Motorola Solutions: A Look At Top Line Growth Drivers For 2015

Motorola Solutions (NYSE:MSI) had a challenging last year, with a sustained decline in the U.S. federal business impacting top line growth. The company’s overall revenues declined by 6% year-over-year (y-o-y) to $5.9 billion in 2014 on a 7% decline in Products sales and 2% decline in Services. In 2015, the telecommunication equipment manufacturer expects overall revenue to grow by 1-3% on a turnaround in sales in North America, Latin America and the Middle East. In this article, we look at the company’s efforts so far in improving its top line by focusing on its recent deals and investments in both the Products and Services domain.

Our $65 price estimate for Motorola is almost in line with the current market price.

See our complete analysis for Motorola Solutions here

2014 Recap

Motorola sold off a major part of its Enterprise business to Zebra Technologies for $3.45 billion in cash last year, to focus singularly on its government business. Motorola utilized the opportunity from this sale to restructure and reduce costs in keeping with the difficult business environment. In changed its reporting segments to “Products” and “Services” from the earlier “Government” and “Enterprise”.

The Products division, contributing about 65% 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 2014, sales in this division declined by about 7% y-o-y to $3.8 billion on sluggish sales in North America, Latin America and Asia Pacific and Middle East (APME) which contribute over 84% of the company’s top line.

On the other hand, the Services segment consists of integration services including iDEN services, lifecycle support services, managed services and solutions services for public safety as well as private communication networks. In 2014, sales in this division declined by 2% y-o-y to $2.1 billion driven by lower iDEN and integration services sales in North America and lower lifecycle support services sales in the APME region.

Recent Deals

Motorola reported in its Financial Analyst meeting last month that its had bagged several multi-year product and service contracts in 2014 as well as in early 2015 which would significantly aid its top line growth this year. ^[1] Some of the noteworthy deals are:

1. $200 million contract with a country in the Middle-East (not disclosed) to deploy an LTE-based public-safety communications network.
2. $175 million contract with the Los Angeles Regional Interoperable Communication System Authority (LA-RICS) to develop a 4G LTE based Public Safety Broadband Network (PSBN) for public safety agencies in Los Angeles.
3. $148 million contract with the state of Michigan to upgrade their ASTRO (two-way radio) network.
4. $100 million contract with another country in the Middle-East (not disclosed) for providing integrated mobility management & cyber-security applications.
5. $64 million contract extension with Prince George’s County to provide complete public safety communication services.
6. $50 million multi-year managed services contract with Minico in Latin America.
7. $36 million two-year contract extension with the Victorian government in Australia to manage Victoria’s Metropolitan Data Network. Motorola has been successfully delivering services to the Victorian government for the past 12 years. ^[2]
8. $31 million contract with the Las Vegas Metro Police Department for maintenance of their radio and CAD systems and providing technical support in lifecycle services.

As evidenced from the list above, most of the contracts are in the Services domain which reflects the company’s increasing focus towards Services as a line of business. Services currently contribute about 35% of the company’s top line and we expect this to increase gradually going forward. The company’s Product and Services backlog at the end of 2014 was about $1.2 billion and 4.6 billion, respectively. Motorola expects to recognize 58% of its Products backlog (~$700 million) and 26% of its Services backlog ($1.2 billion) as revenues this year. ^[3]

Acquisitions/Investments In 2015

Emergency CallWorks: Motorola Solutions acquired privately held software maker Emergency CallWorks last month. This company is a leading provider of next generation 9-1-1 services with its software effectively linking multiple emergency call centers (fire and police) to facilitate rapid flow of all types of information (calls, text, photos, videos) for quick response in emergency situations. Motorola stated in its press release that CallWorks’ software is an improvement over existing systems which process only analog calls and also eliminates the need for switching hardware, thereby simplifying operations. ((Press Release, Motorola Solutions, Feb 12 2015))

This software is likely to help the company provide an integrated solution to clients for better communication services for the purpose of public safety. Motorola already provides industry leading land mobile radios (LMRs), portable radios, radio network core, base stations and central processing software to its clients which include governments, public safety agencies, municiplities as well as industrial customers.

CyPhy Works: Motorola Solutions’ investment arm Motorola Solutions Venture Capital recently made a strategic investment in this company which makes advanced unmanned aerial vehicles (UAVs). With respect to the investment, Motorola stated that it was most impressed with the company’s use of “microfilament tether” technology which increases the drones’ capability to remain in flight while delivering high-quality and secure high-speed data. Although it is unlikely that this investment will reap immediate dividends for Motorola, it should aid in improving the company’s capabilities in the imaging, monitoring, surveying and mapping space going forward. ((Press Release, Motorola Solutions, March 16 2015))

SceneDoc: Motorola Solutions Venture Capital made an investment in this law enforcement and public safety software provider in January this year. SceneDoc is known for its documentation platform used by law enforcement agencies around the world to document crime and other incidents. This investment is likely to help the company in enhancing its capabilities in providing integrated solutions for mission-critical communication services to public-safety agencies as well as commercial clients. ((Press Release, Motorola Solutions, Jan 22 2015))

VocalZoom: In January this year, Motorola Solutions Venture Capital made an investment in this Israeli company which develops sensors for speech enhancements. The company has developed a unique “optoelectronic microphone” which can substantially enhance the speaker’s voice over any background noise. VocalZoom will add to Motorola’s existing capabilities to provide mission-critical communication services. The company is already a leader in the mission-critical communications business and known for its rugged devices offering robust audio, network reliance, security as well as ergonomics.

The enhanced capabilities from its acquisitions and investments should help Motorola Solutions better compete against its rivals and bag new contracts from governments, public-safety agencies as well as commercial clients.

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1. Financial Analyst Meeting Docs, Feb 17 2015 [↩]
2. Press release, Motorola Solutions, Feb 17 2015 [↩]
3. Motorola Solutions 2014 10-K [↩]