“If you look at Motorola, they have unrolled what I will say is the best named cell phone product ever, the CLIQ. 6% higher today, as they like the partnership with Google. However, there are some rumblings that their choice of a service provider, T-mobile, might hurt them there.” — CNBC’s The Call 9/11/2009

Motorola (MOT) has been slow to bring a meaningful smart phone to market that could replicate the success the handset maker had with its Razr.  That all changed yesterday as Motorola unveiled its CLIQ model at the Mobilize Conference, which should be a step towards bringing Motorola back into relevance.  So far the reception has been quite positive by reviewers, analysts and the market. 

This is not Motorola’s first smart phone, but with the Google (GOOG) Android operating system, it is likely the most highly anticipated.  This is the first phone released since they scrapped their partnership with Windows Mobile in favor of Google’s platform.  Motorola is targeting consumers who utilize social networks with its new Motoblur software.  This feature will allow users to merge and sync contact lists containing everything from phone numbers, emails, and texts to tweets and facebook messages.  This strategy will make this phone attractive to the omni-connected types, as RBC Capital’s Mark Sue puts it, “Our initial take is favorable, and it seems that Motorola is carving out a niche in the crowded smartphone market by focusing on socially minded demographics as opposed to enterprise users or pro-sumers.”

Motorola’s stock has rallied nicely the day after the preview, although the phone will not be available until the fourth quarter.  A slew of analysts’ have upped their price targets, with some as high as $12.  At Ockham, we too have to agree that this phone improves the competitive prospects for Motorola, who has slipped form the worlds second best selling phone maker to the fourth in just one year.  According to Strategy Analytics, Motorola’s share of the global handset market has fallen to 5.4% in the second quarter from 9.5% a year ago.  Clearly, the new Co-CEO Sanjay Jha has been brought in to stop the bleeding and this should be a step in the right direction.

However, at this time, it is premature to issue an upgrade from our Fairly Valued rating.  Assuming the CLIQ is a huge success, Motorola will still be just above break-even profitability or not too much better.  The smart phone market is crowded and becoming more so by the month with established players releasing new phones and new competitors like Dell (DELL) and Garmin (GRMN) still on the horizon.  We would be careful to take outstanding sales for granted, especially because they are admittedly targeting a niche market.

We could see this stock taking a ride in much the same fashion as Palm (PALM) has since the announcement and launch of the Pre.  That impressive advance has not been built on fundamentals quite as much as the fact that they successfully entered the hot industry of the day.  Based on the underlying fundamentals of MOT stock, we think that $7 is a justifiable price.  However, speculation and enthusiasm may take this stock higher in the near term.  Just one thing to note, Motorola’s balance sheet is far stronger than Palm’s, which in this market could hold them back. 

Electronics retailer RadioShack (RSH) increased profit by 18%, but shares fell more than 6% in afternoon trading as sales figures were weaker than hoped.  This continues to fall in line with the emerging theme of the second quarter earnings results: companies beat earnings estimates in spite of dwindling sales.  However, most companies who have beaten EPS estimates in the manner RSH did ($.39 versus estimates of $.28), have been getting a boost instead of a drop in value.  RadioShack has exceeded estimates in nine of the last ten quarters, even though sales have been on a steady decline since peaking in 2005.  Sales were down 2.9% from last year, coming in at $965.7 million versus estimates of $978 million.  RadioShack offset the declining sales by shuttering under-performing stores, and in so doing dropped selling, general and administrative costs by 10.6%. 

Coming into the day, the stock had been on a pretty nice run following two analyst upgrades late last week.  The stock rose 11% last week, much of the reason for that was RadioShack’s new partnership to provide T-Mobile (DT) cellular phones and service contracts at their stores.  With this agreement, RadioShack is now a retailer for three of the four largest post paid cell phone services, with only Verizon (VZ) as yet unavailable through RadioShack.  Clearly, RadioShack is trying to emphasize their presence as a one stop shop for consumers seeking cell phones, and FBR Capital Markets analyst Stephen Chick believes that RSH is being taken seriously as a retailer of cell phones, an area which already claims 30% of RadioShack’s revenue.

Set-top converter boxes have been a key driver of sales, as the digital conversion has made them a necessity for many households.  Sales of these accessories have totaled $120 million year to date, which was a bit of a disappointment as the deadline draws near, for comparison the company saw $200 million in sales last year.  Figuring out how to drive sales going forward will be the biggest challenge to RadioShack.  They are competing against Best Buy (BBY) and increasingly Walmart (WMT) and Target (TGT), as they make a strong push into electronics trying to pick up market share vacated by Circuit City.  It appears RadioShack is trying to find its niche in cell phones, and they hope this will lead to sales growth because costs can only be trimmed so far.

At Ockham, we have RadioShack as slightly Undervalued at the current price levels following today’s decline.  However, there are real concerns for a business like RadioShack which seems to be in a constant identity crisis.  The big ticket electronics products like computers and flat panel televisions are overwhelmingly being sold by RadioShack competitors, while RadioShack takes the lower margin business of accessories and dealing cell phone contracts.  When you compare RadioShack to itself in the past, the price does look just a little low, but we think it is a risky trade to buy a stock that is back peddling like RadioShack has over the years.  They have continued to fall behind other electronics retailers in sales and are now left desperately grasping for the cell phone business. 

The “rumor mill” has captured our attention again, as Deustche Telekom (DT) is reportedly pondering a possible bid for Sprint. As the parent company of T-Mobile, DT is already the fourth biggest wireless provider in America. By adding Sprint, the 3^rd largest American wireless provider, DT would become the largest American wireless carrier. This deal has some very appealing aspects for DT, but at the same time it would entail a massive reorganization. The proposed deal—were it to be approved—is likely many months away, so here are some initial thoughts on the possible merger.

The timing of the deal could be of major benefit to Deustche Telekom. Sprint’s stock is in a serious swoon—down more than 60% in the last year and near a six year low. Last week, Sprint had its credit rating cut to junk by Standard and Poor’s. Sprint has been losing market share to larger competitors AT&T (T) and Verizon (VZ) and posted a $29.6 billion loss for 2007. Not only is Sprint struggling, but the stock’s valuation is even more compelling to DT right now given the dollar’s relative weakness vis-à-vis the euro. These factors contribute to making the deal more affordable for DT.

Deustche Telekom is looking to expand its presence overseas as it is losing market share in its nat ive Germany because of increased competition. T-Mobile has grown nicely in recent years, and last year Deustche Telekom aggressively bought up wireless spectrum in the auction. Sprint bought a large amount of the spectrum as well, which would also come with the company in the merger likely at a fairly cheap price. DT is looking to grow and adding a long established carrier like Sprint with its large client base could be a giant leap forward.

The potential roadblocks would obviously include regulatory concerns as well as a technology platform mismatch. Part of the reason for Sprint’s poor performance is because of its poor handling of the integration of Nextel’s iDEN technology with Sprint’s CDNA. T-Mobile would add more confusion to the mix with GSM and WiMax platforms. These are the existing networks that would not work well together without a major organizational overhaul. Not to mention that the companies are developing different 4G (next generation) networks, and DT management would have the nightmarish task of figuring out how to most efficiently use these networks and which technology to just do away with.

It will likely be a few months before we know whether there is any truth to these rumors, but these are some of the issues that Deustche Telekom will have to evaluate. If they can successfully manage the technology issues—which is a big if—there is great potential to become a major player in the U.S. telecom market for a song.