Earnings Scorecard: Motorola Inc.

Motorola Inc. (MOT) reported excellent third quarter 2010 results, beating the Zacks Consensus Estimate by 2 cents. 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.

Third Quarter Highlights

During the quarter, GAAP net income was $109 million or 5 cents per share compared with a net income of $12 million or 1 cent per share in the prior-year quarter. This includes the Network Infrastructure business of Motorola that will be acquired by Nokia Siemens Networks, a joint venture between Nokia Corp. (NOK) and Siemens AG (SI).

However, third quarter 2010 adjusted (excluding special items and amortization of intangible assets) EPS was 12 cents, ahead of the Zacks Consensus Estimate of 10 cents.

Total revenue, including the Network Infrastructure business, was $5,761 million, up 5.65% year over year and well above the Zacks Consensus Estimate of $5,575 million. For the first time since the fourth quarter of 2006, Motorola has achieved a quarterly year-over-year growth in revenues.

Segment-wise, mobile device division revenues were $2,034 million, up 20% year over year. Home division revenues were $912 million, up 6%. Enterprise mobility solutions division revenues were $1,946 million, up 9%.

Based on excellent third quarter results, management has provided guidance for the company’s GAAP EPS from continuing operations in the range of earnings of 14 cents – 16 cents for fourth quarter 2010. This excludes stock-based compensation expense and intangible assets amortization expense of approximately 4 cents per share.

Agreements of Analysts

For the fourth quarter of 2010, the earnings revision trend is positive. Out of 3 analysts covering the stock, 1 analyst revised the estimate upward, over the last 30 days, while none revised their estimates downward. For fiscal year 2010, 2 of 3 analysts lowered their estimates while none revised the estimate upward during the same period.

Similarly for fiscal 2011, of the 3 analysts covering the stock, 2 revised their estimates downward, while none moved upward over the last 30 days.

Motorola is benefiting from significant market acceptance of Android as the next-generation 3G smartphone operating system. Currently, more than 6,000 multimedia and social networking applications are available on the Android ecosystem. Motorola is trying hard to expand this platform using its proprietary MOTODEV program.

During the first nine months of 2010, the company launched 22 new 3G smartphones. These include the highly recognized DROID smartphone portfolio consisting of DROID, DROIDX, DROID 2, DROID PRO and DROID R2-D2. All these phones are based on Google Inc’s (GOOG) Android operating system.

Magnitude of Estimate Revisions

In accordance with the overall trend of estimate revisions for Motorola, the Zacks Consensus Estimate for the fourth quarter 2010 remained flat at 13 cents in the last 30 days. The Zacks Consensus Estimate for the full year decreased by 5 cents, from 34 cents to 29 cents. Similarly for fiscal 2011, the Zacks Consensus Estimate was decreased drastically from 52 cents to 35 cents.

Our Recommendation

We are highly optimistic about Motorola’s rejuvenated smartphone business betting on the Android software. We believe the proposed split-off of the company will also help to add more value to the mobile devices segment.

However, it remains to be seen how Motorola faces the challenge from Apple Inc. (AAPL) once Verizon Wireless (VZ), which significantly promoted the DROID portfolio of Motorola, starts selling the legendary iPhone 4. Thus, we maintain our long-term Neutral recommendation for Motorola.

Although Motorola shows huge sequential growth in its 3G smartphones business, in absolute term, the device shipment is far behind Apple’s iPhone shipment and Research in Motion’s BlackBerry devices shipment. We do not expect Motorola to reach anywhere near them in the immediate future. Currently, it is a short-term Zacks #4 Rank (Sell) stock.

MOTOROLA INC (MOT): Free Stock Analysis Report

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