Motorola (NYSE:MOT) getting plenty of comments after cutting its guidance last night.
- JP Morgan notes that MOT dramatically reduced Q1 guidance on handset shipments that fell well below even their very low expectation due to lack of high-end WCDMA models and a decision not to chase low-end market share with price. Although they are now forecasting a more drawn-out handset margin turnaround, firm continues to believe that a handset business of the scale and reach of MOT's should be able to sustain double-digit op margins and remain hopeful that the new leadership team, following the appointment of Greg Brown as Pres. and COO and Tom Meredith as acting CFO, can get there. With share price support provided by Carl Icahn, a larger buyback, and MOT's attractiveness as an LBO candidate, firm is maintaining their Overweight rating.
- RBC takes their rating down to Sector Perform from outperform and lowers price tgt to $19 from $22 as they believe Motorola shares may just drift sideways for the balance of the year.
Firm says Motorola is trying to move away from the price game for market share, but the product portfolio at the moment is lacking in the high-end and the low-end. Carriers and customers may also be balking at Motorola's decision to firm-up pricing and with a weakened derivative product portfolio, Motorola has limited ability to raise prices. Peering into Motorola's upcoming family of products reveals more of the same, which is why they believe Motorola is now a 2008 story.
- Goldman Sachs' bottom line message remains avoid shares. 1) They believe we are looking at a multi year recovery. Based on their recent analysis of the handset industries profit pools, firm believes that Motorola, despite the weakness, should and will continue to invest in emerging markets. This long-term strategy will require double digit margin targets in handsets to be years away. 2) Based on the same analysis as their analysis of the 4Q06 miss, firm believes the high-end of the product line is suffering large losses, as is the low-end, while mid-tier product profits are likely stable. Further, Nokia was a major driver of this quarter's weakness. 3) One of Motorola's steps towards improvement will be an aggressive ramp in 3G and Qualcomm should benefit. 4) Firm's reverse DCF shows that shares are currently pricing in a longer term operating margin in mobile devices of 8-9%. Before turning more positive on shares, they look for shares to reflect a longer term outlook around 5%, suggesting a price closer to $15-16.
- Merrill Lynch notes that management (implicitly) expects the handset margins to be around 8% in 2H. However, given the poor reception for Motorola's new handsets, firm believes it would be more prudent to conservatively model breakeven levels for 3Q and 3% for 4Q. Firm also notes that the history of consumer electronics companies' product cycles works against Motorola. While management looks for a quick second half recovery, the experience of Nokia and Apple shows that recovery could take a few years. The abrupt declines in profits suggest that the required changes could be fundamental and involve changes to the R&D and perhaps selling processes.
Notablecalls: Buyback and Icahn may make the investors to buy the stock but will sure not make the consumers buy the phones. Valuation may also look compelling, but there's no quick fix for the Motorola's problems. As long as there is no reason to buy Motorola phones, there is no reason to buy the stock either. The question is, when is it time to make a leap of faith in the mgmt/product portfolio? It will probably take some time.
No comments:
Post a Comment