Software, Acquisitions To Lead Motorola Solutions’ Revenue Growth In 2020

Motorola Solutions (NYSE: MSI) is a leading global provider of mission-critical communications. The technology company has achieved steady growth over the last couple of years, with the company complementing organic growth by adding a number of small companies to its portfolio. Motorola’s Products division, which offers a comprehensive list of telecommunications equipment, devices, accessories, and software, is expected to contribute $4.7 billion to Motorola’s 2019 revenues, making up 60% of the company’s $7.9 billion in revenues for 2019. The Products segment is 50% larger than the Services business, which offers a complete set of service offerings for government, public safety, and commercial communication networks. The Services business is Motorola’s fastest-growing segment and is expected to add $574 million over 2019-2020. Trefis highlights trends in Motorola Solution’s Revenues over the years along with our expectations for 2020 in an interactive dashboard, key elements of which are discussed below.

How Has Motorola’s Historical Revenue Trended?

• Motorola has added $1.3 billion in total revenue since 2016 at an average annual rate of 10.3% driven by growth across all operating segments.
• Product segment has been the largest contributor, adding well over $810 million over 2016-2018.
• Going forward, we expect Motorola’s revenues to increase by 6.6% over 2019-2020 to reach just shy $8.4 billion in 2020.

A Detailed Look At Motorola’s segment performance and revenue change over the years:

Products Division Will Continue To Benefit From LMR Growth, New Acquisitions

• The Products division is the company’s largest segment with an average revenue share of 60% over the last three years.
• This division has added $814 million to total revenue since 2016 at an average annual rate of 10.6% driven by system deployments in the Americas as well as the incremental revenues resulting from the acquisition made over this period.
• Going forward, we expect this division to continue its steady growth and add over $430 million to total revenues over 2019-20 likely to be driven by higher land mobile radio (LMR) sales in North America and the EMEA region, as well as due to its acquisition of video surveillance camera maker Avigilon.
• Moreover, we expect the LMR business to continue to expand, driven by the company’s increasing focus on software and platforms, which increase switching costs.
• The Avigilon business should also grow, as the company cross-sells these products to its commercial and government customers.

Services Business Will Continue To Grow At A Brisk Pace

• The company’s Services division has added more than $490 million to total revenues since 2016 at an average annual rate of 9.8%- accounting for 40% of the total revenues.
• Motorola’s services and software revenues have been expanding driven by the company’s end-to-end offerings such as command center, its growing installed base of systems, and increasing focus on offerings such as command center.
• The company has also been making acquisitions to drive the software business.
• Earlier this year, it acquired VaaS, a provider of AI-driven image capture and analysis technology for vehicle location, in order to expand its command center software portfolio.
• The focus on this software could help the company cross-sell radio and video surveillance products as well, as it ties them together as a single platform, potentially also improving stickiness.
• Services division is expected to add $574 million to total revenues over 2019-2020, with the software business accounting for a bulk of the growth. With an order backlog of nearly $7.4 billion, this division looks set to drive the company’s growth for the foreseeable future.

Details about how revenues for each of Motorola Solution’s division have trended over the years is available in our interactive dashboard.

Per Trefis estimates, Motorola’s EPS for fiscal 2019 is likely to be $7.70. Taken together with a P/E of 22.2x, this works to a fair value of $171 for Motorola’s stock.

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