Motorola Has Tech Crystal Ball

Investors got bullish reports last week from the likes of IBM and Juniper. Can a struggling giant deliver?
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Investors are looking for glimmers of a turnaround at Motorola (MOT) , but analysts know better than to dream of an upside surprise.

With a newly installed CEO, recent wireless infrastructure wins in China, slight optimism about the handset market and a forthcoming semiconductor IPO, Motorola is showing signs that its perennially just-around-the-corner recovery will come into full view this year.

Last week, two brokerage firms initiated coverage on Motorola with buy ratings, each citing Motorola's appeal as a turnaround story. Moreover, tech stocks across the board have surged in recent weeks, amid signs that demand for tech and telecom gear is on the upswing. Motorola is a major player in many of the markets that have been the subject of the most fervent investor speculation.

Yet given Motorola's talent for coming up short on the execution of well-made plans, Wall Street isn't exactly giddy about the company's prospects. Motorola should outline those after the market closes Tuesday, when it releases fourth-quarter earnings.

Shares in the Schaumburg, Ill.-based wireless tech manufacturer rose nearly 4% Friday to trade at $16.92. That's more than double the stock's 52-week low of $7.59, but about even with where the stock was trading, on a split-adjusted basis, a decade ago.

For the fourth quarter ended Dec. 31, analysts surveyed by Thomson First Call are expecting earnings per share of 13 cents, a level that would be even with the fourth quarter of 2002. Revenue is expected to be $7.7 billion, up from $7.5 billion in the corresponding quarter one year earlier.

While analysts will be listening for all traces of the turnaround story on the conference call Tuesday afternoon, information could be slim about a few key elements.

Hot Tub Report

One of those is the new chairman and CEO himself, Ed Zander. The

Sun Microsystems

(SUNW) - Get Report

chief operating officer was tapped to take over from hereditary leader Chris Galvin in mid-December, and he officially started only two weeks ago.

Perhaps Zander can speak a little about company plans that he might have changed in the past few days. He might also be able to shed some light on the future of Motorola COO Mike Zafirovski, who was gunning for the CEO post himself. (The possible awkwardness of their relationship was captured in

Zander's December comment that he and Zafirovski would "sit in the hot tub together and figure out what we like about each other.") But Motorola investors, unfortunately, are accustomed to hearing grand ideas from the company that fall short when it's time to enact them.

It's less likely that investors will hear much about the proposed spinoff of the company's semiconductor business, since Motorola probably won't have much to add to the initial public offering documents on file at the

Securities and Exchange Commission

. But Motorola might have something to say about further spinoffs, which some analysts see as a possible element of the recovery story.

A successful spinoff of the semi business could serve as the prelude to "rationalization" of other underperforming businesses, writes Smith Barney's Daryl Armstrong, who on Jan. 12 initiated coverage of Motorola with a buy rating and a $22 price target. Motorola's cable business "remains a good candidate for another spin if the semiconductor offering goes smoothly," writes Armstrong. (Citigroup has done recent banking for Motorola.)

Up Close and Personal

As for numbers that could speak louder than words, the first place investors will be looking is in the handset business, or Motorola's personal communications services division. That's a particularly interesting story right now, considering that many of the bullish comments that have goosed the market this month have come from the wireless industry.

It's already well-known that PCS had difficulties building handsets and getting them to market in the fourth quarter. Credit Suisse First Boston's James Parmelee, for one, sees "modest potential upside" to his fourth-quarter expectations of 23 million units sold, an average selling price of $146, up from $145 in the third quarter, and an operating margin of 8%. He's also hoping to see possible improvement in the first quarter, on the basis of strong global handset demand. (CSFB has done banking for Motorola; the firm has a neutral rating and a $15 price target on the stock.)

Fourth-quarter revenue estimates for PCS are in the neighborhood of $3.2 billion (Goldman Sachs, which expects a divisional operating margin of 9%) and $3.4 billion (Smith Barney).

Motorola made news earlier this month with a

wireless infrastructure contract in China. CSFB is waiting for more detail on that business before increasing estimates for that division; Goldman Sachs's Brantley Thompson says the China deal is "largely in the numbers." Motorola is not rated at Goldman, which is acting as a financial adviser to the company.