What’s the best way to solve the problems at Motorola’s struggling mobile phone division? Kill it, says Charter Equity Research analyst Ed Snyder. In a note summarized by Barron’s editor Eric Savitz, Snyder suggests Motorola is screwed, spinoff or not.
“Like Ericsson in 2001 and Siemens in 2005, we believe Motorola is caught in a tightening spiral of losses, layoffs and declining traction in phones that will culminate in management closing or giving away the handset business,” he says. “The chances of saving Mobile Devices through restructuring are exceedingly slim. It takes two to four years to revamp a product line and with $300 million in losses each quarter, it is unlikely the company would last long enough to break-even in phones.”
And the stock? Savitz:
The stock, Snyder contends, “will decline through a series of new lows punctuated by spikes of short-lived optimism that a quick fix is at hand.” He says the stock is headed down to book value — $6.70 a share — as cash consumption increases to fund the deficits in the handset business and management struggles to find a solution. Once they get rid of handsets, he says, the stock could sink further, to the $4-$5 range.
We don’t think there’s a quick fix, but we don’t think Motorola is done, either. It’s certainly not impossible to turn a mobile phone company around: Motorola has already done this twice. Its brand isn’t as strong as it once was, and its mobile phone lineup stinks. But we’ve heard encouraging things about the latest version of its “Q” smartphone, and if Google’s (GOOG) Android operating system — which Motorola is building into some of its phones — gets any traction, the company could get some help there later this year.
And, more immediately, what about Indian conglomerate Videocon, whose billionaire chairman says he wants to buy Motorola?
Business Insider Emails & Alerts
Site highlights each day to your inbox.