(GOOG) Motorola Mobility Holdings Results Fall Short Again

Motorola Mobility Holdings Inc.(MMI) reported somber financial results for the fourth quarter of 2011, where both the top and bottom line fell short of the Zacks Consensus Estimate. However, following the earnings release, stock price of Motorola Mobility increased by 7 cents (0.18%) to $38.67.

Quarterly GAAP net loss was $80 million or 27 cents per share compared with a net profit of $80 million or 27 cents per share in the prior-year quarter. Adjusted (excluding special items) EPS in the reported quarter was 8 cents, which was just a penny short of the Zacks Consensus Estimate. Total revenue in the quarter was $3,436 million, up 0.3% year over year but below the Zacks Consensus Estimate of $3,822 million.

Gross margin in the reported quarter was 24.9% compared with 26.7% in the prior-year quarter. Quarterly operating loss was $78 million compared with an operating income of $126 million in the year-ago quarter.

During the fourth quarter of fiscal 2011, Motorola Mobility’s cash flow from operations was $225 million and was at par with the prior-year quarter. Free cash flow (cash flow from operations less capital expenditure) during the reported quarter  was $161 million compared with $150 million in the previous-year quarter. Cash and cash equivalents at the end of 2011 was $3,451 million. The company had no debt on its balance sheet in the quarter.

Mobile Devices Segment

Segment revenue was $2,539 million, up 5% year over year. Operating loss, on a GAAP basis, was $70 million compared with an operating profit of $72 million in the year-ago quarter.

During the fourth quarter of 2011, Motorola Mobility shipped 10.5 million mobile handsets including 5.3 million smartphones. Motorola Mobility also shipped approximately 200,000 XOOM tablets in the reported quarter.

Home Segment

Revenue from this segment was $897 million, down 11% year over year. GAAP operating income was $57 million versus $54 million in the year-ago quarter.

Motorola Mobility and Google Agreement

On August 15, 2011, Motorola Mobility Holdings Inc. announced that it has entered into a definitive agreement with Google Inc, (GOOG), under which the latter will acquire 100% stake of Motorola Mobility for $40 per share in cash or a total consideration of approximately $12.5 billion. On November 17, 2011, the stakeholders of Motorola Mobility received favorable response for the proposed merger. As per management, the deal is expected to be completed in the first half of 2012, subject to regulatory approvals.

Our Take

Currently, Motorola Mobility boasts a huge 4G/LTE product lineup, which we believe will act as a growth catalyst going forward as more and more telecom carriers are shifting to LTE networks. However, lack of product differentiations and stiff competition from other cheap smartphone makers will act as headwinds for the stock going forward. We also prefer to remain on the sidelines till the merger with Google is completed. We, thus, maintain our long-term Neutral recommendation for Motorola Mobility Holdings Inc.

Currently, Motorola Mobility Holdings Inc. has a Zacks #4 Rank, implying a short-term Sell rating on the stock.

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