From Seeking Alpha:
By Mark McQueen
With various portfolio companies in the mobile business (Airborne, Bluestreak, Wmode in Fund III, Intrinsyc [ICS:TSX] in Fund II), we are keen to follow the trends in the space. Here is an honest look at Motorola’s (MOT) current state, courtesy of the U.S. technology analysts at CIBC World Markets:
Based on our checks we believe Motorola is seeing some 4Q07 challenges. Lack of traction with the new RAZR2 is known, but our checks also reveal some component shortages. The shortages are impacting volumes and adding some delays in the launch of new products.
We believe the company is seeing component shortages in two areas – camera modules and batteries. These shortages are limiting MOT’s ability to show upside to unit shipments and as a result, we are slightly tweaking our shipments target down to 40.5 million from 41.0 million previously. We note that the demand in the handset market remains strong and other handset OEMs are seeing some component shortages as well.
RAZR2 demand remains mixed at best. Based on our checks the units shipped in 3Q07 have sold through, yet the targets for 4Q07 seem to be too high. We believe Motorola will lower the price of the RAZR2 to the mid-/high-$200 range in December. While a positive for unit volume, this is likely to limit Motorola’s ability to deliver ASP and margin upside in the near term.
On product introductions – we expect the majority of Motorola’s new models to be announced in 1H08, although we also expected some new models to be revealed in 4Q07. To a large extent, the company has nothing new to offer for the holiday season with the exception of the RAZR2, which is not meeting expectations.
A notable miss is the ROKR E8 (Elba), which we had an opportunity to see and play with. The candy bar phone which resembles the SLVR L7 has a touch pad for the keys. Based on the features used certain keys would light up while others would stay dark (a.k.a. Morphing Technology). For example, when the music player is turned on, the number keys would fade out while the music player key would light up. The handset also has a unique sensitive arch in the center of the phone which is used to scroll through menus by running the finger over it. The downsides are a small screen and no 3G functionality.
While demand for the RAZR2 is tricky, demand for the older handset platforms (RAZR and KRZR) remains solid and the company is sticking thus far to ASPs.
We don’t believe the strength in the older platforms is enough to keep overall ASPs flat or help
margins improve. We therefore, are lowering our estimates to the low-end of the company’s guidance.
Overall, the MOT turnaround story is unchanged – it will be a long and bumpy ride with more traction likely starting mid-2008 as the 3G portfolio gap narrows. Owning MOT requires patience – it will take time. We reiterate our SO rating and $23 price target.
More Changes to Leadership?
More changes to the leadership of the handset unit are transpiring, which suggests Motorola has yet to find the right folks to manage the business. We believe Motorola and its head of Worldwide Sales Ray Roman have parted ways. All regions are now required to report directly to Stu Reed. We also believe changes were made to the leadership of every region, after those regional allocations have been rearranged. While Motorola has talent internally, we have yet to see the company attract some outside talent, which we believe is required. This would add a fresh look, no association to any “camp” and put more pressure on internal leadership for positive change.
Tuesday, November 13, 2007
From Seeking Alpha: