Motorola Mobility’s Higher Smartphone Mix Saves the Day

Motorola Mobility (NYSE:MMI) gave an earnings preview on Friday when it revealed preliminary results for the fourth quarter of CY 2011. ^[1] The company forecast sales revenue of approximately $3.4 billion and said that it has shipped around 10.5 million mobile phones, of which 5.3 million are smartphones. These results come in lower than our already conservative estimates, even as Apple (NASDAQ:AAPL) and Samsung continue to grab a bigger share of the mobile phone market.

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Market share to decrease

We expected the company to continue on its sequential growth in mobile phone shipments and put in a much better performance this quarter, as handset vendors have historically seen good mobile phone sales in the fourth quarter due to the holiday season. However, mobile phone shipments have disappointed by coming in lower than the previous two quarters and this will undoubtedly cause its shrinking market share to decline further as Apple and Samsung continue to perform exceedingly well.

Smartphone mix improves

While the overall mobile phone sales disappointed, the lone saving grace for the company was the smartphone mix that came in much higher than the previous quarters.

The smartphone mix in the last few quarters was hovering around the 40% mark but this quarter, we saw it cross 50%. Since smartphones are priced higher than the others, the average selling price of mobile phones registered an increase. So, although revenues disappointed by coming in lower than our $3.5 billion estimate, a greater smartphone mix among the mobile phones sold ensured that the revenues were still higher than the previous two quarters.

The company partly attributed its under-performance to the ongoing legal process of its impending acquisition by Google.

Google will close its Motorola Mobility acquisition for $40 a share this year, a deal that was announced in October and has since won the overwhelming approval of Motorola’s shareholders in November last year. It is possible that employee distraction with the ongoing acquisition process has led to the poor quarter, but we believe that the highly competitive environment in the mobile phone department is the main reason.

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1. Motorola Mobility Provides Business Update, Company Press Release, January 6th, 2012 [↩]