VALUATION HIGHLIGHTS

1. Products constitute 67% of the Trefis price estimate for Motorola Solutions's stock.
2. Services constitute 33% of the Trefis price estimate for Motorola Solutions's stock.

WHAT HAS CHANGED?

1. FY 2024 Snapshot

Motorola Solutions delivered a strong performance in 2024, reporting revenue and earnings per share that surpassed consensus estimates in all four quarters. In 2024, the company's revenue grew 8% year-over-year (y-o-y) to $10.8 billion, driven by robust growth in products and system integrations, which rose 10%, fueled by demand for Land Mobile Radio Communications networks and video security products. Software and services revenue also saw a 5% y-o-y increase during this period. Furthermore, operating margins expanded to 24.9% in 2024, up 185 basis points. However, a $585 million loss from extinguishing the $1.0 billion Silver Lake Convertible Debt led to an 8% decline in net income to $1.6 billion (or 9.23 per diluted share) during the full year 2024. Also, MSI's operating cash flow jumped $400 million y-o-y to $2.4 billion during the same period. That said, Motorola Solutions' financial stability is underpinned by its robust cash flows, high customer retention rates, and the inherent resilience of its business model.

Note: Motorola's FY'24 ended on December 31, 2024

2. Outlook

MSI has provided guidance for Q1 2025, anticipating revenue growth of 5.0% to 5.5% and non-GAAP EPS of $2.98 to $3.03. This outlook considers expected currency exchange headwinds and a non-GAAP tax rate of approximately 21%. For the full year 2025, the company expects revenue to increase by around 5.5%. This guidance reflects Motorola Solutions' growing confidence in its operational capabilities and strategic direction.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Motorola Solutions' value that present opportunities for upside or downside to the current Trefis price estimate for the company:

• Motorola Solutions Products' Gross Profit Margins: Motorola Solutions Products' gross margins stood at 54% in 2020 and rose to about 59% in 2024. We expect this metric to increase slightly over the long term. However, if Motorola Solutions' margins increase further to reach historical levels of around 65% by the end of our forecast period, there could be an upside of about 5% to our Trefis price estimate for Motorola Solutions's stock.


• Services Revenue as % of Product Revenue: Motorola Solutions Services Revenue as % of Product Revenue stood at 68% in 2024. This was primarily on account of higher software sales and the addition of VaaS International Holdings' revenues to the services division. Going forward, we expect this percentage to increase to over 75% as the company focuses more on software and services. If Motorola Solutions' Services Revenue as % of Product Revenue increases more than our expectations to reach levels of around 87% by the end of our forecast period, there could be an upside of about 5% to our Trefis price estimate for Motorola Solutions's stock.

BUSINESS SUMMARY

Motorola Solutions is a mission-critical telecommunications equipment provider and sells radios, accessories, base stations, and other equipment to government agencies, including law enforcement, emergency services agencies, and commercial clients. It also provides comprehensive services for government, public safety, and commercial communication networks.

Government Security devices are the devices used for:

1. Aiding police departments to communicate with their patrol cars and help respond to crime incidents efficiently.
2. Tools for electric power distribution, fire station alerting, irrigation control, and video instruments for traffic control purposes.

Commercial Security devices are the devices used for:

1. Baggage tracking at airports and transit authorities.
2. Retailers to drive workforce productivity with wireless WLAN.
3. Wireless connectivity at universities.

SOURCES OF VALUE

We believe the Products segment is the most valuable segment for the following reasons:

Higher revenues from Products

Motorola's Products division, which primarily sells Land Mobile Radio products and security cameras, is the biggest source of Motorola's valuation, as it accounts for roughly 60% of total revenues.

Higher margins

Margins from the Products division are also higher, standing at over 58% compared to 40% levels for the services division.

KEY TRENDS

1. Widespread LTE shift
   • The adoption of LTE for public safety use and the broader trend of an analog-to-digital shift in the U.S. and internationally are likely to be the key drivers of Motorola's value.
   • Motorola is also likely to benefit from the stickiness of its government customers as well as its strong market position. The large installed base of security devices is also expected to grab a big chunk of that market going forward.

2. Continued government spending on critical security systems
   • The Government is increasingly migrating to more technologically advanced systems with real-time data storage while replacing manual activities. This will require similar upgrades to its systems. In such a scenario, Motorola's services department is going to be a major beneficiary.
   • Due to increased security deployed by the government at the airport to deter illegal immigration, the government will need technical support. Motorola's Biometrics service meets that need.

3. Acquisitions will help to achieve continuous growth
   • In 2024, the company acquired 3tc software, a provider of control room software solutions; Noggin, a provider of cloud-based business continuity planning, operational resilience and critical event management software, and Silent Sentinel, a provider of specialized, long-range cameras.

     Motorola is leveraging its strong product innovation to remain a step ahead of its competitors, helping it win critical contracts. This should help the company to achieve steady growth over the coming years.