Motorola Earnings Preview: Backlog To Support The Top Line As Benefits From Airwave Slow Down
Motorola Solutions (NYSE:MSI) will release its Q1’17 earnings on May 4th. The company’s net revenues were falling at 3.2% annually since 2012, until it saw a 6% rise in the last year because of the Airwave acquisition. However, excluding Airwave, the top line continued to decline at 2% because of diminishing iDEN (push-to-talk walkie-talkie communication technology) revenues.
The factors which can influence Motorola’s Q1 earnings are:
- Significant backlog, both in the products and services segment.
- Net Sales growth attributable to Airwave likely to slow down.
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Strong Backlog Can Support Top-line Growth
Motorola ended the FY’16 with strong product backlog of $1.5 billion dollars and services backlog of $6.9 billion, which combined is equal to 139% of the total revenues of the company. The net growth in backlog was $1.9 billion which is likely to have driven the revenue surge in the first quarter, if any, assuming that Motorola must have realized some of this backlog during the first quarter.
Benefits From Airwave To Slow Down
Motorola completed the Airwave acquisition in February, 2016. Therefore from Q1’17 onward, the boost provided to the net sales from the Airwave acquisition is likely to slow down on a comparable basis. The company only expects $50 million of incremental revenues from Airwave in Q1, which has resulted in a 3-5% sales growth guidance for Q1 as compared to 6% reported in FY’16. Motorola is expecting Airwave to contribute $460 million in 2017 (Q4’16 earnings transcript, Seeking Alpha), which is lower than its $462 million contribution in FY’16.
Recent Updates
Motorola has constantly been upgrading its LMR (Land Mobile Radio) technology which has helped its backlog growth, given the fact that a majority of the emergency services in the U.S. use LMR to communicate. However, there have been plans to shift the emergency communication over to LTE as it enables the high speed transfer of large amounts of data. So, during Q1, Motorola has tested its push-to-talk broadcast feature on LTE Network in a partnership with Telstra, and has also announced the acquisition Kodiak Networks, which too provides push-to-talk over cellular technology (PoC). Apart from this, Motorola has been selected by AT&T to build the public safety broadband network in the U.S. for FirstNet.
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