* Management’s stated strategy for the Mobile Devices has not changed, but its tactics in pursuing the business have. As we have previously stated, we are encouraged by the plans laid out by recently installed CEO Sanjay Jha for turning around the Mobile Devices unit. On MOT’s 3Q08 earnings call Jha highlighted the strategic shift to supporting three software platforms (Windows Mobile, Android and P2K) and terminating projects based on platforms such as Linux-Java and Symbian. While prior regimes had spoken to rationalizing Motorola’s handset platforms to allow for a tighter supply chain and more effective R&D spending, Jha is the first to actually put the strategy into action, albeit at the cost of worsening losses for the business through at least the early part of 2009, and a delay in spinning off the business until some time in 2010, market conditions permitting. In addition, MOT narrowed the focus to the North American, Latin American and Chinese markets, recognizing it does not have the portfolio to compete effectively in Europe.

* MOT’s remaining businesses have performed well through the first nine months of 2008, though the weakening economy is apt to take a toll on these as well. In the Home business, approximately 75% of its revenues are derived from consumer premise equipment such as set-top boxes, modems and DVRs thus further exposing MOT to contracting consumer spending. The Wireless Networks business is being managed to contract along with demand pending the deployment of 4G networks, which is likely to occur in the 2010/2011 time frame. The enterprise mobility business derives approximately 50% of its revenues from non-U.S. markets, principally Europe, and thus while holding up well in the face of slowing U.S. enterprise demand, the spread of the economic malaise to Europe could begin to dampen its performance. Lastly, the Government & Public Safety business has shown exceptional strength to date and is benefiting not only from heightened priority in the U.S. but strong demand globally as well. This business seems to be best positioned to weather the current environment though constricted state and local government budgets merit monitoring.
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One Year Motorola Chart

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* Given the dour outlook for consumer spending globally, the recently reduced industry expectations by Nokia and the prospect of diminishing enterprise demand, we are further lowering our estimates for 2009. We are now projecting revenues and EPS to be $28.8 billion and $0.17, respectively, down from $30.4 billion and $0.25. The most significant change to our model is expectations for Mobile Devices where we now expect revenues to total $9.4 billion and the operating loss to total $(1.0) billion, respectively. Our prior estimates were $11.1 billion and $(764) million, respectively.

“It’s likely to get worse before it gets better,” Obama said today in his weekly radio address. He said that this week “financial markets faced more turmoil,” potentially leading to a “deflationary spiral” that may plunge the nation further into debt and cost millions more jobs.

“It will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy,” Obama said. “We’ll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.”