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    Motorola Solutions (MSI)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$336.24Last close (May 2, 2024)
    Post-Earnings Price$352.13Open (May 3, 2024)
    Price Change
    $15.89(+4.73%)
    • Motorola Solutions expects strong growth in their Command Center segment, projecting a 10% increase for the full year, with over 60% of customers adopting cloud-connected products, indicating robust demand for their cloud offerings.
    • The company is successfully expanding operating margins through cost reductions, improved supply chain efficiencies, and increased sales of feature-rich products, with expectations of continued margin improvements beyond fiscal 2024.
    • Strong demand in the Land Mobile Radio (LMR) segment, particularly for the new APX NEXT devices and applications, is driving revenue growth and margin expansion, with ongoing investments and a refreshed device portfolio fueling further growth.
    • Motorola Solutions expects a $100 million revenue headwind in the second half of 2024 due to reduced business in Ukraine, which remains unchanged despite recent aid packages.
    • The company is facing legal and regulatory challenges with the UK Competition and Markets Authority (CMA) over pricing related to the Airwave network; they lost an appeal to the Competition Appeals Tribunal and are awaiting a decision from the UK Court of Appeal, introducing uncertainty around future revenues from this critical contract.
    • Excluding the $748 million backlog from the Airwave contract extension, Motorola Solutions' total backlog declined by approximately $500 million sequentially, roughly twice the normal seasonal decline, potentially indicating weaker demand.
    1. Airwave Contract Extension and CMA Appeal
      Q: Any updates on the Airwave contract and CMA appeal?
      A: Motorola Solutions received notice from the UK Home Office to extend the Airwave contract through years 2027 to 2029, reaffirming the critical need for mission-critical LMR systems like Airwave. The backlog was recorded at the charge control rates, which are being contested. The company has appealed the CMA's final decision to the UK Court of Appeal, expecting clarity by May or June, and will continue to defend its position.

    2. Margin Outlook and Expansion Drivers
      Q: How will margins expand beyond this year?
      A: The company expects gross margins to be up slightly and operating margins to improve by about 75 basis points this year. Key drivers include volume mix, strategic price increases in services contracts with cost-of-living adjustments, and refreshing the device portfolio. OpEx is increasing by $100 million year-over-year to invest in areas like video and AI initiatives, aiming to enhance efficiencies, though AI benefits are not yet factored into projections.

    3. Backlog Trends and Seasonality
      Q: Should we be concerned about the sequential decline in backlog after adjusting for Airwave?
      A: Excluding the UK Home Office impact, total backlog is up over $500 million, and Subscription & Services backlog is up over $600 million. While the Airwave extension added $748 million to backlog this quarter, the prior quarter included a reduction due to pricing controls for years 2024–2026. The core business backlog is growing, and the apparent decline is affected by these adjustments.

    4. Product Segment Margins and Supply Chain
      Q: Is margin improvement in the Product segment sustainable?
      A: The company is on track to achieve $60 million in lower broker costs this year, with some benefits realized in Q1 and more to come. Improved supply chain conditions and strong demand support sustainable margin improvements in the Product segment.

    5. Video Business Growth and Cloud Adoption
      Q: How is cloud adoption affecting the Video business?
      A: The Video business had strong Q1 results, with increased adoption of Avigilon Alta and cloud solutions. There's an estimated $40 million headwind due to the shift to cloud, but the company remains confident in achieving 10% growth for the full year. Software within Video is growing faster than hardware, driven by analytics, VMS products, and cloud subscriptions.

    6. LMR Growth and Device Refresh Cycle
      Q: Where are you in the LMR device refresh cycle?
      A: The company is pleased with the performance of LMR products and services, with strong demand continuing. Customers are adopting more feature-rich devices like APX NEXT, driving revenue and margin expansion. The entire APX portfolio, including APX Originals, is performing exceptionally well. The device refresh is ongoing, with significant opportunity ahead.

    7. Ukraine Business and Aid Package Impact
      Q: Has the Ukraine aid package changed your outlook?
      A: The company's full-year view remains unchanged despite the recent $95 billion foreign aid bill. They still expect a $100 million headwind from reduced business in Ukraine, primarily impacting the second half of the year. The team remains actively engaged but is maintaining guidance as previously stated.

    8. Command Center Growth Expectations
      Q: Do you still expect 10% growth in Command Center?
      A: Yes, the company remains enthusiastic about the Command Center category and expects 10% growth for the full year. Excluding the UK Home Office impact, Q1 would have shown strong double-digit growth. Over 60% of Command Center customers are now adopting cloud-connected products, with offerings like Rave performing beyond expectations.

    9. Managed Services Contract Repricing
      Q: Are other customers seeking to reprice managed services contracts?
      A: No, the UK situation is unique, and there is no evidence of other managed services customers looking to reprice contracts elsewhere in the world.

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