Tuesday, November 21, 2006

Calls of Note Part 1

- RBC Capital notes the fourth-quarter mobile devices sell-thru indications remain favorable and they are increasing their unit assumptions for Motorola (NYSE:MOT) from 62M to 62.5M units. However, the mix of handsets may not be tracking towards firm's original expectations and they are reducing their ASP assumptions from $138 to $134. Subsequently, they are adjusting revenues for 4Q06 from $12B to $11.9B vs. consensus of $12B. EPS remains unchanged at $0.38 vs. consensus of $0.39.

With price driven growth likely to remain a persistent theme going forward, they will be utilizing a lower forward-multiple for the wireless-handset vendors. Firm's new price-target for Motorola decreases from $26 to $28 or 18x CY07 earnings. Growth from emerging-regions, a methodical-ramp in WCDMA, and a greater- acceptance of mid-tier and low-end phones may limit the expansion of mobile-device ASPs as we enter 2007.

Firm recently surveyed 200 retailers across the U.S. via telephone and the data points to strong-demand for wireless phones as we approach the holidays. The popular-phones for Motorola are the RAZR and SLVR with price often cited as the primary factor after brand. Thus far they believe order and shipment trends for Motorola remain strong; it's the mix that concerns the firm. The venerable RAZR, now over two-years old, has moved from a high- end to a mid-range and now to an entry-level phone, priced at $49 with a service plan.

The slide in ASPs for Motorola is not that bad when compared to Nokia, which is suffering from a weak mid-tier product-line and a ramp in emerging-markets, two major-factors impacting ASPs.

Notablecalls: Well, this is exactly what I talked about on Nov 6. The phones aren't selling unless the price is cut in half. Most likely this won't affect MOT's bottom line this qtr, but it will start hurting by Q107. I don't view this as a trading call but it does reinforce my neg views on the space.

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