By Jeffry Bartash
Motorola Inc.'s (MOT) flagging wireless business is likely to
get a shot of adrenalin before the end of the year with the release
of a new handset lineup based on Google Inc. (GOOG) software,
according to one brokerage.
Analyst Tal Liani of Bank of America/Merrill Lynch upgraded
Motorola to buy from neutral and raised his price target to $9 from
$7, sending shares modestly higher in Tuesday action. Motorola's
stock was up 2% at $6.17.
"The crux of our call is that Motorola's new handsets can help
it regain market share in key regional focus areas, including North
America, Western Europe and Latin America," Liani wrote in a
report. He also said the company is likely to make deeper costs
cuts than has been publicly estimated.
Motorola is slated to unveil a batch of new phones before the
end of the fall, in time for the holiday season. The fourth quarter
is typically the strongest for global handset makers.
The new phones will be based on Google's Android operating
system, which holds the promise of greater simplicity and new
features for consumers. Liani predicted Motorola could push its
market share back up to 8% by early next year from 6% now - still
far short of the company's 2006 peak of 22%.
By focusing on phone design and letting Google handle the
software component, Liani said, Motorola has more room to cut costs
beyond the $1.7 billion the company has already promised to slash
in 2009.
Part of the likely savings, Liani said, would also come from
sharper reductions in research on wireless-networking equipment, a
market in which Motorola is no longer a top-tier player.
If Motorola meets twin expectations of higher phone sales and
sharper cost cuts, Liani estimated the company could earn 53 cents
a share in 2010, adjusted for one-time items, which is more than
double his current forecast of 21 cents a share. Such gains would
justify a higher stock target, Liani said.
The analyst also said Motorola would benefit from stable profits
in its two other business segments, home networks and enterprise
and business. Those normally slow-growing divisions now account for
more than 60% of annual revenue and all of Motorola's profits,
effectively keeping the handset division afloat.
Before results get better, however, Liani said he expected them
to worsen. He said Motorola's second-quarter results would be
especially weak given the lack of new wireless phones in the market
and the ongoing U.S. recession.
Stiff competition at the upper end of the market from rivals
such as Apple Inc. (AAPL), Palm Inc. (PALM) and Research In Motion
Ltd. (RIMM) also continues to pressure Motorola, Liani said.
Yet Motorola is still a well-known brand to consumers and the
handset market has proven very fluid, "where the presence or
absence of 'hit' handsets can dramatically alter market-share
trends," the analyst said. He believes the Android phones can
"change the dynamics in Motorola's favor," he said.
-By Jeffry Bartash; 415-439-6400; AskNewswires@dowjones.com