Motorola Solutions Earnings Review: Services Are Becoming Key To Motorola’s Growth

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Motorola Solutions

Motorola Solutions (NYSE:MSI) released its earnings on May 4th. The company exceeded its guidance by reporting a 7% sales increase in the top line led by a boost from the services division, which included $58 million incremental revenue contribution from Airwave. The product revenues largely remained unchanged year on year, which is not bad given the fact that it has experienced a 3.6% compounded average decline since 2012.

The bottom line stole the show with a 37% rise in the non-GAAP EPS which was fed by better revenues along with low operating expenses. The operational efficiency along with the latest acquisitions and innovations remain the highlight of these earnings.

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See our complete analysis for Motorola Solution

Services To Bolster Motorola’s Growth

Motorola’s top line growth recently has been led by its service division, which now contributes over 45% of the company’s revenues. In a recent buzz about shifting the emergency communication systems to LTE, Motorola wants to make sure that it doesn’t lose its dominance in the service sector. To ensure this, Motorola has recently decided to acquire Kodiak Networks which offers broadband push-to-talk technology to commercial customers. In addition, it went on to buy Interexport, which is a Chile-based managed services provider.

Also, AT&T has partnered with Motorola to build the FirstNet LTE communication system for the first responders in the U.S., and this project can contribute substantially towards the services revenues of Motorola in the near future.

Motorola Is A Lot More Efficient Company

Motorola’s operating margins in the past few years have improved consistently despite a shrinking top line (before Airwave acquisition). In fact, the company has also improved the gross margins of its products division by cutting down $20 million on cost of sales in Q1, to register the same revenues y-o-y. Efficiency improvement along with the rising top line has resulted in a solid 47% growth in its ttm (trailing twelve month) free cash flows, giving Motorola Solutions a kick start for the year. As the company has raised its earnings guidance for the year, we can expect further improvements in its margins going forward.

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