Motorola recently split into Motorola Mobility (NYSE:MMI) and Motorola Solutions (NYSE:MSI). We currently maintain a $35.49 Trefis price estimate for Motorola Solutions stock, which is roughly 10% below market price. Motorola Solutions’ main business is the sale of security devices to the U.S. government and enterprises (for commercial purposes).
These devices are used by the government for:
1) Police department patrol car communication and facilitation of efficient response to crime incidents.
2) Electric power distribution, fire station alerts, irrigation control and video for traffic control purposes.
Enterprises use Motorola Solutions’ products for a variety of purposes including baggage tracking at airports and transit authorities, Wireless LAN for retailers to drive workforce productivity, technology solutions for healthcare centers, and wireless connectivity at universities. Although we believe that Motorola Solutions should gain from increased government spending on critical systems (even during the economic recession), the same cannot be said for enterprises. Enterprises spending is more uncertain and depends heavily upon macro-economic conditions.
Motorola Solutions Expects 5-8% Revenue Growth from its Security Devices Business
According to an investors’ road show presentation distributed by Motorola Solutions, the company is looking at a long-term growth rate of 5-8%.  We anticipate that Motorola Solutions’ revenue from government and enterprise departments should increase by 6% in the long term.
As discussed above, we don’t expect any material slowdown in government spending on critical systems used for electric power distribution, fire station alerts, irrigation control or video instruments for traffic control. These products are utilities as well as necessities. Additionally, increased security measures (at airports, for example) will require additional technology support.
This is not necessarily the case with enterprise spending. Motorola Solutions’ revenue from enterprise sales declined by 15% in 2009 due in large part to the prevailing recessionary environment. We estimate moderate revenue growth of 6% from the enterprise department. However, improving macroeconomic conditions could mean that enterprise spending increases at a faster rate than implied by our base forecasts. A hypothetical scenario in which Motorola Solutions’ revenue from enterprise sales increases at rate of 10% to reach $4 billion by the end of our forecast period (vs. our $3 billion estimate) would imply 5% upside to our $35.49 price estimate for Motorola Solutions.Notes: