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Investment Overview for Motorola Solutions (NYSE:MSI)
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Below are key drivers of Motorola Solutions value that present opportunities for upside or downside to the current Trefis price estimate for the company:
Radio & Other Security Devices
- Radios and other security products gross margins: Motorola Solutions gross margins have remained just above 50% in the last few years. However, we expect increasing price competition as macroeconomic concerns weigh on corporate and government spending to have a negative impact on margins going forward. However, if the macroeconomic concerns ease and Motorola sees little reason to reduce pricing, we might see margins remain constant or even improve in the coming years as Motorola leverages its leading market position.If Motorola Solutions' margins actually increase to reach around 54% by the end of Trefis forecast period, there could be an upside of 10% to our ${trefisprice}.
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Motorola Solutions security segment sells radios, surveillance and other equipment to government agencies, including law enforcement and emergency services agencies, and commercial clients.
Government Security devices are the devices used for:
- Aiding police department to communicate with its patrol cars and help respond to crime incidents efficiently
- Tools for Electric Power distribution, fire station alerting, irrigation control and video instruments for traffic control purposes
Commercial Security devices are the devices used for:
- Baggage tracking at the airports and transit authorities
- Wireless LAN for retailers to drive workforce productivity
- Technology solution to healthcare centers
- Wireless connectivity at universities
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We believe the Radios & Other Security Devices segment is the most valuable segment for the following reason:
Higher revenues from Government and commercial security devices
We expect Motorola Solutions to earn more than $8.5 billion revenues in 2012 by selling security devices to government and commercial users.
We expect the following breakup of revenues in 2012:
Government Security Systems: $0.9 billion
Security Software Applications & Services: $1.6 billion
Radios & Other Security Devices: $3.1 billion
Commercial Security: $2.9 billion
Meanwhile, revenues from iDen network devices continue to fall as Sprint decommissions its network and Latin America also sees falling revenues.
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- Government spending on critical public safety equipment to remain solid
- Motorola Solutions participates in the safer and more stable public safety market. While government spending may be cut due to the ongoing macroeconomic concerns, public safety will be among the less likely areas to take a hit as it figures very high on most governments' priority lists.
- We don't expect any material spending cuts by state departments as well, as we believe this segment is recession proof.
- However, the risk gets more pronounced if the macroeconomic conditions get worse.
- Widespread LTE shift
- The U.S. Government has recently approved a payroll tax bill that has set aside a 10MHz block of spectrum - the so-called D block in the 700Mhz band - for public safety use. In addition, about $7 billion of funds will be granted for the deployment of a dedicated LTE network.
- With the sanction for additional spending on public safety, Motorola Solutions is likely to benefit hugely from the higher stickiness of its government customers as well as its strong market position and a large installed base of security devices.
- We are also likely to witness a more widespread shift from the older analog to newer digital networks as faster technologies such as LTE arrive in the marketplace and local governments overhaul their analog networks.
- Continued government spending on critical security systems
- Government is increasingly migrating to more technologically advanced systems with real time data storage, while replacing manual activities. This will require similar upgrades to its systems. In such a scenario, Motorola's services department is going to be a major beneficiary.
- Due to increased security deployed by the government at the airport to deter illegal immigration, government will need technology support. Motorola's Biometrics service suffices that need.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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