Motorola to Buy 4Home Inc. - Analyst Blog

Motorola Mobility Inc., a subsidiary of Motorola Inc. (MOT) agreed to acquire Sunnyvale based 4Home Inc. for an undisclosed amount. 4Home provides software and services relating to energy management, home security and monitoring as well as media and entertainment management. The deal is expected to close by the end of the year.

4Home is expected to help Motorola Mobility in the long run by tapping into new business segments, such as cable, as well as adding significant resources to support its current customers and partners.

Motorola also announced that it will split into two companies; Motorola Mobility and Motorola Solutions, effective January 4, 2011. Motorola Mobility will focus on the media, mobility, Internet and computing markets, while Motorola Solutions will sell communications solutions to government, public safety and enterprise customers.

Motorola shareholders will get one share of Motorola Mobility, for every eight shares of current Motorola shares they hold. For first quarter 2011, Motorola Mobility expects to post a loss at its mobile devices unit and expects to be profitable for 2011.

In order to keep up with the stiff competition that it faces from other smartphone manufacturers, such as Apple Inc. (AAPL), Research in Motion Ltd. (RIMM) and Nokia Corp. (NOK), Motorola Mobility intends to launch tablet devices next year with 7- inch and 10-inch screens, which will directly compete with these competitors.

We are highly optimistic about Motorola's rejuvenated smartphone business betting on the Android software. The proposed split-off of the company is expected to add more value to the mobile devices segment. This acquisition will also aid Motorola in establishing its stand in the smartphone business.

However, it remains to be seen how Motorola faces the challenge from Apple, once Verizon Wireless (VZ), which significantly promoted the DROID portfolio of Motorola, and starts selling the legendary iPhone 4. Thus, we maintain our long-term Neutral recommendation on Motorola.

Although Motorola shows huge sequential growth in its 3G smartphones business, in absolute term, the device shipment is far behind Apple's iPhone shipment and Research in Motion's BlackBerry devices shipment. We do not expect Motorola to reach anywhere near them in the immediate future. Currently, it has a short-term Zacks #4 Rank (Sell) on the stock.

 
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