Software And Services In Focus As Motorola Solutions Reports Q4 Results

Motorola Solutions (NYSE:MSI) is likely to publish its Q4 and full year 2018 results on February 7. The company had a relatively strong 2018, with its stock rallying by about 30% over the year, driven by a reasonably strong uptake of its Land Mobile Radio (LMR) products and a growing mix of software and services sales. For the fourth quarter, the company has guided for revenue growth of about 13.5%, while indicating that its adjusted EPS could stand at between $2.50 – $2.55. Below, we take a look at some of the key trends that we will be watching when the company publishes results.

We have created an interactive dashboard on what to expect from Motorola Solutions in 2018 outlining our expectations for the company’s performance over the remainder of 2018. You can modify any of our key drivers and forecasts to see how changes would impact the company’s results.

Focus On Software And Services Business

While the LMR segment remains the biggest driver of Motorola’s business, accounting for over two-thirds of its revenues, the company is increasingly emphasizing the software and services space for a couple of reasons. Firstly, operating margins for the business are quite attractive (~17% over the first nine months of 2018, compared to 13% for products). Moreover, a meaningful portion of revenues from the segment are 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.

Over Q3, Motorola’s Services and Software revenues grew by about 22% year-over-year to $574 million, as the company recorded higher software sales while executing on its services contracts. Adjusted operating margins for the segment improved by 370 bps to 30.7% driven by a favorable gross margin mix. The metric could trend still higher, as software sales from the segment grow. We will also be watching the segment’s revenue backlog, which stood at $6.2 billion in Q3, marking an increase of $295 million year-over-year.

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