Motorola peaked in 2000 at at about $60 per share, recently the shares traded as low as $9 giving it a market cap of just 20 Billion.

Value Trap?
Its easy to look at Motorola’s revenue and earnings and say that the company has performed badly. Motorola’s revenue dropped from 42.8 Billion to 36.6 Billion. Net earnings dropped from 3.6 Billion to a loss of 50 Million. Mobile Devices sales have dropped 33 percent. The company has not had a hit phone like its amazing Razr for quite a while. The handset business has fickle customers, people with no loyalty to a particular brand. Research and Development expenses are high and ongoing because a lot of people want a new, cool and better phone every couple of years (some change phones every year or less). Motorola has competition at the high end from Apple’s iphone and RIMMs Blackberry and at the low end there are more handset manufacturers than ever before.

Value Investment?
While the handset business has issues, thats not all Motorola does. It has two other business segments Home and Mobility networks and Enterprise Mobility Solutions. Click here to see the wide range of Motorola products and services. Since the company reports as a single entity most people miss how well the other segments are performing. This is why activist investor Carl Icahn has been pushing for Motorola to split the company. He wants them to either sell or spin-off the under performing handset division and Motorola has agreed. So lets value the company as two separate businesses? the handset business aka Mobile devices and everything else. While Motorola has been losing market share in the handset business but at the same time it Enterprise Mobility Solutions business is growing very rapidly.

Motorola’s business segments data from Motorola Q4 2007 Earnings Press Release and Financial Tables
 1. Mobile devices. - For the full year 2007, sales were $19.0 billion, a 33 percent decrease compared to 2006, and the segment incurred an operating loss of $1.2 billion, compared to operating earnings of $2.7 billion in 2006.

2. Home and Mobility networks. -For the full year 2007, sales were $10.0 billion, a 9 percent increase compared to 2006, and the segment generated operating earnings of $709 million, compared to $787 million in 2006.

3. Enterprise Mobility Solutions. - For the full year 2007, sales were $7.7 billion, a 43 percent increase compared to 2006, and the segment generated operating earnings of $1.2 billion, compared to $958 million in 2006.

The Home and Mobility networks and Enterprise Mobility Solutions segments combined had operating earnings of 1.9 Billion, this gives Motorola an earnings yield of 9.5%. In my opinion at an earnings yield of 9.5% just these two segments of Motorola’s business are worth as much as the whole company. In addition Motorola has more Cash and Short Term Investments than debt and it has $3.8 Billion remaining under its current share repurchase authorization. Any value that can be extracted from the handset division is gravy. With Icahn winning seats on Motorola’s board I expect a lot of investor friendly changes in the coming months.

Full Disclosure: I own shares of Motorola which I bought at a higher price. I may buy some more.