Following the split from Motorola Mobility and years of mergers and acquisitions, Motorola Solutions (MSI) has established a formidable niche as the dominant supplier of land mobile radio technology for law enforcement, firefighters, and emergency first responders, carving out an estimated 80% market share in the United States. Motorola Solutions has divested itself of low-margin segments while doubling down on emergency communications infrastructure and two-way radios and expanding its software-as-a-service offerings. After some growing pains from restructuring, the company now generates more attractive returns on invested capital and benefits from tight customer relationships with city, state, and federal governments, in addition to brand equity, thanks 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, lending credence to our narrow economic moat rating.
We expect the company to post low- to mid-single-digit top-line growth over the next five years, largely attributed to the growing backlog of business, the shift to recurring revenue, the sustained upgrade cycle from analog to P25 digital systems in the U.S., and continued integration of recent acquisitions. Furthermore, as nascent products scale, we see opportunities for material operating margin expansion. We postulate that Motorola’s software products have the greatest growth prospects, with comprehensive computer-aided dispatch and 911 call center offerings.
William Fitzsimmons does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.