Its been three months since Motorola split into two companies –spinning off
its brand-name mobile products into a new stock called Motorola Mobility (NYSE:
MMI ) and keeping the rest of the operations under the old company, which was
renamed Motorola Solutions (NYSE: MSI ). Motorola has a storied history that
goes back before the 1929 stock market crash. Its car radios and walkie-talkies
are prop staples of old TV shows and World War II movies, and the Razr phone was
the must-have mobile device five long years ago. Then came the Apple (NASDAQ:
AAPL ) iPhone. Since then, Motorola has struggled to right itself, deciding the
task would be easier if Motorola Mobile, the consumer business which also
includes products like set-top boxes, was split off from the rest of the
company. Investors in the parent, Motorola Inc., received shares in both of the
new companies. Following the Jan. 4 separation, Motorola Mobility has grabbed
most the headlines. It launched Xoom, a tablet powered by Googles (NASDAQ: GOOG
) Android software that some believed could give the iPad a run for its money.
The Droid smartphones, also produced by the company, have been among the best
selling models of Android phones to date. The nonconsumer business company,
meanwhile, tended to businesses like bar-code scanners, cell networks, RFID
products, wireless broadband networks and two-way radios, mostly purchased by
companies and governments. Most were unglamorous products that failed to
register on the medias radar. Judging from Google News citations , Motorola
Mobility has hogged the spotlight since the spinoff. But an interesting thing
has happened. In spite of all that attention, boring old Motorola Solutions has
won much more attention from investors if attention is to be measured in stock
appreciation. Motorola Solutions has risen 10% since the spinoff, while Motorola
Mobility has lost 27% of its value. The S&P 500, by comparison, is up 4%. In the
fourth quarter of 2010, the first quarterly earnings reported after the mobile
spinoff, both companies reported rising revenue and operating profits. Motorola
Solutions saw revenue rise by 13% to $2.2 billion and operating profit rise to
$279 million from $250 million. Operating profit margin edged down to 12.4% from
12.6%, although margins for all of 2010 rose to 9.9% from 7.9% in 2009. Motorola
Mobility, meanwhile, saw revenue rise 21% to $3.4 billion. It posted an
operating profit of $126 million, or 3.7% of revenue, compared with an operating
loss of $196 million in the year-ago quarter. Those figures have induced a
sentiment split among analysts as well. According to Thomson/First Call, 17
analysts have a buy or strong buy recommendation for Motorola Solutions, while
13 have a hold rating on the stock and five have negative ratings. The
enthusiasm is not a strong one for Motorola Mobility: Four have buy ratings, 17
have hold ratings and one has a sell rating. Whats going on? Motorola Mobility
needed Xoom to be a big hit early on, to strengthen its brand in the tablet
market before other Android tablets come flooding in. In smartphones, Motorola
is beginning to see Android rivals eat into its share. Motorolas share of mobile
subscribers dropped to 16.1% of the market in February from 17% three months
earlier, ComScore said earlier this month. The mobile company has also been
weighted down with concerns about its future prospects – again, in large part
due to Apple. Only about 100,000 Xoom tablets have sold, investment bank
Deutsche Bank reckoned last week. Others are expecting Apple to sell 2.5 million
iPad 2s in March. Motorola Solutions, meanwhile, is expected to see fairly
steady demand for its not-so-glamorous products. Governments may be cutting back
on budgets, but many of Motorola Solutions products are needed by
first-responders and are less likely to be skimped on. Other products, like
mobile and networking equipment, will remain in demand as the mobile industry
grows, albeit in a less prominent way than smartphone handsets. Motorola
Mobility has plenty of chances to improve its standing in smartphones, tablets
and Internet-TVs all markets where fortunes can turn in a few months. Things
arent so chaotic in Motorola Solutions markets, where growth is slower but
potentially steadier. A few months into Motorolas breakup, investors seem to be
warming more toward slow, steady and not-so-glamorous. That bodes well for
Motorola Solutions. As for Motorola Mobility, its likely to become by far the
more volatile stock of the two.
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