After Motorola’s (MOT) global handset market share dropped from 22% two years ago to 14% more recently, it could hold on to one prize. It was still the top selling handset company in the US. That may have changed. Samsung may have taken the lead.
According to The Wall Street Journal "Motorola’s U.S. cellphone sales are dropping so sharply — and Samsung is catching up so quickly — that the South Korean company may soon knock Motorola from the perch it has held in the U.S. since it invented the cellphone in 1983."
Motorola’s handset division lost over $1 billion last year on revenue of $19 billion. This year, the loss could balloon to $2 billion on much lower revenue. The company put the division up for sale last year, and, as far as anyone knows, there were no offers.
After relentless pressure from its unfriendly shareholder Carl Icahn, Motorola decided to split itself into two companies. One would hold the handset operations, and the other would keep home products, enterprise solutions, and the firm’s government business. Those businesses are profitable and should command a good multiple of operating income.
But, what is the handset division worth now? Motorola’s stock has come down from over $26 to under $10 in two years. Almost all of that value is due to poor performance in handsets. That would have given that portion of the company a notional value of at least $15. With the company trading at $9.55 what happened to that value?
The answer is that it is gone. Whatever value the Motorola handset operation has is in the potential that it can be turned around. That may be better than a long shot, but not by much.
When MOT shareholders get their stock certificates for the handset business, they should not be surprised if those shares only trades for a couple of dollars.
Douglas A. McIntyre