Breaking up may be hard to do, but it may be precisely what Motorola (NYSE: MOT) needs in order to recapture some of their lost glory. Motorola plan to reorganize into two separate enterprises in the first quarter of 2011, with the Motorola mobile handset unit spinning off as a separate publicly traded company.
For Motorola, a company that once ruled the mobile phone world, it has been a rough road down from dominance – shares are down almost 85% from an early 2000 peak of nearly $60 a share. But though Motorola was once thought doomed, MOT stock is on the mend once more thanks to profitable partnerships with Google (NASDAQ: GOOG) and Verizon (NYSE: VZ). The success of their new line of Droid phones is apparently enough to stabilize the company. But will the success last?
To understand where MOT stock is going, let’s look at where it has been. In 2000, right as cellular phones were growing into ubiquity in the North American market, Motorola had already established itself as the industry’s major manufacturer of cellphones. The popularity of their devices, including many of the first affordable compact flip phones to hit the United States at the end of the ‘90s, made Motorola one of the most desirable tech stocks in the world. Motorola shares hit an all time high of $58.37 in March 2009.
But the company found it impossible to maintain that peak, and the stock declined steadily from there, hitting $8 per share by the middle of 2003. There were a number of factors that laid Motorola low during those first few years of the decade, especially the rapid shift to broadband Internet, but the biggest factor was Motorola losing the mobile phone arms race. Competitors like LG Electronics (LSE: LGLD), Nokia (NYSE: NOK), and the emerging Research in Motion (NASDAQ: RIMM) were creating products the consumers found more attractive and functional than Motorola’s antiquated handhelds.
The company turned things around though, by once again making their cellphone tech relevant. While the company was in its first major slump of the decade in 2003, it was developing the new, ultra-thin line of RAZR phones. First released in 2004, Motorola had sold 50 million RAZRs by the end of 2006. Motorola shares were selling for above $26 in October of that year.
Once again though, Motorola couldn’t maintain their growth. They were already in decline by 2007 when Apple Inc. (NASDAQ: AAPL) introduced the first version of their iPhone in a partnership with AT&T, and Motorola was left in the dust. The company lost $2.35 billion in revenue between the fourth quarter of 2007 and the fourth quarter of 2008. Failing business coupled with the financial crisis brought Motorola down to that $3 per share low, the first time Motorola shares had sold in that price range since the mid-1980s. That was thanks to brutal Q4 2008 earnings that showed a net loss of -$3.6 billion during the quarter, or -$1.57 per share. For the entire year, the company lost -$1.84 per share.
Enter the turnaround. Now MOT has boasted four profitable quarters in a row, each of them topping Wall Street expectations. The Droid’s release (as a flagship for Google’s mobile operating system Android) in October of 2009 and its subsequent success are directly responsible for that run. At the end of July, MOT beat analyst expectations, showing up with a profit of 9 cents per share while the world thought they’d be reporting a profit of just 8 cents.
The run equals gains of over +150% for Motorola since the March lows – about three times that of the broader market — is certainly cause for celebration. But for current investors, the question isn’t whether Motorola has stabilized from the dark days 18 months ago. They want to know if there are profits to be had going forward.
With Google partnering with more and more manufacturers and Apple rumored to start offering their phones through a variety of mobile providers in 2011, what is Motorola doing to ensure that shifting consumer interest won’t cause yet another downfall for the company?
Two things show that Motorola is learning from past mistakes. First, rumors indicate that Verizon, Motorola and Google, flush from the success of the Droid phone, are ready to pursue Apple on the tablet PC front as well. Boy Genius Report uncovered evidence in a Verizon product list that Motorola is prepping a tablet with the product designation MZ600 to directly compete with the iPad.
The other is that Motorola is going to split its company into two separate entities, Motorola Mobility and Motorola Solutions. Motorola Mobility will control the company’s entire smartphone and consumer tech business. With the company free of its other telecom businesses and start up capital of $4 billion in cash and zero debts, they will be able to pour all of their efforts into staying abreast of the consumer market. Rather than ride a success until they have to watch share prices reach new lows while they develop the next big thing, Motorola now stands a chance to grow consistently again.
If the Droid stays the cream of the Android smartphone crop and their Verizon tablet is affordable and attractive, Motorola might just get back above $50 in the next several years.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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