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Technology Stocks : Smartphones: Symbian, Microsoft, RIM, Apple, and Others

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To: Jurgis Bekepuris who wrote (1598)9/10/2013 11:55:33 AM
From: Eric L3 Recommendations

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Jurgis Bekepuris
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Motorola Mobile: A Google company ...



Hi Jurgis,

<< Honestly, I haven't followed Moto inside Google. >>

I had not myself until very recently despite the fact that I've been adding chunks of GOOG on big dips to what was originally a very small position for about 8 years. Prompted to do so by the Microsoft bid for Nokia Devices and Services, I've spent time over the last week digging back through the quarterly reports of Motorola Mobility LLC (mobile devices and Home) from before the acquisition was completed in mid-Q2 2012, and of Google from Q2 2012 forward. I also went back to look at Interbrand's comparative annual brand rankings growth/decline for Apple, Google, Microsoft, Motorola, Nokia and Samsung for the last decade and sales and share growth/decline for each.

Right now I simply have raw notes from the exercise that is about 80% completed, but I will probably attempt to put them together in reasonably coherent format and post an abstract here -- most likely in multi-parts but when I do so I'll link each part back to this post.

One thing I am convinced of is that Google did NOT buy Motorola Mobility simply for its patents. Like Apple (albeit on much smaller scale today) they are in the devices (and services) business as is Microsoft. Over time the business models of both will change to some degree as a consequence, and it's about time for both the young Google and the aging Microsoft, IMO.

<< My guess is that the company is in downside spiral (but then who aside of Samsung and Apple isn't?). >>

Since acquisition Google has been cleaning out Motorola's device pipes and stale Motorola designed products. They have also been house cleaning the subsidiary they purchased, shedding assets and employees. It's now lean and mean and free of the former parent's baggage and the Moto X is the 1st of Google's devices.

<< How much marketshare did it lose since it was acquired? >>

Under Dr. Sanjay Jha's leadership Motorola's quarterly device shipments increased from 8.5 million in Q1 2010 to a peak of 12.9 million in Q3 2011 and declined from there in each and every quarter since.

In the final quarter before acquisition (Q1 2012) Moto had ~2% unit market share, down YoY from 3% in Q1 2011. In the 2012 1st quarter Motorola Mobility sold in 8.9 million mobile devices worth $2.2 Billion ($247 ASP): 5.1 million Android smartphones (57%) and 3.8 million (43%) feature phones or entry level devices.

In Q2 2013 (according to ABI Research) Google's Motorola sold-in 3.5 million Android smartphones which translated to less than <1% (0.8%) unit market share of mobile devices and ~2% of smartphones shipped in the quarter. Motorola Mobile revenues from devices, accessories, and other was $998 million ($351 ASP).

I suspect we'll start to see slow Motorola unit share growth starting this quarter and I also suspect that growth will be choppy just as Nokia's Windows Phone growth was. At some time I suspect it could grow faster than the smartphone market just as Windows phone growth is now doing and should continue to do despite Nokia's transition to new ownership.

<< How much money did it lose? >>

Lots ... but I haven't added it up yet. I intend to on both a GAAP and pro forma basis and also look at what the actual net cost of the acquisition was after divestures and netting down cash acquired. That net cost of acquisition turns out to be less than $7 billion not including losses incurred in the last 5 quarters, or restructuring charges in that period and going forward. Motorola headcount has been dramatically reduced by Google and virtually all manufacturing eliminated.

Below is Google's GAAP and Pro Forma operating losses for Q2 2013 (and Q1 2013, and Q2 2012).



<< Of course, Google has money to keep it on life support and even engage in DARPA'y research. But ultimately: does it deliver? :) ??

Eventually I suspect it will deliver and as the Wired article stated it's a long term goal, not a short term one:
Building Motorola itself into a profitable entity is not an immediate objective. “Of course we can’t be a drain on the company forever,” says Woodside, “but the goal is not necessarily to make massive amounts of money in a short period of time—we have a much longer time horizon than that.”
On this general topic ABI Research had this to say about the commencement of the Google/Motorola device generation ...
Q2 2013 could be considered the quarter that Motorola cleared out its old device pipes to get ready for the its new "Google-designed" devices. The newly announced Moto X device does show some ingenuity and unique thought around what an Android OEM should be doing, yet the new Motorola devices will have much to prove. Luckily, Google is willing to support Motorola with a reported $500 million marketing budget for the new devices. ABI Research is not convinced that "Made in the U.S.A." and some gesture/voice UI innovations are game changers, and there is a risk that this new UI approach could end up like Apples Siri: interesting at first but not used in the long run.
It will be interesting to see if Nexus 5 will be a Google Motorola product (or LG's, or another's).

I personally find the GoogleRola and NokiaSoft integrations and the challenges and opportunities they present to be exceptionally interesting. Once a LT core hold since '94 I've been out of MSFT since 2000. Its now back on my close watch list.

Cheers,

- Eric -
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