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Motorola Mobility Holdings Inc.(MMI) reported mixed financial results for the first quarter of 2012, with the bottom line matching the Zacks Consensus Estimate while the top line surpassing the estimate. However, following the earnings release, stock price of Motorola Mobility increased by 13 cents (0.34%) to $38.76.

GAAP net loss was $86 million or 28 cents per share in the quarter compared with $81 million or 27 cents per share in the prior-year quarter. Adjusted (excluding special items) net loss per share in the reported quarter was 18 cents, in line with the Zacks Consensus Estimate. Total revenue in the quarter was $3,078 million, up 1.5% year over year and was also above the Zacks Consensus Estimate of $2,929 million.

Gross margin in the reported quarter was 24.5% compared with 24.9% in the prior-year quarter. Quarterly operating loss was $70 million compared with $36 million in the year-ago quarter.

During the first quarter of fiscal 2012, Motorola Mobility’s cash flow from operations was negative $98 million compared with $107 million with the prior-year quarter. Free cash flow (cash flow from operations less capital expenditure) during the reported quarter was a negative $131 million compared with $57 million in the prior-year quarter. Cash and cash equivalents at the end of the reported quarter was $3,332 million compared with 3,116 million in the previous quarter. The company had no debt on its balance sheet in the quarter.

Mobile Devices Segment

Segment revenue was $2,194 million, up 3% year over year. Operating loss, on a GAAP basis, was $121 million compared with $89 million in the year-ago quarter.

During the reported quarter, Motorola Mobility shipped 8.9 million mobile handsets including 5.1 million smartphones. Motorola Mobility also shipped approximately 200,000 XOOM tablets in the reported quarter.

Home Segment

Revenue from this segment came in at $884 million, down 2% year over year. GAAP operating income was $68 million versus $53 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 line up, 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 on Motorola Mobility Holdings Inc.

Currently, Motorola Mobility Holdings Inc. has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

 
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