Motorola: First Android Handset Moving Them Forward

“If you look at Motorola, they have unrolled what I will say is the best named cell phone product ever, the CLIQ. 6% higher today, as they like the partnership with Google. However, there are some rumblings that their choice of a service provider, T-mobile, might hurt them there.” — CNBC’s The Call 9/11/2009

Motorola (NYSE:MOT) has been slow to bring a meaningful smart phone to market that could replicate the success the handset maker had with its Razr. That all changed Thursday as Motorola unveiled its CLIQ model at the Mobilize Conference, which should be a step towards bringing Motorola back into relevance. So far the reception has been quite positive by reviewers, analysts and the market.

This is not Motorola’s first smart phone, but with the Google (NASDAQ:GOOG) Android operating system, it is likely the most highly anticipated. This is the first phone released since they scrapped their partnership with Windows Mobile in favor of Google’s platform. Motorola is targeting consumers who utilize social networks with its new Motoblur software. This feature will allow users to merge and sync contact lists containing everything from phone numbers, emails, and texts to tweets and facebook messages. This strategy will make this phone attractive to the omni-connected types, as RBC Capital’s Mark Sue puts it, “Our initial take is favorable, and it seems that Motorola is carving out a niche in the crowded smartphone market by focusing on socially minded demographics as opposed to enterprise users or pro-sumers.”

Motorola’s stock has rallied nicely the day after the preview, although the phone will not be available until the fourth quarter. A slew of analysts’ have upped their price targets, with some as high as $12. At Ockham, we too have to agree that this phone improves the competitive prospects for Motorola, who has slipped form the worlds second best selling phone maker to the fourth in just one year. According to Strategy Analytics, Motorola’s share of the global handset market has fallen to 5.4% in the second quarter from 9.5% a year ago. Clearly, the new Co-CEO Sanjay Jha has been brought in to stop the bleeding and this should be a step in the right direction.

However, at this time, it is premature to issue an upgrade from our Fairly Valued rating. Assuming the CLIQ is a huge success, Motorola will still be just above break-even profitability or not too much better. The smart phone market is crowded and becoming more so by the month with established players releasing new phones and new competitors like Dell (NASDAQ:DELL) and Garmin (NASDAQ:GRMN) still on the horizon. We would be careful to take outstanding sales for granted, especially because they are admittedly targeting a niche market.

We could see this stock taking a ride in much the same fashion as Palm (NASDAQ:PALM) has since the announcement and launch of the Pre. That impressive advance has not been built on fundamentals quite as much as the fact that they successfully entered the hot industry of the day. Based on the underlying fundamentals of MOT stock, we think that $7 is a justifiable price. However, speculation and enthusiasm may take this stock higher in the near term. Just one thing to note, Motorola’s balance sheet is far stronger than Palm’s, which in this market could hold them back.

Motorola’s CLIQ Moving Them Forward

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Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

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