Stock Analysts Don't Seem To Like The Changing Handset Market
Motorola last week reported its latest quarterly earnings, and investors and analysts were disappointed by falling profits, even though revenues were up and shipments of mobile phones grew strongly. Motorola’s inability to follow up the RAZR with anything significant has been a real problem for the company, but the bigger issue is the changing handset market. Much of the growth and and ever bigger chunk of sales are from the BRIC nations — Brazil, Russia, India and China — and emerging markets in general. These are places where the bulk of sales come from low-price, low-margin devices that can only be made profitably by huge vendors like Nokia and Motorola. So those companies face something of a conundrum: do they pull out of emerging markets and stop selling cheap handsets so they can protect their margins, at the expense of revenues and market share; or do they let margins and average selling prices drop, but grow revenues and market share? Motorola gets slammed by analysts for dropping profits, but if it boosted margins but revenues dropped, analysts wouldn’t react well, either. The problem here may not be so much with Motorola or other handset vendors, but rather in analyst and investor expectations for the companies. The mobile market is changing, and the growing influence of emerging markets means the metrics used to judge it are changing, too. Just one note to the analysts: if you need a refresher on why emerging markets are so important, take note of the recent news that one Chinese operator now has more subscribers than the population of the entire US.