Motorola
--Business Risk: Average
--Economic Moat: Narrow
--Price/Fair Value Ratio*: 0.77
--Consider Buying: $19.30
--Consider Selling: $31.30
After years of struggles, once-stodgy Motorola (NYSE:MOT) has refocused on its complementary handset and telecom infrastructure businesses while shedding its slower-growing, more capital-intensive businesses like its automotive division and semiconductor unit Freescale (NYSE:FSL). These moves have resulted not only in an impressive transformation of the company's culture and morale, but also a financial turnaround that Morningstar analyst John Slack believes is sustainable. With nearly 1 billion wireless handsets expected to ship worldwide in 2006, supply-chain management, procurement, and distribution are imperative for success, and Slack believes scale creates sustainable advantages and competitive barriers to entry. Motorola and industry leader Nokia (NYSE:NOK) have it, and no one else comes close. Scale allows Motorola to extract the best terms from suppliers and ensures that its orders are filled ahead of rivals', which is important when components are in tight supply. Distribution is arguably even more important, particularly from an emerging-markets perspective. This is best illustrated by Nokia, which hasn't really had a solid handset lineup in three years but is still able to gain share by the brute force of its distribution system in India and China. Motorola has smartly used its newfound scale and profitability over the past two years to invest heavily in distribution in developing markets.
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