Hot Stocks: Motorola Mobility Inc. (NYSE: MMI) Sending a Clear Signal That It's Ready to Bounce Back

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A string of cutting edge products such as the Xoom tablet and the Atrix 4G smartphone, both of which use Google Inc.'s (Nasdaq: GOOG) Android operating system, have reversed Motorola Mobility Holding Inc.'s (NYSE: MMI) downward spiral.

The success of its new hardware, combined with strategic acquisitions that show Motorola's desire to offer its customers cloud-based services, has breathed new life into a company that was on life support just a couple of years ago.

Motorola's Droid line of smartphones helped turn a $1.6 billion operating loss in 2009 into a $76 million operating profit in 2010. The recently-launched Xoom has earned rave reviews and has given MMI a critical foothold in the tablet market.

Motorola Mobility has positioned itself to become "the vanguard of launching quad-core tablets and phones in the second half of 2011," Tero Kuittinen, an analyst with MKM Partnerstold MarketWatch.

If Motorola Mobility can avoid the mistakes of the past by maintaining a robust product pipeline, the company has a credible shot at regaining its stature as an industry leader.

A Telecom Turnaround Play

Motorola Mobility lives and dies with its cell phone business, which brings in about two-thirds of its revenue.

Back in 2005, the thin RAZR clamshell phone set off a craze for slim, sexy cell phones – a craze dominated by Motorola. But in the years that followed Motorola failed to make major improvements to the RAZR or develop a worthy successor.

When the iPhone debuted in 2007, suddenly making touch-screen phones the hot ticket, Motorola had no answer. Its market share plummeted from 23% in the fourth quarter of 2006 to just 12% in the fourth quarter of 2007.

With its cell phone business in tatters, Motorola lost $4.3 billion between 2007 and 2009.

Motorola Chief Executive Officer Ed Zander, who stepped down on Jan. 1, 2008, was the first casualty. Then, a few months later in March, the company announced it would split in two – Motorola Mobility Inc., a cell phone and consumer tech-oriented business; and Motorola Solutions Inc. (NYSE: MSI), an operation focused primarily on selling two-way radios and other public safety equipment to local governments.

The separation became official Jan. 4 of this year, forcing the demise of its familiar MOT ticker symbol and essentially marking the end of the American tech industry legend that invented the cell phone and was responsible for such communications icons as the World War II walkie-talkie.

When Motorola Mobility set about healing its cell phone business, it realized it needed to standardize on one platform instead of spreading its resources among more than a dozen platforms. It chose Google's Android, even though the operating system was still untested in the market.

"We were spending too much on plumbing, and not enough of differentiation," Christy Wyatt, Motorola's vice-president of software platforms and ecosystems, told the Financial Post, calling the company "platform promiscuous."

MMI also needed Android's rapidly growing ecosystem of software to give it a fighting chance against Apple Inc.'s (Nasdaq: AAPL) iPhone and iPad, which benefit from the Cupertino, CA-based company's huge App Store.

The strategy worked. With Verizon Communications Inc. (NYSE: VZ) promoting its Droid phones, the huge losses have subsided.

But Motorola isn't sitting still.

Its new 4G Atrix phone boasts a dual-core processor that's twice as fast as those found in most other smartphones, and can serve as a full-fledged computer with a $300 laptop dock (it comes with an 11.5-inch screen and keyboard).

At the company's earnings conference call in January, CEO Sanjay Jha said Motorola would seek in 2011 to add more carriers in the United States such as AT&T Inc. (NYSE: ATT) and T-Mobile, as well as try to expand in foreign markets.

"We will deliver world-class products at Verizon, at other carriers in the United States," Jha told Bloomberg TV. "We will introduce tablets and we'll grow inChinaand Latin America."

Shares Set to Xoom?

While reviving its cell phone business has been vital, Motorola's greatest opportunity to grow its business lies with its recent entry into the touch-screen tablet computer market.
The Xoom was compared favorably to Apple's iPad when it was unveiled Feb.24, but immediately lost momentum when Apple launched the iPad 2 on March 2, about a month earlier than anyone expected.

Nevertheless, within the arena of Android-based tablets, Motorola has achieved one key goal: establishing itself as an early leader. Whatever portion of the tablet market remains after the iPad takes the lion's share will mostly be divided among the Android players, so getting to the front of the pack early was essential.

And Motorola has already said it's working on more tablets, particularly less expensive 7-inch models, to keep expanding its presence in a market that research firm IHS iSuppli (NYSE: IHS) expects to grow from 17.6 million units in 2010 to 202 million in 2015.

Stock analysis site Trefis has calculated that Motorola will win 30% of the Android tablet market by selling about 4 million units in 2011. Trefis believes tablet sales account for about 20% of Motorola Mobility's stock price, which has been beaten up in recent weeks.

After hitting $36.34 on Jan. 19, Motorola has dropped 27%. The problems started when the company reported weaker than expected fourth-quarter results, and gave weak guidance for the current quarter. The positive reaction to the iPad dealt MMI its latest blow, shaving 13.4% off its share price last week.

No doubt, Motorola is not out of the woods yet.

When you consider the fierce competition in the mobile computing segment, not only from Apple but also such heavyweights as Research in Motion Limited (Nasdaq: RIMM) and Hewlett Packard Company (NYSE: HPQ) and Samsung Electronics Co. Ltd. (PINK: SSNHY), the odds against MMI look daunting indeed.

Industry observers generally agree that whoever succeeds in differentiating their mobile computing wares will succeed in winning the most customers. And on that score, Motorola has been busy.

The company has made several recent acquisitions and investments that should give it a competitive edge.

Last month Motorola announced it had purchased Three Laws Mobility Inc. (3LM), which develops security software for Android smartphones. The lack of such software has hampered the adoption of Android by corporate customers. Though 3LM also is expected to provide its technology to other cell phone makers, owning the company will make it easier for Motorola to incorporate it into its own products. It also stands to benefit from licensing the technology.

Still, two other acquisitions make it look as though Motorola is placing its largest bet on cloud-based service.

Last month, Motorola invested in Catch Media Inc., which provides technology that allows customers to access their digital content from smartphones and tablets.

Prior to that, in December, Motorola acquired media streaming company Zector. The company said it planned to incorporate Zecter's ZumoCast cloud technology – which, like Catch Media, allows users to access content via mobile devices – into its MotoBlur syncing service.

Although we're not seeing it in the stock price now, MMI has worked hard to turn itself around. Trefis says that $11 of its share price is based on the company's cash position, and the average price target for 34 analysts covering the stock is $36 a share. The severity of the current pullback could present a prime buying opportunity.

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  1. rolf neumann | March 8, 2011

    hello,

    wow. who would've expected Moto to return to former glory?

    whilst the analysis is logical, it's more hype than anything.

    the problem with it is this: most analyzers, so-called ivy-league market experts, 99% of them, get Apple Inc wrong, every quarter for the last decade. that is an amazing statistic against listening to their advice.

    for the same reason that Apple (iPod-iPhone-iPad) defies gravity and is the only recession-proof tech firm out there, Motorola will fail their comeback mission. what no one realizes, even the companies that did it all their lives, when Apple never touched cell tech & crushed all of their big mouths, is, that it does not matter how amazing your hardware is i.e. Motorola's quad-core cell chip, it does not matter what history you had by inventing the cell phone, for the secret lies in the Software!

    Apple is the only firm controlling it all, Software, Hardware and even chips, as it bought its own chip plant.

    the success that eludes every single Apple competitor, no matter how big they are, as every single Apple or iPhone or iPad "killer" product failed, is that none of them get it or understand the technology and people's needs. they all blabber, hype and rush in desperation.

    the reason no one can comeback, let alone beat Apple, which cornered their markets are manifold:
    1. they are reacting, not thinking, their way out of their self-inflicted mess, as they are angry at themselves and Apple for robbing them of their "inherent right" in their fields

    2. they think hardware, not software or combination thereof
    there's no synergy

    3. they think backwards, not forwards
    they innovate on the surface, not deeply

    4. they think words will save them
    it's mostly hot air, big mouths, hype.
    really, what is so innovative about their new stuff? speed? that's it?
    sure, if your OS sucks, you need to make up for it in quad chips.
    real speed is deep in the OS.

    5. they think apps
    but 1st, Android has substantially less apps than iOS
    and most Android app buyers do not like to spend – look at market stats
    the % of weak or unstable apps and on an unstable platform is not strength!

    6. Android
    sure it's hailed as the iOS killer,
    but mostly thanks to its novelty act
    and Google's money-powered marketing hype
    Google lost its mojo
    the reality of Android is that of Microsoft's
    which has not produced innovation or lasting products as it's been declining for 2 decades
    Google stupidly, like Microdough, is not innvating but copying bad habits:
    that of whoring around its services, licensing them to all manufacturers,
    but not learning from MS's history, it turns out Android = chaos
    total market fragmentation
    total inconsistency in customer satisfaction
    as neither Google nor its manufacturers are responsible for your quality experience
    as users deal with 100s of cell models and Android OS versions that are not backward compatible,
    further fragmenting the apps they do have or work

    so, not matter how great Moto's hardware is, they chose the wrong platform.
    there actually, is not competitor, yet, to iOS, so catching up is a pipe dream

    7. copycats
    whenever you hear a competitor to iOS hype itself
    it's just that.
    think about it. a major reason no one has beaten Apple or eaten up its market share,
    is that they are all desperate.
    they merely copy Apple.
    on all levels!
    the hardware, software, even ads.
    no one can think original thoughts, let alone innovate.
    such unbelievable stupidity amongst millions of brains working for all those firms.

    the 1st ever successful attempt in competing with anything Apple does,
    and having a chance to grab part of the 30% Moto wants to reach in the SmartPhone market,
    is the firm which
    a. thinks for itself, without copying anything
    b. thinks hardware and software integration
    c. quits bullshitting its customers

    Moto owns none of the above qualities, hence they will fail

    8. failure is infectious
    – Microsoft failed with many cell phones, Windows 7 Phone is not exactly a success
    – Droid is more hype than quality experience
    – RIM's BB went through so many iterations after iPhone, they all failed
    – Nokia, world leader, even gave up, now joining MS

    then there's iPad killers:
    – MS just canceled its big tablet project
    – every single tablet manufacturer keeps returning to the drawing board, as they realize, competing with Apple is not just talk, but walk, and walking none of them can or they have to learn like babies to walk properly again

    9. marketing research
    is it not ironic that all competitors to Apple spend $ Billions in surveys and marketing research on what features etc. clients want? they're all self-prophesizing, cheap surveys. they're all fake.
    Apple admitted, they do not do surveys. they do not waste people's money into marketing.

    Apple simply produce products that they themselves would love or dream to use. they never think of IPO or market share or profits. they 1st think of total immersed quality user experience.

    naturally, some of you will cringe, but realize this, no matter how you hate Apple's success, you're just jealous and all the negative talk about it, does not matter! why? simply because, all your loud mouth talk, does not equal Apple's success. if you can do better, then talk. not before. anyway, the thing is, Apple makes billions not due to greed: that they're products & services simply work smoothly, that automatically inherits success, but they do not start out in reverse, they gain & profit naturally.

    which other firm, but Apple, owns Gestalt & Zeitgeist?! that's their secret. they full understand the market. why bother analyzing it to death to come out with nothing of value? Motorola will never catch up to this, because it's not in their DNA to think as clearly, as boldly, as naturally. Apple is all about Essence-ware. cutting the b.s. to reach product nirvana.

    Apple does it in the simplest software & hardware experiences i.e. hardware: Unibody shell. who does that? you can not innovate if you only see profits. you have to sacrifice greed. greed is what killed our western capitalist economies. short-sightedness too. Apple lacks none of those, everyone else does.

    ain't that ironic: if Droid does what Apple doesn't, well, it doesn't do anything right!
    neither droid nor android nor moto is realistic.
    there's precedents there too. just look at the Adobe Flash fiasco. it's dead old tech trying to re-iterate itself. but unless you're Jesus you will not be able to resurrect, let's face it!

    actually, sorry, there is one example beyond Jesus. Apple.
    it nearly bankrupted itself in 1998, at the time when dulll Dell CEO Michael, told Apple shareholders Apple should give back its money and shut down. a decade later, Apple is a dozen times Dell's size. the miracle is that Steve Jobs, returned and with Yves was able to mimic the phoenix from the ashes.

    but it worked beyond hype, simply due to sheer understanding, not superficiality. they do care about customer experience.

    10. brawn
    Moto might succeed in a few % points, but never the rest of the market Apple does not own. if Moto gains a few shares, so what, the market will fluctuate between it and its competitors. never really denting Apple's share, as none of them are stable and none are in it for the long-haul. they all think greed, now, now, now, never looking at the big picture, like A.

    none of them think really. they all act human. react vs. act logically.
    even 100% logic is not good to succeed.
    Apple succeed in Japan, the world's toughest, non-sensical market for westerners.
    A succeeded in China too!
    all firms think of Globalization, but like marketing research that A does not abide to either, A does not need to globalize, it's the only western firm that penetrates to the core of all cultures!
    Apple's business is unforced.
    Apple simply touches hearts & minds. their solutions just simply work.

    such total pragmatism will always keep its untouchable competitors at bay. they are untouchable becomes they do not touch people. their products feel used, abused, old, dysfunctional.

    if you hear good stuff, it's the media being bribed usually, by Apple's competitors, sponsoring the "news" or by incompetent journalists and anal-ysts, who do not even try to understand the technology, its significance, shift change and "secret" reasons for success.

    what's flabbergasting, is that despite everyone's near-extinction in the tech field, they humanely repeat their past's erroneous zones. we use muscle, brawn, not brain then! like blinded donkeys, they do not learn from history. if Apple is the only firm that did, why do we punish them for it?! are we neurotic? it's THE American firm we should all hail. the only one we can truly be proud of as the only successful in-the-black firm that IS able to succeed in international markets too. forget Reagan or Schwarzenegger, our government should pick Steve Job's brain for a well-run, efficiently operating organization.

    global corporations do not have to force business down people's throats.

    10. beauty
    like german quality, products have to sell themselves without hype or marketing b.s. think about it. marketing is brainwashing hard to convince you, when the product should speak for itself, it if's really good.

    like Audi, Moto should not follow, but Lead – it does not!

    like ancient Greek philosophy, Apple's products seem simpleton on the surface, but it took years of deep, sophisticated thinking to reach Zen-like simplicity. still bitch about it, jealous? fine, go back to complicating your life. computers were invented to augment our realities with more quality time away from work, but except for Apple, everyone else, for the last 3 decades, has produced gadgets that waste our time.

    so, if Apple's other problem, according to its failing competitors!, is that Apple is all about aesthetics, nothing inside, you've been conned into this myth. Apple's insides are all about total quality just as much as its industrial design casings or software. not one iota at Apple is wasted. everything fits on all levels. this Gestalt integration and touching human's Zeitgeist, is it! no one comes close.

    11. boldness
    you'd think, now that Apple went mainstream, as opposed to their small size less than a decade ago, they would care more about profits, and like all others, spend increasingly less time with R&D, more with the quick buck. as the only firm uninterested in dilution of either quality or cutting staff(!!) Apple is the fairest co. of them all. why ridicule it?! do better 1st!

    do you think it's not the competition that pays off journalists to hype Apple's Chinese factory suicides as a means to derail Apple? that proves the competitor's desperation. do you think competitor's factories around the third world have no suicides or worst working conditions?! come on. get a life.

    Apple sacrifices all the time.
    show me another firm that does it.
    Apple did not invent USB but made it main-stream in 1998, through iMac 1.
    Apple rid the tech world of SCSI in 1998.
    Apple rid the world of diskettes in 1998.
    A rid us from shackles of Vinyl/Casettes in 2001 with iPod 1. it simultaneously saved us from the abuse of the music industry's forced business of buying more songs than we liked and saved the music studios from piracy.
    A rid us of the same with the movie industry but they do not embrace, but fear A for it. fear will make you fail! just look at how too-big-to-fail Blockbuster lost to tiny Netflix.
    A rid us of hard drives in 2008 through MacBook Air.
    A rid us of the CD/DVD with 2009's MacBook Air.
    again, in 2011, A is ridding us of USB & Firewire and will replace all connections with Thunderbolt, starting with the available MacBook Pro. A did not invent Thunder but are pioneering its push.

    the thing is, Moto can push all it wants, but only A knows the Art of Pushing. for when it pushes, it does not feel like bullying but a natural extension of our human capabilities.

    much more can be said.
    but suffice it to say, Moto is not saved by any stretch of the imagination or logic.
    think before you click buy.

  2. guys! | March 9, 2011

    GUYS!!!

    Im sooooo HARD right now!!!

    DROOOOOOOOOOOOIIDDDD FTW!!!!
    LOL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  3. herb | March 9, 2011

    That was an excellent reply…

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