Google's Motorola to Launch Moto X

Zacks

In order to gain traction in the hardware market, Google Inc.’s (GOOG) Motorola Mobility handset unit plans to unveil a new smartphone, Moto X, by October.

The details of the smartphone are not yet known but the new phone will be built at a manufacturing site near Texas that will employ approximately 2,000 people.

Google had bought Motorola for $12.5 billion in 2012 and stated that Motorola would continue to run as a separate unit, with its phones based on the Android OS. The deal was the biggest in its 13-year history and propped up Google’s portfolio with more than 17,000 patents. To Google’s misfortune, Motorola has been continuously losing market share to its competitors and has been unable to regain it.

In the last couple of years, the once-significant cell phone maker, Motorola Mobility, has fallen behind in the competitive smartphone market, which is now dominated by Apple Inc’.s (AAPL) iPhone and Samsung’s Galaxy range, which runs on Google Inc.’s Android platform. According to the report presented by research firm IDC, Google’s Android and Apple’s iOS operating systems together held approximately 92.3% of total market share in the first quarter of 2013.

As a result, it becomes important for Motorola to introduce competitive products that can address the needs of its target market. We believe that handsets with new features, affordable service plans and low pricing will likely garner significant market traction, driving market penetration and revenue growth for Motorola.

Google is a market leader in online advertising and its mobile strategy has been bang on target so far. Its Android OS has gone a long way toward cementing its position in the mobile segment. But, the Motorola hardware segment has not been able to perform well. In the last quarter, the segment was down 32.8% sequentially and accounted for a little over 7% of revenues. Management stated that it expects the business to remain choppy in the near term.

We believe that Motorola still has a long way to go to regain its lost glory since both Apple and Samsung together hold a 60.2% share of the U.S. smartphone market, while Motorola has a share of only 8.4%, down 11.6% from the prior quarter.

Google currently carries a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth considering include Yahoo Inc. (YHOO) and Akamai Tech. (AKAM). While Yahoo carries a Zacks Rank #2 (Buy), Akamai carries a Zacks Rank #1 (Strong Buy).

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