Moto: Fourth Quarter Execution ...
... appears to not be starting out as well as Moto expected, in a quarter when Nokia historically executes very well.
November 07, 2006: Lehman’s Tim Luke on Tuesday trimmed his fourth quarter expectations for Motorola’s (MOT) handset units, average selling prices and margins; he also trimmed profit forecasts and cut his price target on the stock to $27 from $30.
Slacker posted the above (and more) on the Motorola board here...
Message 22988233
Lehman Brothers continues to rate MOT 1-OW and the sector Neutral while reducing the MOT price target to $27.
Post-Q3 earnings on October 20 Lehman reported on NOK ("ASP Decline Offsets Unit Strength"). The maintained their 1-OW rating and their price target of $24.50 which represents a multiple of 17x their new 2007 EPS of $1.42.
"Our EPS estimates fall from EUR 1.03/$1.27 to EUR0.99/$1.22 in 2006, from EUR 1.20/$1.50 to EUR 1.14/$1.42 in 2007 and from EUR1.30/$1.63 to EUR1.22/$1.53 in 2008."
In the new MOT report, Lehman comments:
We believe that a slower than expected start to 4Q06 for MOT, notably with respect to the KRZR, W-CDMA ramp may be viewed as possibly offering opportunities for mid/high-tier players SonyEricsson and Samsung. With Motorola's lower end business broadly on track, we believe implications for Nokia may be neutral.
My personal opinion is that the implications for Nokia and Sony Ericsson are positive, not neutral, particularly when coupled with Samsung's usual "inventory clearing" (as reported by Slacker) and Samsung's usual tendency to ramp new products slower than Nokia. Nokia is always poised to exploit any competitors weakness in Q4.
I have more concern about Q1 2007, when Moto and Samsung should be clicking while Nokia probably won't have started a portfolio refresh.
Other expanded highlights from the Lehman MOT report ...
• Our conversations at carrier stores and checks with distributors suggest the sales force at some carriers has been experiencing difficulty with KRZR’s initial lofty price premium (Wholesale approximately $300 for KRZR Vs approximately $130+ for RAZR).
• In Europe, our checks suggest new W-CDMA handsets from Motorola (RAZR XX and RAZR MAXX) this quarter have not yet arrived which could suggest our higher end unit estimates may be aggressive.
• Our handset unit estimates for Motorola in 4Q and 2007 move to 62M and 247M from 62.4 and 252M previously.
• With respect to RAZR sales, our checks suggest sales (sell-in and sell-through) remain strong for Motorola early in the quarter – particularly following recent price reductions in October. While data points from component supplier Skyworks have been more mixed with respect to GPRS RAZR orders – suggesting some slowing order patterns – we believe the weakness at Skyworks relates to share gains by RFMD. SLVR L6 demand also appears fairly healthy, given the recent price point (ASP is sub $100). The L7, however, is limping along as its ASP is above the RAZR’s. The entry level W series also seems to be doing well with lower end C11x demand fairly solid, with our checks with Taiwanese component suppliers in Asia suggesting orders are increasing ahead of material ramp of new MOTOFONE.
• A slower than expected ramp in higher ASP W-CDMA and iDEN sales this quarter, combined with continued strength of now mid range RAZRs and low end W series handsets, may now suggest 4Q ASPs may not recover as quickly as hoped towards Motorola’s targeted 2Q levels of $138. Our handset ASP estimate subsequently moves to $133 and $128 in 4Q06
• New 4Q launches to monitor are the KRZR, W-CDMA, CDMA at Sprint and MOTOFONE. The ramp of the GPRS/EDGE slider (RIZR) also bears watching. With respect to the MOTOFONE, in particular, our checks through late October suggest the phone has not yet begun to ship in Europe nor Asia. Motorola had previously suggested MOTOFONE gross margins are higher than the C11x and equivalent or better than the overall mix so delays with MOTOFONE and greater C11x shipments in the meantime could possibly weigh on upside in 4Q. Yields on the new MOTOFONE may be low initially given the new platform technologies (screen, TXN Locosto single chip).
• In Asia, our checks suggest Motorola has had some production problems with V3, V3i, L6 and L7 handsets manufactured at a key plant in Singapore with production as a result at only 60% of plan for October. Early production in November also seems to be affected. Shortages of Bluetooth radios and transceivers seem to be the trouble. While some spotty shortages are not unusual this time of year, especially with peak season holiday demand approaching, we believe the situation bears some monitoring. As a reminder, Motorola’s manufacturing facilities are located in Libertyville, Illinois; Flensburg, Germany; Tianjin, China; Singapore; Jaguariuna, Brazil and Malaysia. Of these, the largest are in China, Singapore, Brazil, and Malaysia.
• Long-term we continue to remain upbeat on Motorola’s new product launches, and ability to gain share in 2007 against a generally healthy handset demand backdrop. Near-term however, we believe following a slower start in October, our higher end estimates for 4Q and 2007 may be increasingly difficult to achieve. We lower our handset unit/ASP/margin outlook in 4Q and 2007. Our 4Q revenue and EPS estimates as a result move to $11.89B/$0.39 in 4Q from $12.07B/$0.40 previously. In 2007 our estimates move to $46.8B/$1.51 from $46.01/$1.58. Our price target moves to $27, which represents a multiple of 18x our new estimate of $1.51.
• We believe that a slower than expected start to 4Q06 for MOT, notably with respect to the KRZR, W-CDMA ramp may be viewed as possibly offering opportunities for mid/high-tier players SonyEricsson and Samsung. With Motorola's lower end business broadly on track, we believe implications for Nokia may be neutral.
• In semiconductors, we believe possibly slower shipments for MOT may impact sentiment towards the wireless food chain of semiconductor vendors. While overall we believe phone volumes for 4Q are broadly on track with the overall industry expectations, potentially slower shipments at MOT may suggest an uncertain backdrop for core chip suppliers such as Freescale (FSL - not covered and going private). However, checks suggest FSL supplies a similar baseband processor for both the RAZR and KRZR, and we therefore believe any cannibalization of RAZR sales by KRZR may have limited impact on FSL sales. We also believe the MOT news could also temper sentiment towards lower end partner Texas Instruments, which supplies its chips to its low end C11X as well as low end single chip solutions (LoCosto) for the value-end MOTOFONE that is expected to ramp towards the end of the year. We believe that CDMA KRZRs at Verizon have tracked in line to date with chips from QUALCOMM. We expect this news to be neutral to RFMD, which is a major MOT supplier in the RAZR and SLVR with its Polaris solution; however, Skyworks implications are concerning with exposure in the KRZR, RIZR, and likely MOT’s W-CDMA phones. ###
- Eric - |
