Wednesday, November 11, 2009

Motorola shopping its home & networks division? (MOT)

The Wall Street Journal is reporting that Motorola(MOT) may be looking to sell its home and networks division. Advised by JPMorgan and Goldman Sachs, people say the division might fetch $4.5billion.

Interesting to me when I hear about companies selling off divisions is what the implied sale price says about the REMAINING business.

Right now, Motorola's market value is $20billion, including a huge $7billion cash hoard. The struggling company is going break even this year, and is expected to earn about 33cents in 2010. Net of that big cash stash, the market value is $13billion, or .6 times this year's sales.

Selling the Home & Networks division for $4.5billion would value it at .45times sales of $10billion. It would be just 5times 2008 operating earnings of $918million:

Right below the above item in the 2008 10k is the CAPEX data by division. Hard to imagine the mobile business coming back anytime soon, given the under-investment compared to other divisions. The allocation of capital investment might argue that Motorola sees Enterprise Mobility as more important to its future than the largely commoditized Mobile segment.

That said, the recent 10q shows vastly improved operating data in mobile devices. With the enterprise segment doing nearly $900million annually in operating cash flow, combined with the contributions of home and networks, Wall Street effectively values the mobile devices segment at zero. There could still be plenty of upside for Motorola shares, and shedding a division (at a full and fair price) may help investors focus on improving mobile devices results right as they turn cash flow positive.

NOTE -->> Motorola is out saying they have no comment on this data. They say they're still committed to selling the mobile devices (handset) segment from the company. But it's STUPID to do this while the division is still weak, as in "why sell low?"
Copyright 2009 AlphaNinja

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