We initiate coverage on Motorola Solutions Inc. (MSI) with a Neutral recommendation. Motorola Solutions is a market leader in the lucrative Public Safety market. Several industry researchers estimate that the market size of Public Safety may reach $6.5 billion in 2014.
Most of the products of Motorola Solutions are based on the state-of-the art wireless broadband mobility solutions architecture of the former Motorola Inc. We believe the company will maintain its current top-line growth in future primarily due to an improving global economy that will sustain both government and enterprise spending.
Motorola Solutions caters to a large set of industries including Transportation & Logistics, Hospitality, Public Safety, Retail, Wholesale Distribution, Oil & Natural Gas, Utilities, to name a few. After the spin-off, the company has a solid net cash position of $2.7 billion.
Recently, Standard & Poor’s Rating Services raised its corporate credit and senior unsecured ratings on Motorola Solutions to “BBB” from “BB+”. Fitch Rating also upgraded the company’s long-term issuer default rating to “BBB” from “BBB-“ and provided a stable outlook.
The strong cash balance of the company will further get boosted once Nokia Siemens Networks, a joint venture between Nokia Corp. (NOK) and Siemens AG (SI) completes its proposed acquisition of the wireless infrastructure businesses of Motorola Solutions.
This includes all of GSM, CDMA, and WCDMA networks as well as 4G WiMAX and LTE networks. Motorola will receive $1.35 billion from this deal including $1.2 billion from Nokia Siemens Networks and the rest $150 million from retained accounts receivables. The deal is expected to close by the first quarter of 2011.
Nevertheless, Motorola Solutions is heavily dependent on Government expenditures for its revenue. Approximately 65% of total sales of Motorola Solutions comes from government agencies. Although we do not suspect any near-term dip in government expenditures, we remain concerned that any macro-economic fluctuations may make the company’s top-line volatile.