- Merrill Lynch notes they recently met with various executives of Motorola's (NYSE:MOT) Connected Home division (8% of revenues) and found the division fundamentals to be stronger than originally anticipated. Five takeaways:
1) Motorola's set-box business appears more secure than perceived by the Street. MLCO finds some 707-related inventory buildup in low-end STBs, but demand for HD and DVR boxes still exceeds supply.
2) Growth to continue over the next 18 months. Contrary to the common view, the firm believes the July 1 separation of security in the STB will result in strong revenue growth over the next 18 months as the new rule results in an increase in the price of a set top by $50 and carries the same margin.
3) Limited inventory correction in 2H. Firm believes demand for high end HD and DVR set-top boxes is high. They see some inventory buildup in low end boxes ahead of the July 1th deadline, yet the short correction period should be offset by strength in high end units.
4) They believe the division is almost finished with its M&A spree, outside of small acquisitions that may address certain niches.
5) Margins to remain at current levels. We expect operating margin to remain relatively stable, within the 12-14% range, following a substantial improvement from 6.5% in 4Q05 to 12% in 4Q06.
Firm estimates that sales of set top boxes accounts for ~70% of Connected Home division revenues, while video head-end equipment sales account for about 5-6%. They estimate that modems account for another 10-11% and other infrastructure products (CMTS/GPON/other), consumer products (cordless phones/security cameras/etc.), and services account for about 14-15% of revenue.
Notablecalls: Well, it's certainly been a while since I've seen any positive comments on MOT. I continue to be a s-t bull on the stock. Please see archives for further color.
1) Motorola's set-box business appears more secure than perceived by the Street. MLCO finds some 707-related inventory buildup in low-end STBs, but demand for HD and DVR boxes still exceeds supply.
2) Growth to continue over the next 18 months. Contrary to the common view, the firm believes the July 1 separation of security in the STB will result in strong revenue growth over the next 18 months as the new rule results in an increase in the price of a set top by $50 and carries the same margin.
3) Limited inventory correction in 2H. Firm believes demand for high end HD and DVR set-top boxes is high. They see some inventory buildup in low end boxes ahead of the July 1th deadline, yet the short correction period should be offset by strength in high end units.
4) They believe the division is almost finished with its M&A spree, outside of small acquisitions that may address certain niches.
5) Margins to remain at current levels. We expect operating margin to remain relatively stable, within the 12-14% range, following a substantial improvement from 6.5% in 4Q05 to 12% in 4Q06.
Firm estimates that sales of set top boxes accounts for ~70% of Connected Home division revenues, while video head-end equipment sales account for about 5-6%. They estimate that modems account for another 10-11% and other infrastructure products (CMTS/GPON/other), consumer products (cordless phones/security cameras/etc.), and services account for about 14-15% of revenue.
Notablecalls: Well, it's certainly been a while since I've seen any positive comments on MOT. I continue to be a s-t bull on the stock. Please see archives for further color.
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