Analysts Lower MOT Ratings ...
Prudential's Inder Singh maintained a Neutral rating and $24.00 price target but stated ...
• We expect to lower our estimates after further details become available on the financials.
Lehman Brothers Jeff Kvaal and Tim Luke maintained their 2-Equal weight rating but lowered the MOT price target from $20 to $17,50 and painted a rather bleak picture particularly for Mobile Devices ...
• Mobile Devices continues to be plagued by a challenging pricing environment, particularly in developing markets where pricing competition appears to be intensifying. Motorola is unwilling to follow given its margin struggles. A limited 3G portfolio also seems to be weighing. Our checks suggest pricing stabilization in mid-tier RAZR, KRZR categories has been difficult through early March. The mid tier pricing challenges appear to reflect a continuation of 4Q difficulties where competitors appear to be discounting higher end W-CDMA handsets which appears to be driving demand away from Motorola’s mid-tier KRZR category.
• While unit and ASP commentary for the Mobile Device business were not outlined, we estimate handset units fell to ~46-48M units this quarter, and ASPs may have fallen to ~$113 in the quarter. This compares to very strong unit shipments of ~66M in 4Q06. Lower unit shipments appear to represent margin preservation (passing up lower margin business in competitive high growth, low ASP markets) as well as a fair amount of channel inventory accumulated moving into 1Q. We currently estimate channel inventories are likely to remain flattish with the higher levels entering 1Q. We currently anticipate minimal improvement in 2Q. A 2H07 improvement may depend on new phone launches.
• From a profitability standpoint, lower units and ASPs in the quarter appear to have driven Mobile Devices into the red. Our initial estimates suggest operating margins may have fallen from 4.5% levels in 4Q to between -5% and -6% levels in 1Q. With a heightened sensitivity to competitive dynamics in emerging markets and fairly material excess channel inventories, we believe margin improvement into 2Q may be difficult and model flattish operating margins QoQ. Management suggests its prior emphasis on market share gains – particularly in emerging markets – will increasingly shift to profitability gains. It appears Motorola’s cost structure, particularly in the entry level, is still too high which is limiting Motorola’s ability to lower price in these high growth markets.
• We are cautious on Motorola’s ability to return to 5% profitability levels in each 3Q07 and 4Q07 in order to reach targeted profitability levels for the division on an annualized basis. While management’s workforce reduction and site rationalization plans – which are estimated to save over $400M on an annualized basis exiting 2007 – we remain cautious and model handset operating margins for the year at -3%.
• We believe that Motorola's preannouncement and current operational challenges significantly reduces the likelihood of a potential acquisition of Palm, speculation of which has grown in recent weeks.
Other firms reactions noted below ...
>> Motorola target price lowered at RBC, Citigroup, Goldman Sachs and Deutsche Bank
Financial Post
Canada
March 22, 2007
tinyurl.com
Motorola Inc.’s (MOT/NYSE) warning that first quarter results will disappoint due to weaker-than-expected results for its handset business, helped drive the stock down further to a new 52-week low on Thursday.
RBC Capital Markets downgraded its rating on Motorola to “sector perform” from “outperform” and lowered its price target by US$3 to US$19, saying it does not expect a recovery this year.
“Samsung and Ericsson may have the upper hand this year in terms of their ability to gain market share,” analyst Mark Sue said in a note to clients.
Citigroup analyst Daryl Armstrong lowered his price target from US$22 to US$20 with a “hold” rating, saying it appears that Motorola’s competitors are attacking the company when it is down.
“We think Samsung is hurting them in the mature markets and Nokia in the emerging ones,” he said in a research note.
Goldman Sachs lowered its target price to US$16 from US$18, while Deutsche Bank is even more bearish on Motorola, lowering its price target to US$15 from US$19.
The firm reiterated its opinion that the company has plenty of work ahead of itself if it wants to return to health.
Deutsche Bank also said Palm shares will come under pressure as the market should now better recognize that a potential merger between the two is “extremely unlikely to take place.”
An acquisition of Palm by some other company is already fully reflected in its share price and the possibility of a premium being paid is unlikely, the firm said in a research note. ###
- Eric - |
