(BBY) Motorola Mobility Holdings Opts for Cheaper XOOM

Motorola Mobility Holdings Inc. (MMI) introduced a cheaper XOOM tablet, designed mainly for families. This product is available at Best Buy Co. Inc. (BBY) stores from last Sunday. XOOM tablet was first launched in mid-February 2011 with Verizon Wireless, a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group plc. (VOD). From October 13, 2011, Motorola Mobility has started selling its 4G LTE-enabled XOOM from Verizon Wireless stores for $499.99 for a two-year data plan. However, the new family purpose XOOM will cost just $379.

XOOM was the first device to run on Android 3.0 Honeycomb operating system, specifically designed by Google Inc. (GOOG) for tablets. The XOOM family edition will contain a touch screen of 10.1 inches at the diagonal, a dual-core processor, front and rear cameras. However, the device will only contain 16 Gbps memory, whereas the existing XOOM has 34 Gbps memory.

The 3G XOOM performed far below the iconic iPAD 2 tablets of Apple Inc. (AAPL) in the previous quarter. Motorola Mobility sold 440,000 XOOM in the second quarter of 2011 compared with a massive 9.25 million iPAD tablets.Motorola Mobility was forced to drastically reduce the price of its XOOM tablets to compete with iPAD. The lucrative tablet market is becoming extremely competitive day-by-day. This situation has forced incumbents to reduce their product price.

In the meantime, in August 2011, Google has entered into a definitive agreement with Motorola Mobility to acquire it for approximately $12.5 billion. The deal is subject to the regulatory approval and customary closing conditions.

We maintain our long-term Neutral recommendation on Motorola Mobility. Currently, it has a short-term Zacks #3 Rank (Hold) on the stock.

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