first responder radios.

this company seems to be getting its act together in its turnaround strategies, at least for one quarter anyway
this is a joke, right?? it's all layoffs, nothing new here

2008 Aug 18 11:15 PM