Motorola and Apple: Marketshare, market caps and catalysts

I'm walking down the 47th street yesterday and a dude in a suit on the sidewalk hollers out, "Hey, Cody -- what do I do about my Motorola?" Yup, even as the financial marketplace as we knew it in our lifetimes died in the last year or so, even as the economy turned recessionary and the stock markets plunged, even as credit has dried up, the world still goes on. Investments must be made, gambles must be taken, and collaborations must be created. And so it goes in tech, the world in which I put in tens of thousands of trades on while running my fund from 2002 to 2007, and where random people on the street ask me my take on their holdings.

So let's hit this Motorola. First off, there's the news/rumor-confirmations from Tuesday that Motorola has indeed agreed to join the 21st century. Yeah, after seemingly having bet their entire firm on the RAZR form factor that was cool back when Entourage was making its debut, Motorola's finally embarked upon a new direction for their once-vaunted handset division.

The company's going to be plowing hundreds of millions of dollars into developing and rolling out their new Google-developed Android operating system cell phones. And that's a good thing (for both the company AND the economy -- remember when companies were confident enough to risk billions on new ventures, back before the economic collapse and the subsequent financial/political/regulatory anarchy that resulted?).

Indeed, Motorola's actually looking rather interesting as a potential two-three year investment. The biggest problem with the stock right here, right now, is that it carries almost $4 billion in long term debt, and as I have been telling you for a year now -- debt is death. On the other hand, Motorola's got almost $4 billion or so in cash and long term investments and what not, which nets out to the company having some pretty good liquidity but very little flexibility balance sheet-wise. The published numbers like these that you can get off any financial information website can be misleading of course. And I'm doing more work to make sure these guy's don't have off balance sheet debt obligations that would suck out that net cash.

The fact that the company's market share is down to about 6% is actually a good thing for anybody thinking about getting long the stock here (Flip it! Buy when things suck, sell when they're great...) when it was over 20% just a handful of years ago, is already of course priced in to the stock at $6. While the stock's already doubled, it's dangerous and I wouldn't chase it at all. But if the company delivers on a decent form factor at all, it could really start to move some serious units and turn its handset division profitable again sooner rather than later. That in turn would really move its stock. Think of it this way --

Apple's got about 1% marketshare in handsets vs Motorola's current 6%. Remember that Motorola's already proven that its got the distribution to get its market share up to 20% -- about 200 million units. One of the reasons I owned Apple from early 2003 to 2007 was that its market share in both computers and in handsets had nowhere to go but up from 2% in computers and 0% in cell phones. I still expect that Apple's got more upside in marketshare to take. Heck, with the new $99 iPhone entry point, you can expect to see Apple with 5% of the cell phone within the next few quarters.

But Motorola's likely to take some marketshare back too, and that just might be enough all on its own to move this stock higher. And the fact that this company's still got some six times more marketshare than Apple right now despite not having a decently cool phone in its lineup tells you something about the potential for Motorola to gain market share back from LG, Nokia, Samsung and the other marketshare leaders.

Before I move to conclusion, let's hit a couple other comparisons between Apple and Motorola here:

Stock Price: Mot $6.28; Apple $137.

Market Cap: Mot $14 billion; Apple $122 billion

Net cash: Mot $0; Apple $27 billion

Enterprise Value: Mot $14 billion; Apple $95 billion

EV/Cash flow: Mot N/A (they ain't got no cash flow); Apple <4

So, to answer that dude on the street's question about what to do with his Motorola here? I'd hold it if I already owned it. I'd do more homework on it (and am doing so) if I didn't own it because its got some potential catalysts and an interesting set up fundamentally ahead of it. And the stock chart ain't awful either.

But all that said, I'm not exactly rushing out to add it to my newsletter's portfolio and indeed, I'd rather just stick with my Apple, even as I figure it's likely to get hit sometime along with the broader market and/or off Steve Jobs' health problems. The upshot on Apple then, while we're at it? Hold it if you've got it, nibble some if you don't and buy more whenever it gets hit for 10% or more to build up a long term core position.