(We discuss Motorola not because we think it is more attractive than the other 83 holdings in the Fund, but because it illustrates our investment approach and incorporates two of the assumptions discussed above: continued demand for telecommunications products and services, and increased purchasing power for people in the developing world.)
At the end of the third quarter of 2006, the Fund owned a relatively small position in Motorola (1.2% of the Fund). Unfortunately, the company’s earnings tumbled over the next six months, and the stock’s valuation followed, falling to approximately one times Motorola’s sales (from a high of about 3.5 times sales in 2000). Motorola’s risks include increased competition from other handset manufacturers, dependence on its ability to continue to innovate and lack of market share in next-generation wireless network infrastructure. However, we believe Motorola enjoys a durable position in the extremely competitive global telecommunications market. Further, management appears to be taking meaningful steps towards improving internal operations and profitability in its handset business. Additionally, Motorola has a leading position in broadband network equipment and is a key supplier to operators of cable, cellular and private two-way radio systems. With strong intellectual property and a solid balance sheet, we believe Motorola has the necessary foundation to execute a turnaround over the long term. Because of the stock’s lower valuation and our analysis of Motorola’s opportunities and risks, we increased the Fund’s position in Motorola to 2.6% as of June 30.
At the end of the third quarter of 2006, the Fund owned a relatively small position in Motorola (1.2% of the Fund). Unfortunately, the company’s earnings tumbled over the next six months, and the stock’s valuation followed, falling to approximately one times Motorola’s sales (from a high of about 3.5 times sales in 2000). Motorola’s risks include increased competition from other handset manufacturers, dependence on its ability to continue to innovate and lack of market share in next-generation wireless network infrastructure. However, we believe Motorola enjoys a durable position in the extremely competitive global telecommunications market. Further, management appears to be taking meaningful steps towards improving internal operations and profitability in its handset business. Additionally, Motorola has a leading position in broadband network equipment and is a key supplier to operators of cable, cellular and private two-way radio systems. With strong intellectual property and a solid balance sheet, we believe Motorola has the necessary foundation to execute a turnaround over the long term. Because of the stock’s lower valuation and our analysis of Motorola’s opportunities and risks, we increased the Fund’s position in Motorola to 2.6% as of June 30.
