Motorola Mobility Analaysis

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MOTOROLA
Integrated Company Analysis
By, Team B12
Boryana Georgieva, Justin Owen, Asa Shiverick, Maureen Tuhairwe, Ken Wooddell December 16, 2010

Agenda
Current Situation Financial Analysis Mobile Industry Trends Marketing Analysis Recommendations

2

Motorola’s Current Segments
Historical
% of Sales
Mobile Devices

As of Q3 2010
% of Sales
Mobile Devices 39% 42% Home & Networks* Enterprise Mobility Solutions

32%

32%

Home & Networks* Enterprise Mobility Solutions

36%

19%

*Note: The decline in the Home & Networks segment is due to the discontinuation of the networks business Source: Motorola, Inc. 3

Motorola Mobility
January 4, 2011 MOT

MSI

MMI

Motorola Solutions, Inc. Motorola Mobility Holdings, Inc. • Contains Enterprise Solutions, and • Contains current Mobile Division remainder of Networks Mobility and Home Segment (iDen) • Approximately 60% of current • Approximately 40% of current business business • Will have zero debt 4

Agenda
Current Situation Financial Analysis Mobile Industry Trends Marketing Analysis Recommendations

5

Financial Statements Overview
• Motorola (MOT) has experienced declining sales every year since 2007, resulting the following losses: Operating losses: 2007: $553 million 2008: $2.4 billion 2009: $148 million Net Loss: 2007: $35 million 2008: $4.2 billion 2009: $51 million

• 2010: On pace for first profitable year since 2006
– Through 10/2/10:
• Operating earnings: $411m • Net Income: $340m
6

Notable Changes: Inventory
• Motorola’s mobile segment significantly lowered inventory due to supply chain improvements: – December, 2008: $1.846 billion – December, 2009: $688 million

7

Notable Changes: Debt
• 2008 year end:
– Long-term debt: $4,092 million – Debt-to-Equity ratio: 44%

• Debt Repurchased:
– 2009: $199 million – 2010: $500 million – Debt-to-Equity ratio: 32.5% (10/2/10) 8

Changes in Accounting Standard
• New FASB standards for smartphone revenue recognition • Based on relative selling price of: 1. Standalone sales of tangible product and software 2. Sales of software upgrade rights

• Motorola adopted standards in Q1 2010 and recognizes revenue at point of sale vs. on subscription basis 9

Valuation

Source: FactSet

10

Valuation
• • • • • • MOT shares outstanding= 2349.4 MMI Stock Distribution: 8:1 Implied MMI shares outstanding: 293.68 Value of MMI Equity: 1762 Implied Stock Price: $6 Compare to MOT current stock price: $8.46

11

Discounted Cash Flow Analysis
• Price Target: $35.56

• Implication
– Stock would be undervalued if it were trading at its implied price

12

Positive Outlook for MMI
• Positive future cash flows • Potential growth opportunity in: – Smart phone market (38%) – Home business: Strategic Acquisition of 4Home • (300% revenue growth in 2009)

• Positive Economic Outlook
– GDP – Housing Industry
13

Agenda
Current Situation Financial Analysis Mobile Industry Trends Marketing Analysis Recommendations

14

Mobile Phone Industry Trends
• U.S. mobile phone penetration currently at 93%

• Greatest opportunity for growth is in smartphones
– Currently only 22.8% of U.S. – Higher penetration among younger demographic

15

Mobile Phone Industry Trends

Source: comScore Data Gem, September 2010

16

Competitive Landscape
• Motorola currently claims 22% market share of mobile phones • Introduction of Smartphones has changed the major industry players

Source: Mintel Oxygen, 2010

17

Competitive Landscape
• The Android OS has grown in popularity (from July-October of 2010), this represents both a threat and opportunity for Motorola, as their competitors have successfully introduced Android phones % Share of Smartphone Platform % Share of Smartphone Brand 50% 40% 30% 20% 10% 0%

July October

50% 40% 30% 20% 10%

July October

0%

Source: Electronista

18

Agenda
Current Situation Financial Analysis Mobile...
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