Motorola (MOT) reports tonight after the close. Wall Street Insight estimates have been rising steadily throughout the quarter and are well ahead of the guidance provided by management on the 1Q05 earnings call. Earnings are projected at 25 cents on revenues of $8.55 billion. The estimate is up from 22 cents three months ago. Other key metrics to look at tonight include handset shipments, ASPs, handset margins, and infrastructure sales…

…Handset shipments are projected at 30 million but a higher number is being whispered. ASPs could be down a bit as MOT is shipping a low cost phone for emerging markets. Handset margins need to be flat to higher to satisfy the street. Infrastructure sales are a weak spot and the focus will be on Nextel (NXTL) orders.
Since the close just prior to MOT’s 1Q report on April 20, the shares have rallied over 30%. Along with rising estimates, this places the bar pretty high tonight. To drive the shares in the near term will require a strong quarter and especially good guidance. Current 3Q estimates call for EPS of 25 cents on revenues of $8.58 billion. 2005 and 2006 consensus estimates are $1.02 and $1.13. Both are up a dime since three months ago.
I think MOT shares can trade into the low to mid $20s if 2006 growth rates rise above the current 10% expectation. For this to happen, MOT must begin to deliver on the 300 basis points of margin potential from improved supply chain management that was first discussed last quarter. MOT must also sustain shipment momentum and remain on the leading edge of new product introductions. These two factors are likely to be extensively discussed at the company’s analyst meeting next week.
While I am very hapy with the performance of MOT shares, I am a little worried about the reaction to tonight’s report because the bar has been raised so high. It seems lately that stocks perform best in reaction to earnings reports if the stock price had not been reflecting high expectations. I don’t expect to be disappointed as I believe the turnaround at MOT is long term and sustainable. However, handsets is a tricky business and one the Street hasn’t shown an inclination to pay a premium multiple for. I am holding all shares heading into the report and expect to be long for the third-quarter report in 90 days. I’m just a little nervous.