Motorola: Should Investors Redial?

Yvonne Bishop
Asst. Portfolio Mgr., Summit Everest

Motorola's handset business is in a lull. But the same thing happened to Nokia when Motorola's Razr phone came out. Nobody wanted to go near Nokia then. Research and development is a fuzzy thing. It's hard for investors to find something to grab onto. By the time they do, its cheap price will be gone.

Outside handsets, Motorola's home-networks business is steady and profitable. The company is one of the leaders in high-definition home cable boxes, a market expected to grow rapidly for the next several years. And its government communications business should continue growing.

There have been a lot of management changes lately. But if current management can't get the job done, somebody will step in who can.

The strongest selling point is its 2.7 percent dividend yield and its valuation. The stock is trading at 0.5 times sales, but its three-year average is one times sales. There is real concern about Motorola's ability to rebound, but developing new products takes time.

Mike Walkley
Analyst, Piper Jaffray

We're seeing fewer and fewer Motorola products in stores and no new, exciting products. Consumers have moved on to higher-end products like the iPhone and BlackBerry. And similar competing products from LG and Samsung are better sellers.

Motorola had a $347 million operating loss in its handset division last year. And while its government business had a really big boost post-9/11, it's a mature business that has slowed with the economic downturn.

The company has been searching since the beginning of the year for a leader in its handset division and hasn't found one. This creates turmoil among employees, which isn't good in a sector that is dynamic and requires long-term planning.

With the amount Motorola is losing today in cash, it will be tough to spin out its handset division, which the company is considering. We think the stock could fall further — and that's assuming Motorola can shed the handset division and unlock value in other parts of the company.