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Motorola looks sharp -- Razr sharp
By Robert Marcin 3/30/2006
I have heard that a popular hedge fund's matched-pair trade is long Nokia (NOK, news, msgs) and short Motorola.
Bad trade.
We may get the Motorola shorts churning out negative yarns in the quiet period, but don't let that influence you. This year, starting with the first quarter, should be excellent for Motorola.
Motorola (MOT, news, msgs) lost a bit of buzz with a solid, but not exceptional, December quarter. In my opinion, the company left a ton of business on the table because of component shortages.
But check out the 10-K financial form filed a few weeks ago. Handset backlog exploded, up 100% at year-end. That represents 10 million more phones than at the end of last year. Cell-phones have short shelf lives and ship relatively quickly, as in the next quarter.
Hottest phones around
Many bears, including one on this site, predicted that the Razr would fizzle. How wrong they have been and will continue to be.
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Six quarters into production, Motorola still cannot satisfy demand. Some of my wealthiest associates just bought Razrs, as did my 12-year-old son. That market covers just about everyone in this country, and most still do not have a Razr.
My only concern with the Razr is that Motorola messed up by not being able to produce enough product. That's a high-class problem to have. Motorola will not make the same mistake with its new hot phone, the Slvr.
Another bear contention is that the Slvr launch is going poorly.
How so very wrong.
The Slvr is ramping at a faster pace than the Razr and recently became the best-selling prepaid phone in the U.K. According to a Citigroup report, component suppliers have been asked to get up to 4 million-unit capacity per month. Motorola expects to sell a ton of Slvrs this year. I believe it is correct. It's a candy-bar product, so most of the sales will be international.
The mojo is back
Motorola's publicly-stated financial goals include significant market-share gains and profit-margin expansion this year. With the success of its thin-form factor line including the Razr, Slvr and the PBL -- selling many tens of millions of units (70 million to 100 million?) this year -- I believe Motorola will achieve both.
The handset market looks solid for 2007. New technologies and better Internet access should continue to drive the replacement cycle. I think 900 million handsets will be sold globally this year.
And starting off with a bang-up first quarter (it could be flat to up sequentially), I expect Motorola to ship more than 200 million units. My forecast is significantly higher than Wall Street consensus. And that's without Motorola's hit product for 2007, the Scpl.
Over the next quarter or two, it should become obvious to investors that Motorola's mojo has returned. And painfully, the Motorola shorts will be covering at higher prices.
© 2006 TheStreet.com, All Rights Reserved.
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