Motorola Gets Boost From Smartphones

We expect Motorola's mobile phone gross margins will increase from around 18% in 2009 to around 31% by the end of the Trefis forecast period.
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By Trefis.com

NEW YORK (

TheStreet

) --

Motorola

's

(MOT)

mobile phone business accounts for about

26% of the $7.30 Trefis price estimate for Motorola's stock

. The company has been trying to revert past market share losses by offering a wider array of smartphones to better compete with devices offered by

Apple

(AAPL) - Get Report

,

Research in Motion

(RIMM)

and

Nokia

(NOK) - Get Report

.

Motorola announced in its recent quarterly earnings that it sold 2.3 million smartphones, representing about 23% of the 8.5 million phones it sold in the first quarter of 2010. This is an improvement over the 2 million smartphones Motorola sold in the fourth quarter of 2009, which represented about 17% of the 12 million mobile phones that it sold during that quarter.

The rapid increase in Motorola's smartphone mix in the total mobile phones sold has led us to revise upward our estimate for mobile phone average pricing and gross margins for 2010 and beyond. There could be additional upside to our estimate for Motorola's stock if the company's pricing and margins were to improve even more than we forecast.

Rising Pricing and Margins Expected

We expect Motorola's

average mobile phone pricing

will increase from $130 in 2009 to $210, while its

mobile phone gross margins

will increase from around 18% in 2009 to around 31%, by the end of Trefis forecast period

Average Mobile Phone Pricing Could Jump by 60% in 2010

Motorola reported an average selling price for its phones of $192 in the first quarter of 2010, considerably higher than its ASP of $169 in the fourth quarter of 2009 and $130 for the full year 2009. After Droid's success in the last quarter of 2009, Motorola introduced three new smartphones in the first quarter of 2010:

BackFlip on AT&T's network

Cliq XT, a touchscreen phone on T-Mobile's network

Devour on Verizon's network

We believe that the introduction of additional smartphones over time will further increase average selling prices as smartphones constitute a larger percentage of Motorola's sales.

Introduction of 20 Smartphones in 2010 Will Increase Gross Margins

Motorola expects to launch a total of 20 smartphones and sell 12 to 14 million smartphones in 2010. We estimate that Motorola will sell around 32 million mobile phones for 2010, implying a smartphone mix of around 38%. We believe that the higher smartphone mix will enable higher gross margins for Motorola's mobile phone division as a result of higher selling prices. We expect gross margins will increase from 18% in 2009 to around 25% in 2010.

You can modify our forecast for

mobile phone average pricing

and

gross margins

above to see how Motorola's stock price could be impacted if its pricing and gross margins were to increase faster than we forecast.

You can see

our complete analysis for Motorola's stock here.

Trefis

is a financial community structured around trends, forecasts and insights related to some of the most popular stocks in the U.S.