Motorola's Strategy: Focus on the Core Business

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About 20% of Motorola's (MOT) value comes from the combination of its digital TV boxes and wireless networking equipment businesses. The company is entertaining bids from private equity firms for these businesses which could raise about $4.5 billion (in cash). This would lead to 40% of Motorola's value coming from its cash. The company's stock performance will be highly dependent on Motorola's market share in mobile phones which has been declining in recent years. (Click to enlarge)

See forecast for Motorola Mobile Phone Market Share
Details behind the Digital TV box business divestment
The sale of the digital TV box business is believed to be driven by a combination of increased focus on the mobile phone business and belief that the future of the digital TV box business is at risk.
There are three challenges for Motorola's digital TV box business:
(i) Competition from content-delivery devices like video game consoles, Apple (NASDAQ:AAPL) TV and Roku.
Video game consoles and media devices like Apple TV / Roku are increasingly capable of delivering digital content through online platforms such as iTunes and Netflix (NASDAQ:NFLX). We highlighted in a previous note how cable companies like Comcast (NASDAQ:CMCSA) could be impacted by greater adoption of Apple TV as consumers end their cable subscriptions in preference of internet-delivered TV content.
Digital TV box makers like Motorola would also be impacted by such a trend since it would diminish demand for cable boxes.
(ii) New digital TV's that are expected to incorporate much of the digital TV box functionality.
The cable industry's OpenCable initiative is creating standards for digital cable systems that will allow TV manufacturers such as Sony (NYSE:SNE), Panasonic (PC) and Samsung (OTC:SSNLF) to directly integrate set-top box technology (which basically consists of a hard drive, a processor, application software and decryption hardware/software) into TVs sold in the US. Cable operators like Comcast will then be able to offer 'cards' similar to SIM cards that are inserted into their TVs to activate decryption for that specific operator.
(iii) Competition from low-cost Asian manufacturers.
Asian manufacturers based out of China and South Korea already supply most of the TV boxes used in the fast growing Asian cable TV market and are increasingly penetrating markets outside of Asia.
Disclosure: No positions