Earnings Scorecard: Motorola Inc. (MOT)

The struggling mobile phone manufacturer Motorola Inc. (MOT) reported strong second quarter 2010 results, beating the Zacks Consensus Estimate by 1 cent. The reported quarter’s earnings benefited from growing market traction for its 3G Android-based smartphones.

Overall, the analysts’ opinion remains positive on the stock, given the company’s excellent results.

Second Quarter Highlights

During the quarter, net income was $162 million or 7 cents per share, compared with net income of $26 million or 1 cent per share in the prior-year quarter. Adjusted (excluding special items and amortization of intangible assets) EPS was also 7 cents, exceeding the Zacks Consensus Estimate of 6 cents. Improvement in net income was primarily attributable to the huge reduction in operating expenditures.

Total revenue was $5,414 million, down 1.5% year over year, but an improvement of over 7.3% sequentially. This was well ahead of the Zacks Consensus Estimate of $5,150 million. The sequential revenue growth indicates that Motorola is likely to come out of its severe top-line fluctuations experienced in the last 3 years.

Agreements of Analysts

For the third quarter of 2010, the earnings revision trend is positive. All the 5 analysts covering the stock revised their estimates upward, over the last 30 days. For fiscal year 2010, 6 of 8 analysts raised their estimates while 1 analyst revised the estimate downward during the same period.

The Zacks Consensus Estimate for the next year is mixed. Of the 8 analysts covering the stock, 2 revised their estimates upward, while 3 moved downward over the last 30 days.

Motorola continues to face challenges with its struggling mobile handset business and significant market share loss of units sold on a worldwide basis. Thus, we believe that the Company’s business growth prospects may take longer to proliferate than previously expected. Recent recessionary conditions and the possibility of higher input costs may further impede any form of financial improvement.

Magnitude of Estimate Revisions

In accordance with the overall trend of estimate revisions for Motorola, the Zacks Consensus Estimate for the third quarter 2010 improved by 2 cents to 10 cents in the last 30 days. The Zacks Consensus Estimate for the full year 2010 also rose by 3 cents to 35 cents. Similarly, for fiscal 2011, the Zacks Consensus Estimate was up 3 cents in the last 30 days to 56 cents.

Motorola Launches Droid 2

Motorola yesterday launched its much awaited, the latest smartphone, the Droid 2, which is all set to compete with Apple Inc.’s (AAPL) iPhone and the latest versions of Research In Motion Inc.’s (RIMM) BlackBerry. Droid 2 is an enhanced version of Droid and Droid X with double the speed and memory of the original Droid phone. It is based on Google Inc.’s (GOOG) Android 2.2 operating system offering Adobe Systems Incorporated’s (ADBE) Flash Player 10.1 software and is being sold through Verizon Communications Inc. (VZ) outlets.

During the second quarter, Motorola shipped 8.3 million mobile phone handsets including 2.7 million of 3G smartphones, displaying a considerable improvement over 2.3 million of 3G smartphone shipment in the previous quarter. We believe this encouraging performance was mainly due to a solid growth of the company’s newly launched DROIDX smartphone that received encouraging market traction as well as the company’s ongoing restructuring initiatives such as massive headcount reduction and divesting most of the Network Infrastructure products to Nokia Siemens Network; a 50-50 joint venture between Nokia Corp. (NOK) and Siemens AG (SI).

Management expects to sell 12 million–14 million 3G smartphones in fiscal 2010.

Our Recommendation

Motorola started showing signs of a turnaround with soaring net profit in the second quarter 2010. In addition to smartphones, the company is continuously introducing innovative products for enterprise mobility and public safety solutions. The market for broadband network and enterprise solutions will remain healthy in the long run. We believe effective cost control measures, massive demand for wireless broadband services and newly introduced high-end 3G smart-phones will support the stock price in the near term. However, we do not foresee any above market gain for the stock any time soon. We thus maintain our long-term Neutral recommendation on Motorola. It is currently a short-term Zacks #3 Rank (Hold) stock.

MOTOROLA INC (MOT): Free Stock Analysis Report

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