Motorola´s new Moto X smart phone has the potential to bring the company back into the black with reasonable sales targets. The phone will also boost profits at Google’s mobile ad division.
Aug. 08, 2013 - CHIYODA-KU, Japan -- Later this month Motorola Solutions Inc. will release its first smart phone, the Moto X, in the United States since being acquired for $12.5 billion by Google in 2012. Motorola´s CEO Dennis Woodside and Google Chairman Eric Schmidt are looking to take market share from Apple and Samsung by offering a lower priced smart phone, the handset will retail for $200 in the US with carrier subsidies. Although a price outside the US has not been released; our analysts’ estimate it will retail for $400 as the phone costs $214 to build. Woodside and Schmidt are targeting the one billion mobile phone users who do not have internet on their handsets.
The billion mobile phone users without internet represent huge profit potential for Google. Google already makes billions of dollars from selling mobile ads on devices from all of the major manufacturers, but it must share this revenue with the manufacturers, as much as 80% with Apple. With Motorola phones, there would be no sharing with another phone maker; revenue from ads clicked on the Moto X will go straight to Google.
Motorola would show significant profit with sales of only 5 million to 7 million annually, which is a fraction of the 44 million iPhones and 53 million Samsung Galaxies sold in the United States. If Google is able to sell 6.5 million units which represent 0.5% of global smart phone sales, it would generate $2.3 billion of revenue and boost EPS by $2.05, according to Analysts at The Lexington Group.
Our analysts are recommending clients buy both Motorola and Google with target share prices of $70 and $990 respectively following the release of their new handset. Realistic sales targets for Motorola will boost profits and increased revenues from ad sales all going to Google will boost profits there as well.