Software And Services Business Could Be A Key Driver For Motorola Solutions In 2019

by Trefis Team
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Motorola Solutions (NYSE:MSI) had a relatively solid 2018, with its stock rallying by close to 30% over the year, driven by a reasonably strong uptake of its Land Mobile Radio (LMR) products and a rising mix of software and services sales. We expect the company’s software and services business to play a greater role in its performance over 2019, driven by its recent acquisitions and the company’s need to hedge the future prospects of the LMR business, which faces a threat from the deployment of the FirstNet first responder network in the U.S.

View our interactive dashboard analysis What’s The Outlook For Motorola Solutions In 2019? 

A Look At Motorola’s Software And Services Offerings

Motorola Solutions’ key software offerings include public safety and enterprise command solutions and unified communications applications. For instance, Motorola has been doubling down on command center software, which is used for emergency call handling. The company is also increasing its exposure to video software solutions post its acquisition of video-surveillance provider Avigilon. On the services front, Motorola provides offerings ranging from technical support and maintenance to the operation and maintenance of networks. A little over two years ago the company acquired Airwave – a British communications company which operates the network for the country’s emergency services.

In mid-2018, the company streamlined its segment reporting to better reflect sales of these faster-growing products, bundling services and software into a single reporting segment, while combining the potentially slower growth systems integration business with its Products and Systems Integration segment.

Why The Push Into Software And Services Is Crucial For The Company 

While the LMR business continues to be the biggest driver of Motorola’s business, accounting for over two-thirds of its sales, the company is increasingly emphasizing the software and services space for multiple reasons. Firstly, operating margins in the business are quite attractive, coming in at over 17% over the first nine months of 2018, compared to 13% for the products segment. Moreover, a meaningful portion of revenues from the segment is likely to be recurring, allowing the company to even out fluctuations in the products space. The longer-term growth rates are also likely to be higher, with Motorola noting that services and software could grow in the high-single-digit range compared to the product segment, which is expected to grow at a low-single-digit rate.

The shift to software and services could also prove crucial for the company in the long-run, as the LMR business faces a meaningful threat in the United States, where the Federal government has started to build out an independent, interoperable communication system for first responders called FirstNet. (related: Will FirstNet Disrupt Motorola Solutions’ Cash Cow?) While Motorola will also make devices for FirstNet, they are unlikely to be anywhere near as profitable as its LMR radios. However, there could be an opportunity for greater software-related sales, as the high-speed mobile communications network is IP-based with software likely playing a large role.

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