(GOOG) Motorola Mobility Holdings Analyst Remains Neutral

We reaffirm our long-term Neutral recommendation on Motorola Mobility Holdings Inc. (MMI) following its recent agreement with Google Inc. (GOOG), which will enable the later to acquire 100% of the company. Motorola Mobility reported mixed financial results for the second quarter of 2011. While revenue beats the Zacks Consensus Estimates EPS fell below it. We believe the company is yet to turnaround since it forecasted a disappointing third-quarter 2011 financial outlook mainly due to the delay of high-end product launch.

On August 15, 2011, Google and Motorola Mobility jointly announced that the two companies have entered into a definitive agreement through which Google will acquire 100% stake of Motorola Mobility for a total consideration of $12.5 billion. Motorola Mobility used Google developed Android operating system for all its smartphones.

Motorola Mobility has more than 17,500 worldwide patents in the mobile computing field in its portfolio and another 7,500 patent applications in the pipeline. We believe this extremely rich patent portfolio is the primary reason for Google to acquire the company.

Motorola Mobility recently entered into next-generation 4G wireless field. From September 8, 2011, Verizon Wireless has started selling 4G Long-Term Evolution (LTE) capable Droid Bionic smartphone of Motorola Mobility. Droid Bionic is the first Verizon Wireless smartphone, which combines 4G LTE with dual-core 1 GHz processors. Verizon Wireless is a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group plc. (VOD).

Although the company finally launched its 4G LTE capable Droid Bionic, it was much delayed. This device was expected to be launched in the second quarter of 2011. However, the company delayed its launch by a quarter after management received quite a few negative feedback for this phone for which it wants to make some changes and improve it further. In the meantime, Samsung Electronics and HTC Corp. came out with their respective 4G LTE capable Android-based smartphones. As a result, Motorola mobility lost some vital market share to those two companies.In last July, management predicted that its third-quarter financial results will be affected due to this delay.

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