Motorola (MOT) had a bad quarter, but it does give some insight into what the company is actually worth.
The company has a market cap of $44 billion and about $8 billion in cash. The stock buy-back is taking cash down fairly fast.
The handset business is awful. The company shipped 45 million units in the quarter compared to almost 66 million in the fourth quarter of last year.
The company’s telecom equipment business is doing better. While mobile devices revenue dropped from $6.4 billion in the quarter a year ago to $5.4 billion in the just reported quarter, telecom equipment revenue rose from $2.5 billion to $3 billion.
Nortel (NT), which is a modestly close comparable to the Motorola’s equipment operation, trades for about 1x revenue. So, that business should be valued at about $12 billion.
Motorola’s set-top box business is growing quickly and has a revenue run rate of about $4 billion a year. Its operating income for the quarter was $142 million, giving it the best margin of Motorola’s three businesses. This segment of the company may well be worth $7 billion.
That leaves the handset operation with a market value of $17 billion, based on the current company market cap. With an annual revenue run-rate of about $22 billion, the operation trades for less than 1x revenue. Nokia (NOK), the No.1 handset company, trades for about 1.7x revenue at the top of its 52-week range. But, it is not losing money and hemorrhaging market share. Motorola might be lucky to get 1x revenue for it handset operation.
Based on this view of the company, it may be hard to make a case that Motorola is worth much more than $18 a share.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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