Report
Seth Sherwood
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Morningstar | Motorola Solutions Maintains Market Leadership

Motorola Solutions has established a formidable niche as the dominant supplier of land mobile radio, or LMR, technology for law enforcement, firefighters, and emergency first responders, carving out an estimated 80% market share in the United States. Motorola Solutions has divested low-margin segments while doubling down on emergency communications infrastructure and two-way radios, and synchronously expanding its software-as-a-service, or SaaS, offerings. After some growing pains from restructuring, the firm now generates a more attractive return on invested capital, or ROIC, profile and benefits from tight customer relationships with city, state, and federal governments, in addition to brand equity, due to its established legacy of reliability in mission critical situations. We see emergency equipment largely as a nondiscretionary spending item and assert that technological disruption typically has a muted impact on public sector services, further lending credence to our narrow economic moat rating.We expect the firm to average mid-single-digit top-line growth over the next five years, largely attributed to the growing backlog of the business, the shift to recurring revenue, the sustained upgrade cycle from analog to Project 25, or P25, digital systems in the United States, and continued integration of recent acquisitions. Furthermore, as nascent products scale, we see opportunities for material operating margin expansion ahead. We postulate that Motorola’s software products have the greatest growth prospects, with comprehensive computer-aided dispatch and 911 call center offerings. Motorola’s Avigilon assets bode well for further top line expansion.However, two peripheral headwinds remain for Motorola: the implementation of FirstNet and the advent of LTE technological adoption. Both could present challenges for the firm in the future, but we do not see them as imminent enough to supplant the firm’s narrow economic moat. We plan on tracking for whether any municipalities or state governments adopt FirstNet or an LTE-based solution in the years ahead.
Underlying
Motorola Solutions

Motorola Solutions is a provider of communication infrastructure, devices, accessories, software and services. The company's Products segment provides a portfolio of infrastructure, devices, accessories, and software to government, public safety and first-responder agencies, municipalities, and commercial and industrial customers who operate private communications networks and manage a mobile workforce. The company's Services segment provides a set of service offerings for government, public safety, and commercial communication networks including: Integration services, Managed and Support services, and Integrated Digital Enhanced Network services.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Seth Sherwood

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