Buy, Sell, or Hold Motorola?

Motorola (NYSE: MOT  ) continues to push toward splitting into two separate companies. One profitable side will focus on networking and enterprise solutions (Motorola Solutions), while the other would concentrate on consumer areas such as mobile phones and home DVR's (Motorola Mobility). In recent years, the meandering mobile phone unit has dragged the rest of the company down into a vat of red ink.

However, with the more profitable side of Motorola's business preparing to spin off, should investors be saying "Hello, Moto," to their portfolio once they have a shot to snap up Motorola's better half?

Here's a list of reasons to buy, sell, or hold Motorola Solutions.

Buy:

  • Leadership: While its other lines of business might not be as exciting as a Droid X smartphone, Motorola has leadership in two-way radios, mobile computing cards, and bar code scanners. This creates a diversified revenue flow across a variety of products, and generates recurring services revenue for the company.
  • Stability: Even in the depths of financial Armageddon, Motorola's Enterprise Mobility segment turned in positive operating profits. While governments have scaled back, they're still a reliable customer, and Motorola Solutions has several growth opportunities in areas such as networking and RFID products.

Sell:

  • Networking Technology Question Marks: While still an opportunity, the networking business also has some hurdles to overcome. It has seen particular strength in WiMAX. However, the technology is under assault from the competing LTE standard, and could see growth curtailed. Motorola has LTE expertise of its own, but not the same capability it had in WiMAX, where it was a market leader.
  • Liabilities: To make the consumer-facing spinoff more attractive, Motorola plans to give the company the majority of its cash pile, and have Motorola Solutions assume pension obligations and remaining liabilities. These legacy costs could cause significant pressure on earnings down the road.

Hold:

  • Competition: The battle for networking equipment is fierce. Motorola lags larger competitors like LM Ericsson (Nasdaq: ERIC  ) and Alcatel-Lucent (NYSE: ALU  ) , which have won several recent high-profile contracts. While Motorola has a strong presence in its highly profitable Enterprise Mobility segment, which sells two-way radios and wireless broadband systems, competition is tough, and large systems integrators are moving into the space. Harris (NYSE: HRS  ) , Honeywell (NYSE: HON  ) , and Cisco Systems (Nasdaq: CSCO  ) all compete within varying areas of the Enterprise Mobility segment, some of which will present the best growth opportunities in coming years.

The final call
While we don't know what Motorola Solutions will trade for until the company splits, my gut instinct is to say "hold." Motorola Solutions is definitely a safe company with growth potential. However, recent market tumbles have left several technology market leaders trading at low double digit P/E's. A company like Cisco has less uncertainty and more growth potential, at a very attractive multiple. With so many of technology's stars trading at clearance prices, I'm inclined to shop elsewhere.

Eric Bleeker owns shares of Cisco. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 08, 2010, at 4:25 PM, Linksmanrjf wrote:

    Motorola has been a leader in two-way radio communication going back to the 60's or perhaps earlier. My brother had a two-radio service shop for these radios during the missle silo building days in North Dakota, keeping those construction guys in business, also the ND farmers, school buses, cab companies as well as police and fire departments and others. I assisted as a teen.

    The competition - GE perhaps, but my brother call their radios "GE junk."

    So with all that's happened since then Motorola has beat itself up with some bad choices and the stock has suffered. Perhaps Motorola might be better off by dropping out of participation in the consumer arena.

    I wish Motorola all the best as I still remember my brother's pride in servicing the company's radios for many years.

  • Report this Comment On July 08, 2010, at 9:08 PM, zanemorris wrote:

    If you own MOT then you get two pieces after the split. I would like to see a MF analysis and recommendation on the Mobility piece of the business; buy, sell, or hold. The MOT droids are selling well and increasing as a percentage of total hand held sales. But can then pull up in time to reach growth?

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