MMI Marcus and Millichap Inc

We initiate coverage for Motorola Mobility Holdings Inc. (MMI) with a Neutral recommendation, ahead of its first quarter 2011 financial results. The company is finally reaping the benefit of the decision to use Google Inc. (GOOG) developed Android software for its struggling mobile phone businesses. Supported by strong market traction of its 3G Android-based smartphones, Motorola Mobility is regaining its lost ground in the lucrative U.S. smartphone market.

Motorola Mobility will benefit from the significant market acceptance of Android as the next-generation 3G and 4G smartphone operating system. Motorola Mobility handsets feature an intuitive user interface and an efficient combination of Internet access, messaging, and multi-media applications based on the Android ecosystem. The major new innovation is the customized software interface called “MOTOBLUR”. This is a social-networking interface through which Motorola Mobility is trying to differentiate its products from other smart phones. Currently, over 6,000 multimedia and social networking applications are available on the Android ecosystem. The company is trying hard to expand this platform using its proprietary MOTODEV program.

During the fourth quarter of 2010, Motorola Mobility shipped 11.3 million mobile phones including 4.9 million of smartphones. This is a considerable improvement over the shipment of 3.1 million of smartphones in the previous quarter. We believe this encouraging performance was mainly due to solid growth of the company’s flagship DROID product. For full-year 2010, Motorola Mobility shipped 37.3 million mobile phones including 13.7 million of smartphones. During fiscal 2010, the company launched 23 varieties of smartphones.

Nevertheless, Motorola Mobility has provided a weak outlook for its core Mobile Devices segment. Although it did not specifically provide any figure for its first-quarter 2011 smartphone shipment, it did announce that the company is already started facing intense competition for Apple Inc. (AAPL) developed iPhone 4 from Verizon Wireless (VZ). Furthermore, recently Motorola Mobility announced that it has deferred its much hyped4G DROID BIONIC smartphone with Verizon by a quarter. This device was expected to launch during the second quarter of 2011. DROID BIONIC is expected to be the company’s first 4G smartphone. Management received quite a few negative feedback for this phone for which it wants to make some changes and improve it further.  

 
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