How Did Motorola Solutions’ Software Business Fare In Q4?

by Trefis Team
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Motorola Solutions
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Motorola Solutions (NYSE:MSI) published a better than expected set of Q4 2018 results on Thursday, driven by strong land mobile radio sales in the Americas and the EMEA region as well as continued growth of the company’s software business. While quarterly revenues grew by roughly 15% to $2.3 billion, adjusted earnings grew by 25% to $2.63 per share. For Q1 2019, the company has guided for year-over-year revenue growth of about 11%, with its adjusted earnings projected to come in between $1.11 to $1.16 per share. We will focus this note on the company’s services and software operations, which are likely to be a key driver of its business in the long-run.

Our interactive dashboard analysis on what to expect from Motorola Solutions in 2019 outlines our expectations for the company for 2019. We note that that the model has yet to be updated for the Q4 and FY’18 earnings release.

Services And Software Business Updates

Motorola Solutions’ software and services sales expanded by roughly 12% to $584 million, driven by growth across its geographic markets. The backlog for the segment also rose from about $6.2 billion in Q3 to around $7.4 billion, driven primarily by multi-year services agreements in the Americas as well as the extension of the contract for the company’s Airwave digital radio network in the United Kingdom. Motorola has been doubling down on command center software – which is essentially an end-to-end solution that integrates intelligence and analytics with dispatch systems via a comprehensive software suite. The focus on the command center could bode well for the company’s radio and video surveillance products as well, as it ties them together as a single platform, potentially improving stickiness. For instance, in January, the company acquired VaaS, a provider of AI-driven image capture and analysis technology for vehicle location, in order to expand its command center software portfolio.

Services and Software adjusted operating margins have also been steadily expanding, coming in at about 28.1% of sales compared to 25.7% in the prior year, driven by a higher mix of software sales, which have better margins. The company expects the metric to increase further to about 30% for FY’19. While overall Services and Software growth is expected to be in the high-single digits in the long run, the company expects to see double-digit growth in its software sales, proving accretive to the segment’s margins.

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