We maintain our Neutral rating on Motorola Mobility Holdings Inc. (MMI) as the future prospects of the company remains grim due to its disappointing financial results.
In the last quarter of fiscal 2011, the company sold 5.3 million smartphones compared to 37 million smartphones sold by Apple Inc. (AAPL - Analyst Report) and 36.5 million sold by Samsung Electronics.
Currently, Motorola Mobility is facing the risk of commoditization if the company fails to effectively differentiate its smartphones from other developers that uses Android software. The company is facing stiff competition from Apple's iPhones and Samsung Electronics. Android currently holds more than 50% market share in the lucrative North American mobile devices markets. This situation has attracted Asian low-cost producers, such as Samsung, LG, HTC and several other low-cost manufacturers. for developing smartphones based on Android.
Verizon Communication Inc.(VZ - Analyst Report), which was the largest carrier partner of Motorola Mobility, sold 7.7 million smartphones during the fourth quarter of fiscal 2011, of which 4.2 million were iPhones, reflecting strong demand for iPhone.
Despite such strong headwinds, the company is continuously bringing new 4G-based handsets to the market and its popular Droid series of smartphones are generating huge demand. Recently, the company launched the slimmest 4G handset, called Droid 4, which is currently available in the market.
Motorola Mobility is gradually expanding its presence within the established wireless carriers of Europe (primarily in Germany, France, and the U.K.), Asia, and Latin America. This diversification will facilitate the company to compensate losses in the North American markets. Moreover, we believe that the company’s merger with Google Inc. will help it to combat challenges in the smartphone market as Google’s Android operating system is widely used in most smartphones. Therefore, the deal may allow Google to differentiate its product offerings as compared to other Android-based smartphones.
Motorola Mobility is currently engaged in many legal battles, which we believe may also act as negative catalysts for the stock going forward. Since, the negative catalysts in currently overweighing on the positive ones, we remain on the sidelines and retain a bearish stance on the stock.
We, thus maintain our long-term Neutral recommendation on Motorola Mobility Holdings Inc.
Currently, Motorola Mobility has a Zacks#4 Rank, implying a short-term Sell rating on the stock.
Motorola Mobility Holdings Inc., based in Libertyville, Illinois, is a leading mobile phone and smartphone manufacturer. Besides, the company is one of the leaders in the set-top box category.