FBI Scraps $500 Million Potential Deal With Motorola Solutions Following Protests

+0.10%
Upside
340
Market
340
Trefis
MSI: Motorola Solutions logo
MSI
Motorola Solutions

The FBI has canceled plans to award a potential $500 million, five-year sole-source contract to Motorola Solutions, following protests from competitors RELM Wireless Corporation, Harris Corporation and E.F. Johnson Technologies. It is unclear how the FBI intends to go ahead with the infrastructure equipment and mobile radios contract now, with the agency saying that it will “reassess its requirements, as well as the acquisition strategy for meeting them.” However, it is likely that Motorola may not get the full share of the contract when the FBI comes out with a proposal again. It is also important to note that Motorola currently dominates the U.S. public safety market with an 80% share. [1]

Our $65 price estimate for Motorola is about 5% ahead of the current market price.

See our complete analysis for Motorola Solutions here

Relevant Articles
  1. Up 30% In The Last 12 Months, Will Motorola Solutions Stock Rally Further Following Q4 Results?
  2. What’s Happening With Motorola Solutions Stock?
  3. What’s Happening With Motorola Solutions Stock?
  4. Motorola Solutions Stock Has More Than Doubled Market Returns Since 2018- Here’s Why
  5. Motorola Solutions Stock Has Almost Doubled The S&P’s Returns Since 2018- Here’s Why
  6. Motorola Solutions Inc. Stock Looks Set To Continue Its Rally

Why Companies Protested

The FBI had issued a Request For Proposal (RFP) for a follow-on equipment contract with Motorola Solutions in July to upgrade its land mobile radio systems. The FBI in its RFP stated that they had been using Motorola equipment for over 30 years and some portions of the radio systems (requiring upgrade) used technology standards which were proprietary to the company. Therefore, the agency reasoned that it was not financially feasible to choose a manufacturer other than Motorola, as it would require to re-engineer its existing radio systems, costing an estimated $1.2 billion.

In addition, the FBI stated that the re-engineering would also result in “significant disruption” to important tactical and emergency response communications, which are critical to public safety. [2] However, communication equipment maker RELM Wireless Corp. disagreed with FBI’s reasoning and filed a formal protest with the U.S. Governmental Accountability Office on the grounds that the agency’s proposal for a no-deal contract with Motorola restricted competition. RELM Wireless was later joined in its protest by other manufacturers such as Harris Corp. and Texas-based E.F. Johnson Technologies.

Significance of Government Contracts

Government contracts are expected to contribute 100% of Motorola’s sales by next year, following the company’s decision to sell off its Enterprise division to Zebra Technologies for $3.45 billion in cash in Q1 2014. The deal is likely to close by the end of the year. Therefore, it is very important for the company to win as many long-term government contracts as possible. This, along with its ongoing restructuring and cost-cutting efforts, can help in improving profitability and tackling growing competition in the current business environment. Motorola expects operating margins to improve by almost a percentage point to 18.5% in 2014, benefiting mostly from the cost controls in place as well as the $300 million in cost cuts expected over the next two years.

Motorola’s New Reporting Structure

In accordance with its plans to sell off the majority of its enterprise business to Zebra Technologies, Motorola reported the enterprise revenues, other than iDEN, under discontinued operations in its recent earnings report and changed its reporting segments to “Products” and “Services” from the earlier segments of “Government” and “Enterprise”.

The Products division, contributing about 64% of the company’s total sales, consists of an extensive portfolio of  network infrastructure, devices and software products, including iDEN products, ASTRO, dimetra and broadband products such as LTE. In the second quarter, product sales declined by over 10% year-over-year (y-o-y) to $887 million, owing to sluggish demand in North America, Australia and China.

The Services segment consists of integration services including iDEN services, lifecycle management services, managed services and solutions services for public safety as well as private communication networks. The division’s sales were $506 million in Q2, reflecting a marginal decline compared to the same period last year.

See More at TrefisView Interactive Institutional Research (Powered by Trefis) |

Get Trefis Technology

Notes:
  1. FBI scuttles contested $500 million, no-bid deal with Motorola, McClatchyDC, Aug 24 2014 []
  2. Brand Name Motorola Land Mobile Radio Equipment, FBO.gov, July 14 2014 []