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Motorola Inc. (NYSE: MOT) is a manufacturer of wireless telephone handsets, as well as designer and seller of wireless network infrastructure equipment. In 4Q09, it shipped 12 million handsets, 2 million of which were smartphones, which represented an estimated global handset market share of 4.7%^[1]. making it the world's fourth largest provider of wireless handsets behind Nokia, Research in Motion and Apple^[2]. To counteract decreasing market share, Motorola has attempted to become a more formidable player in the smartphone handset industry, announcing the release of 6 Android-powered smartphones in 4Q09. This includes a partnership with Verizon Wireless to release its new smartphone, the Motorola Droid, which is powered by Google's Android OS and is being marketed as an iPhone alternative^[3][4].

In addition to producing wireless mobile devices, Motorola also competes in the wireless infrastructure market and provides two-way radio and networking systems for government and industrial customers. Motorola has developed end-to-end broadband systems that deliver entertainment, communication and information systems to households.

Company Overview

Business and Financial Metrics

Motorola reported $5.7 billion in sales in 4Q09, and $22.0 billion in sales in FY2009^[1]. More specifically, sales were $7.1 billion (41% YoY decrease) for its Mobile Devices segment, $8.0 billion (21% YoY decrease) for its Home and Networks Mobility, and $7.0 billion (14% YoY decrease) for its Enterprise Mobility Solutions. Mobile Devices was the only segment to experience a loss, ending the year with a GAAP operating loss $1.1 billion^[1].

Business Segments

Motorola can be broken down into the following three businesses segments:

Mobile Devices Segment (35% ($8.0 billion) of total sales in FY2009)

Mobile Devices designs, manufactures, services, and sells wireless handsets with integrated software and accessory products, marketing its products to carriers and consumers via direct sales, third-party retailers and distributors, and licensees^[6]. Of its 12 million handset sales in 3Q09, 69% came from North America, 16% from Latin America, 12% from Asia, 3% from EMEA^[1].

After having boasted a 5.5% market share in global handsets in 2Q09, Motorola has struggled competing with Samsung and Nokia, now boasting a market share of 4.7% as of the end of FY2009^[7])^[3]. To keep up with Nokia, Apple, and Research in Motion and to adapt to secular trends in the wireless devices industry, Motorola partnered with Google to release its first two smartphones, the CLIQ and DEXT, powered by the Android OS and Motorola's MOTOBLUR, as well as the Motorola DROID, the world's first smartphone featuring Android 2.0^[3].

Home and Networks Mobility Segment (35% ($8.0 billion) of total sales for FY2009)

The Home and Networks Mobility (HNM) Segment makes set-top boxes and other equipment for cable and phone companies. Other sources of revenue for this segment include cellular infrastructure systems, wireless broadband systems, analog and digital two-way radios, and voice and data communication products. Due to the nature of this segment, many agreements are long-term contracts that require sizable investments by the customers. Historically, Motorola's top five commercial customers have been Sprint Nextel, KDDI (a service provider in Japan), China Mobile, Verizon Communications and Alltel. In 4Q09, it shipped 3.4 million digital entertainment devices and 2.2 million units^[1].

The set top box business was acquired by Motorola when it bought out General Instruments in 1999 for $17 billion^[8]. In the summer of 2009, private equity firms Silver Lake Partners and Texas Pacific Group, approached Motorola expressing an interest in its Home and Networks Mobility division. In November 2009, it was confirmed that Motorola is considering the sale in an effort to split its business into separate mobile devices and broadband mobility solutions^[9].

Enterprise Mobility Solutions Segment (30% ($7.0 billion) of total sales for FY2009)

The Enterprise Mobility Solutions(EMS) provides enterprise mobility networks, services, applications and devices. This includes the design, manufacturing, selling, and installation of analog and digital two-way radio, voice and data communications products and wireless broadband systems^[6]. In 4Q09, EMS sales were $2.0billion, a 10% drop from the 4Q08^[1]. In 3Q09, it launched an innovative series of mobile terminals capable of providing the mobile computer in a handheld, rugged bar code scanner^[10].

Trends and Forces

Overall Market Growth

Motorola's main customers for wireless handsets are companies that provide mobile phone service. The companies buy Motorola's handsets and resell them (often at a subsidized cost) to their cellular subscribers. Motorola's wireless handset sales are thus dependent upon the number of overall state of the mobile phone market. As of Q2 2008, Motorola had a 25.8% market share in the US handset market.^[11]

Mobile handset sales have been growing at a rapid rate (close to 20%) during the last four years. Continued growth in this industry will be driven by demand from new subscribers in emerging markets and replacement sales from the current subscriber base. However, growth in this industry is likely to slow down as markets becomes saturated.

Emerging Markets and the MotoFONE

Strong growth in emerging markets such as India and China have contributed to the rapid growth of the overall market. Motorola currently trails Nokia in these markets. To increase their market share, Motorola has designed a sub-$50 cellphone called the MotoFONE. Analysts believe that if the MotoFONE is successful, Motorola could gain significant share from Nokia in the emerging markets.

Wireless Handset as Fashion Accessory

Because wireless handsets have become a fashion accessory, replacement sales are dependent on both economic conditions (an increase in disposable income will increase the number of elective handset replacements) and the ability of Motorola to create an attractive product. Motorola has done well in the past with popular products such as the RAZR phone, but must continue to produce new handset designs with attractive features. Currently all top five vendors of wireless handsets constantly come out with new models and new technologies. In addition to pressure from competitors products, any established phone model may saturate the market and experience a decline in sales.

Wide Customer Base

Motorola has several large customers, and the loss of any one of these customers could have an adverse effect on the company’s performance. Motorola’s largest end customers are Sprint Nextel, China Mobile, Verizon, Cingular and T-Mobile. However, no single customer accounted for more than 10% of the company’s net sales.

Wireless broadband: WiMAX versus WCDMA Market Share

The wireless broadband market is currently split between two technology standards: WiMAX and WCDMA. Currently WCDMA is more widely deployed than WiMAX. Motorola is the market leader in the WiMAX technology, but it only in 5th position for the WCDMA technology. Its competitors for WCDMA wireless broadband include Ericsson/Marconi, Nokia/Siemens, Alcatel-Lucent and Nortel. As with other instances of two directly competing standards, one of the standards is likely to eventually obtain complete market share. If WiMAX succeeds, Motorola will be well positioned in wireless broadband. On the other hand, if WCDMA succeeds, Motorola will be at a disadvantage as its market share is relatively small compared to its competitors (see graph). Motorola expects to release 5 3G handsets by the end of 2008.

Competition

Because Motorola operates in three distinct markets, it experiences competition from different companies for each of these segments.

• Mobile Devices Segment

This segment experiences intense competition in worldwide markets by numerous companies. According to Strategy Analytics, Motorola shipped roughly 13.6 million handset units in 3Q09, an 8.1% shrinkage from the 14.6 million units shipped in 2Q09^[12]. This trend highlights the consumer shift towards more advanced mobile technology such as smartphones. This has impacted Motorola's global handset market share, which was 8.4% in 2Q09, and has declined steadily to 4.7 Motorola holds 4.7% as of 3Q09^[12].

• Home and Network Mobility Segment

Competition in the set-top box space includes video game consoles made by Microsoft and Nintendo, as well as the Apple TV and Netflix's set-top box made by Roku. These companies have established platforms with downloadable media rentals and purchases through iTunes and Netflix^[13]. As consumers begin to shun cable subscriptions in favor of Internet-delivered services, demand for Motorola's cable boxes could dissipate.

• Enterprise Mobility Solutions Segment

This segment is highly competitive and new competitors are expected to enter the industry as the technology rapidly changes. Motorola competes in the market for digital set-top boxes for broadband and satellite networks. It's main competitor in North America in this segment is Cisco Systems; other competitors include Kenwood, EF Johnson and EADS Telecommunications. Motorola's main market for Enterprise Mobility Solutions is in North America.

References

1. ↑ ^{1.0 1.1 1.2 1.3 1.4 1.5} "Motorola Announces Fourth-Quarter and Full-Year 2009 Financial Results" Motorola Investor Relations
2. ↑ MOT 2008 10-K pg. 3  
3. ↑ ^{3.0 3.1 3.2} Q3 "Motorola Reports Third-Quarter Financial Results," Motorola Investor Relations, 10/29/09
4. ↑ "Motorola Droid Price Cut" 10/26/09
5. ↑ "Motorola," Morningstar Investment Research
6. ↑ ^{6.0 6.1} "Motorola: Full Description" Thomson Reuters
7. ↑ "Motorola Reports Second-Quarter Financial Results" July 30, 2009
8. ↑ "Motorola Breakup Is Put on Hold" Wall Street Journal, 1/15/10
9. ↑ "Motorola is Seeking Buyers for Mobility Unit" 11/11/09
10. ↑
11. ↑ Seekingalpha.com, Motorola: Turnaround in Progress?
12. ↑ ^{12.0 12.1 12.2 12.3} "Global Handset Shipments Fall 4 Percent in Q3 2009, but Return to Growth Expected in Q4," BusinessWire 10/29/09
13. ↑ "Motorola's Strategy: Focus on the Core Business," SeekingAlpha, 01/22/10