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Better Business Visibility Prompted Motorola Solutions to Increase Dividend by 11%

Shauvik Haldar Nov 26, 2020

Motorola Solutions (MSI) is a leading provider of mission-critical communications products and solutions in the United States, Canada and across the world.

It mainly operates two divisions. Its Products and System Integration is the larger division, bringing in approximately 60% of its revenue, with the balance coming from its Software & Services division.

The products’ division offers a wide array of infrastructure, communication devices, and video solutions for government and emergency responder agencies. Its software division focuses on providing software suites, technical support, cybersecurity and various types of surveillance solutions including voice and video.

MSI Sees Improving Demand Outlook From its End Markets

The COVID-19 pandemic indeed took a toll on MSI’s business, with revenues at its largest division, i.e., products down by nearly 14% during Q3 2020. This was mainly due to reduced demand for land mobile radio (LMR) and other professional radio solutions offered by the company.

However, MSI’s software and service segment saved the day as it continues to perform well. This segment registered a healthy 9% growth in revenue during Q3 2020 and contributed more than half of MSI’s operating margins. One of the major highlights was the award of more than a $120 million multi-year contract for setting up the next generation 911 command-center software solution.

Lower sales and capital allocation for M&A activity led to a decline in free cash flow to $343 million during Q3 2020 compared to $465 million in the same quarter the previous year. Nevertheless, MSI has been prudent in capital management, with the company repaying a significant portion of its $400 revolving credit line and refinancing upcoming debt with a $900 million 10-year debt that was secured at the rate of 2.3%.

Pick up in backlog and better business visibility during Q3 2020 might be one of the reasons that prompted MSI toincrease its quarterly dividend from 64 to 71 cents payable to shareholders of record as of December 15, 2020.

Looking forward, the company remains quite optimistic about its cloud-based offerings, not only for its command-center solutions but also for its LMR and video security offerings. In terms of strategy, the company would like to move more customers from a perpetual license model to software-as-a-service model in the coming days.

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