Motorola Solutions, Inc. (MSI) was once the market leader in cellular phones, from analog phones to digital phones such as the Motorola Razr. Motorola’s market share peaked in 2006 when market intelligence firm IDC placed it in a second position behind Nokia Oyj (NOK).
However, like many of its peers, the electronics manufacturer lost ground to smartphones from companies, including Apple Inc. (AAPL), Samsung, and several Chinese brands. Critics point to Motorola’s slow reaction to evolving consumer needs as the primary reason behind its downfall.
In 2010, Motorola was split into two companies: Motorola Mobility, which housed the company’s consumer electronics division, and Motorola Solutions, which manufactures telecommunications equipment. Google bought Motorola for around $12.50 billion in August 2011, and three years later, it offloaded to China-based tech company Lenovo for just $2.90 billion.
Now, Lenovo, the world’s largest personal computer maker, which acquired Motorola Mobility from Google in 2014, believes that the brand is all set for a major comeback. In recent years, Lenovo has sought to uplift the brand and position it as a higher-end smartphone player to compete with industry leaders like Apple and Samsung.
“I would bet a paycheck that in three years we will be number three around the world,” Matthew Zielinski, president of international markets at Lenovo, told CNBC at the World Economic Forum in Davos, Switzerland. Lenovo has turned around the Motorola business and “hyper-prioritized” it, a decision that is now paying off, he added.
This statement underscores Lenovo’s ambitious vision for Motorola’s position in the competitive landscape of the global smartphone market.
At present, Apple and Samsung are the top two brands in the smartphone market. According to the recent report from IDC, Apple grabbed first place in 2023 with a record-high market share of 20.1%, followed by Samsung at 19.4% market share. Two Chinese brands, Xiaomi Corp (XIACF) and Oppo, come in third and fourth place at 12.5% and 8.8%, respectively.
Counterpoint Research, another market intelligence firm, placed Samsung in first place with a 20% market share, as per data up to the third quarter of 2023. Apple comes in second with 16%, followed by Oppo and Xiaomi.
While the firm did not list Motorola in the top five, it did note that the brand reported double-digit growth last year. Motorola and Lenovo combined had about a 4% market share in the third quarter, making it the eighth-largest player worldwide. But Motorola might be doing well in individual markets. It came in second in Latin America, as per publicly available data from Canalys and Counterpoint.
Motorola is the third biggest smartphone maker by market share in the U.S., according to Counterpoint.
Currently, Motorola is banking on foldable smartphones, bringing back its Razr brand in the game. The latest version of the Motorola RAZR costs less than $1000, making it far more affordable than Samsung’s foldable offering.
Zielinski characterized the launch of the Razr foldable smartphone as a strategic move, describing it as “taking a stab at the premium market.”
MSI’s stock has shown rising strength, with more than 28% gains over the past year. Moreover, the stock has surged nearly 6% over the past month and more than 11% over the past six months.
Now, let’s discuss several other factors that could influence MSI’s performance in the near term:
Positive Recent Developments
On December 18, 2023, MSI acquired IPVideo, the creator of the HALO Smart Sensor, an all-in-one intelligent sensor that detects real-time health and safety threats. This acquisition reinforces Motorola Solutions’ commitment to enhancing safety and security by offering a cost-effective sensor that is easy and convenient to deploy and operate for enterprises of all sizes.
On November 28, MSI introduced the LTE-enabled V500 body camera, the newest addition to the company’s mobile video portfolio that brings critical real-time field intelligence to emergency response. Along with other of the Motorola Solutions mobile video portfolio, the V500 body camera uses the VideoManager evidence management software.
In addition, the V500 integrates with Motorola Solutions’ ecosystem of technologies, from radio and in-car video systems to control room solutions and Holster Aware Bluetooth sensors. These new product offerings are expected to extend MSI’s market reach and drive its profitability.
Robust Capital Deployment
On November 16, MSI’s Board of Directors raised its regular dividend by 11% to $0.98 per share. The quarterly dividend was paid in cash on January 12, 2024, to shareholders of record at the close of business on December 15, 2023.
The company pays a regular annual dividend of $3.92, translating to a yield of 1.19% at the current share price. Its four-year average dividend yield is 1.35%. Moreover, MSI’s dividend payouts have increased at a CAGR of 11.2% over the past three years. Motorola has raised its dividends for 11 consecutive years.
Additionally, MSI’s Board of Directors approved a $2 billion increase to the share repurchase program, raising the total authorization since July 2011 to $18 billion, with no expiration date for the program. Under its previously authorized $16 billion share repurchase program, nearly $599 million in repurchase authority remained at the end of the third quarter of 2023.
Robust Last Reported Financials
For the third quarter that ended on September 30, 2023, MSI reported net sales of $2.52 billion, surpassing analysts’ estimate of $2.52 billion. That compared to the revenue of $2.37 billion in the same quarter of 2022.
The Product and Systems Integration segment rose 5% year-over-year, driven by growth in land mobile radio communications (LMR) and video security and access control (Video). The Software and Services segment grew 12%, driven by growth in the command center, LMR, and Video.
Motorola ended the quarter with a record third-quarter backlog of $14.30 billion, an increase of 6% from the prior year’s quarter, inclusive of $321 million of favorable currency rates.
The company’s non-GAAP operating earnings rose 9.6% year-over-year to $741 million. Also, non-GAAP net earnings attributable to MSI grew 6.4% from the year-ago value to $547 million. The company posted earnings per share of $3.19, compared to the consensus estimate of $3.03, and up 6% year-over-year.
MSI’s cash inflows from operating activities were $714 million, an increase of 84% from the previous year’s period. The company’s free cash flow increased 104.1% year-over-year to $649 million.
Upbeat Business Outlook
“Q3 was another strong quarter, with record third-quarter revenue, earnings and cash flow,” said Greg Brown, chairman and CEO of Motorola Solutions. “Safety and security have never been more important and we continue to see robust demand which drove our record Q3 backlog. As a result, we’re again raising our revenue and earnings expectations for the full year.”
For the fourth quarter of 2023, the company expects revenue growth of nearly 4% year-over-year. MSI also anticipates non-GAAP EPS in the range of $3.65 per share.
For the full year 2023, Motorola expects revenue in the range of $9.93 billion to $9.95 billion, an increase from its previous guidance of $9.975 billion to $9.90 billion. The company’s non-GAAP EPS is expected to be between $11.65 and $11.70 per share, up from its prior guidance of $11.40-$11.48 per share.
Impressive Historical Growth
MSI’s revenue and EBITDA grew at respective CAGRs of 9.4% and 12.3% over the past three years. Its EBIT increased at a CAGR of 15.4% over the same period. Moreover, the company’s earnings from continued operations improved at a CAGR of 24.7% over the same time frame.
Furthermore, the company’s net income and EPS increased at CAGRs of 29.7% and 30.3% over the same period, respectively, while its levered free cash flow improved at a CAGR of 8.7%.
Favorable Analyst Estimates
Analysts expect MSI’s revenue for the fiscal year (ended December 2023) to grow 9.2% year-over-year to $9.95 billion. The consensus EPS estimate of $11.71 for the same period indicates a 13.1% year-over-year increase. Moreover, the company has surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is remarkable.
For the fiscal year 2024, the company’s revenue and EPS are expected to increase 5.7% and 8.2% year-over-year to $10.51 billion and $12.67, respectively.
High Profitability
MSI’s trailing-12-month EBIT margin and net income margin of 24.74% and 17.30% are considerably higher than the respective industry averages of 4.88% and 2.04%. Likewise, the stock’s trailing-12-month EBITDA margin of 28.60% is 204% higher than the industry average of 9.41%.
Furthermore, the stock’s trailing-12-month ROTC and ROTA of 23.62% and 13.69% are significantly higher than the industry averages of 2.70% and 0.55%, respectively. Its trailing-12-month levered FCF margin of 16.65% is 89.3% higher than the industry average of 8.79%.
Bottom Line
MSI’s revenue and EPS topped analysts’ estimates in the third quarter of fiscal 2023. As a result of record third-quarter sales, earnings, cash flow, and backlog, the company raised its financial expectations for the full year. Also, analysts appear bullish about Motorola’s outlook, driven by strong demand for its innovative offerings, strategic acquisitions, and investments.
Furthermore, Motorola’s Board of Directors recently increased its quarterly dividend and approved a $2 billion increase in the stock repurchase program, reflecting the company’s robust shareholder return strategy.
Now, Lenovo believes the brand is poised for a big comeback. The Chinese tech company foresees Motorola emerging as the world’s third-largest mobile brand by 2027. Last year, the company unveiled its foldable, the Motorola RAZR, which has the potential to compete with industry leaders like Samsung with its innovative features and affordable pricing.
Moreover, smartphone recovery this year could be beneficial for Motorola. Canalys forecasts smartphone shipments to reach 1.17 billion units in 2024, up 4% from last year.
Given these factors, MSI could be a wise investment now.
