摩托羅拉 (MSI) 2011 Q3 法說會逐字稿

Good morning and thank you for holding.

Welcome to the Motorola Solutions third quarter 2011 earnings conference call.

Today's call is being recorded.

If you have any objections, please disconnect at this time.

The presentation material and additional financial tables are currently posted on the Motorola Solutions Investor Relations website.

In addition, a replay of this call will be available approximately three hours after the conclusion of this call over the internet.

The website address is www.MotorolaSolutions.com/investor.

At this time, all participants have been placed in a listen only mode and the line will be open for your questions following the presentation.

I would now like to introduce Mr.

Shep Dunlap, Vice President of Investor Relations.

You may begin your conference.

Thank you and good morning.

Welcome to our conference call to present Motorola Solutions' third quarter results.

With me this morning are Greg Brown, Chairman and Chief Executive Officer, Ed Fitzpatrick, Executive Vice President and CFO, and Mark Moon, Executive Vice President, Sales and Field Operations.

Greg and Ed will review our third quarter results along with commentary, and Mark will join us for Q&A.

I would like to point out the results Greg and Ed will highlight in their prepared remarks refer to continued operations and exclude our point-to-point Orthogon, and point-to-multi-point Canopy business units, which are now included in discontinued operations, as a result of our previously announced sale of these business units during Q3.

We have posted an accompanying earnings presentation and press release at MotorolaSolutions.com/Investor.

In addition, we have posted updated pro forma non-GAAP financials that reflect the recent move of Orthogon and Canopy to Discontinued Operations.

I encourage you to review these materials.

A number of forward-looking statements will be made during this presentation.

Forward-looking statements are any statements that are not historical facts.

These forward-looking statements are based on the current expectations of Motorola Solutions.

And we can give no assurance that any future results or events discussed in these statements will be achieved.

Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.

Forward-looking statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this presentation.

I would like to now turn the call over to Greg.

Thanks, Shep.

Good morning and thank you for joining us today.

Motorola Solutions delivered a great third quarter and our results were strong in almost every dimension that we measure.

In fact, it was a record performance for a third quarter in sales, operating earnings, and operating margin.

Highlights for the quarter included growth in all regions, continued strength in Enterprise, better-than-expected Government growth, improved operating leverage, and significant return of capital to our shareholders.

This also marked another quarter of accomplishments that demonstrate our innovation and commitment to deliver the best mission-critical solutions to our public safety and Enterprise customers.

This morning we reported sales in the third quarter of $2.1 billion, an increase of 10% from Q3 of last year.

On a GAAP basis, net earnings were $0.45 per share from continuing operations compared to a $0.04 loss in the year ago quarter.

Non-GAAP net earnings from continuing ops were $0.65 per share compared to $0.54 per share in Q3 of last year, a 20% increase.

Our Government business revenues increased 9% as we saw growth across all regions, especially within Asia and Latin America, as customers continued to deploy our public safety solutions.

Non-GAAP operating earnings in the Government business grew 27% due to the strength in sales and continued expense management.

In our Enterprise business, sales increased 13% from the year ago quarter as companies continued to deploy our products and solutions further into their organizations to improve productivity, operational excellence, and improve the customer experience.

Last quarter we emphasized the priority we placed on capital return.

During the quarter, we returned $744 million in cash to shareholders through share repurchases.

And earlier this month, we made our initial dividend payment of $0.22 per share.

I'll now turn the call over to Ed to discuss our financial results then return to discuss operational highlights and provide additional thoughts on our business performance.

Thanks, Greg.

As Greg mentioned, our Q3 sales reflected across-the-board strength in all regions.

Along with strong revenue growth we had great profitability and operating margin performance, while continuing an appropriate level of investment in the business.

Revenue growth continued our Government business with third quarter sales of $1.4 billion, an increase of 9% from the prior year.

Enterprise business delivered another excellent quarter as the segment grew 13% to $726 million, driven by strength in Enterprise mobile computing and our wireless LAN portfolio.

In addition to our sales performance, our total backlog in Q3 was up slightly from the prior quarter.

On a GAAP basis, earnings from continuing operations, net of taxes, were $152 million.

And EPS was $0.45 per share.

Non-GAAP earnings from continuing operations were $0.65 per share compared to $0.54 a year ago.

Operating expenses were $708 million or 33.6% of revenue, which represents a 240 basis point improvement from the year ago quarter.

Operating expense dollars were roughly flat sequentially, in line with the outlook we provided in our last call.

We expect Q4 operating expenses to be comparable to this past quarter.

Our operating earnings for the third quarter were $358 million or 17% of sales, compared to $289 million or 15.1% in Q3 2010.

This 24% increase in operating earnings was driven by the 10% increase in sales, combined with disciplined operating expense Management.

We are pleased with the leverage in our business as operating earnings increased over twice the rate of revenue growth during the quarter.

Total other income and expense was a net expense of $16 million in the quarter compared to a net expense of $18 million in Q3 2010.

This quarter's results benefited from higher-than-expected investment gains.

However we continue to expect this other income and expense line to be net expense of approximately $20 million to $30 million in future quarters.

Our effective tax rate was 34.8% for the quarter and we now expect a tax rate for the full year in the range of 34% to 35%.

As we have previously stated, our average cash tax rate is expected to be approximately 20% for the next six years as we utilize available tax credits.

Cash flow from operations was $477 million this quarter, which was driven by solid operating earnings, relatively stable working capital levels, and reductions in our long term receivables related to our former networks business.

On a year-to-date basis, we have generated approximately $800 million of operating cash flow, and we expect another solid quarter of cash generation to close out the year.

We ended the quarter with $6.3 billion in cash and investments, and $2.1 billion in debt.

We also returned $744 million in cash to our shareholders this quarter through our recently initiated stock repurchase program.

A repurchase of 18.4 million shares at an average price of $40.38 reduced shares outstanding by over 5%.

Lastly, I want to remind you that we are on course to retire the $600 million of debt that comes due on November 1.

Now turning to our full year and Q4 outlook.

We are now raising our expected full year revenue outlook to approximately 7% growth compared to our previous outlook of 5.5% to 6%.

We still expect operating earnings as a percent of sales to be approximately 16.5% on the higher outlook sales.

In addition to our robust sales performance in Q3, we continue to expect Q4 sales growth of 2% to 3% over an exceptionally strong fourth quarter of 2010.

Excluding the impact of the planned IDEN decline, we expect that Q4 growth would be approximately 5%.

Our outlook for Q4 non-GAAP earnings per share is $0.78 to $0.83 from continuing operations.

This outlook is based on Q3 ending share count.

Consistent with prior quarters, this outlook excludes stock-based compensation and intangible amortization expenses of approximately $0.18 per share and items historically highlighted in our quarterly earnings releases.

I'll now turn it over to Greg for segment and business highlights from the quarter.

Thanks, Ed.

In the Government business our sales for the quarter were $1.4 billion, up 9% over Q3 2010.

Growth was solid in all regions, and particularly strong in Asia and Latin America.

Profitability for the segment also improved with operating earnings representing 16.2% of sales this quarter compared to 13.8% in Q3 of last year.

This increase in operating earnings was driven by our ability to grow revenues faster than operating costs.

This quarter marks the seventh consecutive quarter for year-over-year growth in our Government business, which demonstrates the priority that mission critical communication spending receives among the federal and state and local governments.

In the US, state tax revenues have increased for six consecutive quarters.

And a recent National League of Cities fiscal conditions survey showed that municipalities are better able to meet financial needs in 2011 than in the prior two years with public safety being one of the least likely areas to be impacted due to budget constraints.

In August we participated in NAPCO's International 77th annual conference, and demonstrated our leadership in both the standards process and interoperability for first responders.

During the show we announced several exciting new products, including shipment of our latest version of ASTRO as the industry's first commercially available P25 system with Phase II TDMA, a technology which doubles the voice capacity of P25 Phase I for more efficient use of spectrum.

We already have 18 customers signed up for this release.

And during the quarter we shipped a $14 million project for Washington, DC and added a contract with the City of Cleveland for $38 million.

To complement our award-winning APX 7000 radio, we released the first remote speaker microphone designed for firefighters.

Another example of innovation that produces life-saving technology for firefighters around the world, this speaker mic features a 2-microphone design that cancels out distracting background noise and has an emergency light activated amid smoke.

Our innovation was on display at APCO with Products of the Future, as well, including a newly-designed ultimate patrol vehicle in partnership with General Motors.

This vehicle has improved ergonomic designs with integration of our public safety LTE, voice recognition, and video solutions in the car.

Demand for our APX radio continues to grow, highlighted by a $30 million contract with Jefferson County 911 dispatch in Missouri, and a $5 million award with the State of New Jersey and several multi-million dollar awards from the Department of Justice to continue rolling out APX radios to numerous agencies.

Internationally in ASTRO, we received a $7 million award for an ASTRO P25 nationwide system expansion for the National Police of Colombia, and in Mexico a $4 million ASTRO P25 network for the Public Safety State Council of Jalisco, which will help support the 2011 Pan-American games in Guadalajara.

In TETRA, we had another good quarter with an award for the state of Hessen, Germany that includes over 50,000 radios, along with service and support, a deal that follows several other recent TETRA wins in other federal states in Germany.

We also renewed a managed services and support agreement with Airwave for $95 million to support their TETRA network in the UK, which is the largest TETRA network in the world with over 250,000 subscribers and nationwide coverage.

In Asia-Pac, we won multi-million dollar awards with Shandong Police and Kunming Metro in China.

In addition to our leadership in public safety, mission-critical voice standards of P25 and TETRA, we continue to innovate in the professional and commercial market segments for voice communications, including the digital mobile radio standard.

For example, this past quarter, we celebrated a milestone of having shipped over 1 million units of MOTOTRBO, the first digital radio in the professional market segment that we introduced in 2007.

Today, over one-third of our new shipments in this portfolio are now digital, as users embrace the improved coverage and audio quality, as well as an entire array of new features for these radios like GPS, location-based services, e-mail, alerts, text messaging, work order tickets and many more enabled by our applications developer community.

In our Government non-voice portfolio of mission-critical applications that we call Integrated Command and Control we gained momentum, with our new Premier One software platform including a $3 million award for Will County, Illinois to support the administration of the county-wide enhanced 911 system and a $3 million contract for a new 911 emergency call system for the Royal Bahamas Police Force, which will automate the dispatch of police and emergency vehicles and eliminate the need for officers in the field to report their location back to the command center.

A recent study by the Urban Institute evaluated three major cities that installed video surveillance systems and found that, while crime reduction varied among the cities, those who actively monitored the cameras reduced crime in a cost-effective manner.

Another example of a Motorola Solutions customer that's adopting this technology is Chattanooga, Tennessee, with the implementation of a mesh network that includes video cameras and laptops for police cars.

In public safety LTE, opportunities in North America continue to evolve with additional demand in the Gulf states and parts of Latin America.

For example, we recently announced Motorola Solutions will help the Brazilian Army test 4G LTE technologies for mobile broadband applications for public security, operating in the 700 megahertz frequency range.

We continue to demonstrate our leadership in next generation public safety LTE.

We recently announced our first devices for LTE, a vehicle modem which is installed in a patrol car or other public safety vehicles to create an in-car network with broadband connection back to headquarters and a USB LTE modem that allows mobile computers to access the public safety LTE network.

Together with Verizon Wireless, we've demonstrated a first-ever LTE public/private interoperability capability when a patrol vehicle outfitted with dynamic public safety applications maintained its live data sessions, while seamlessly switching between the Motorola Public Safety LTE network and the commercial Verizon Wireless 4G LTE Network.

The applications featured on the vehicle included computer-aided dispatch, automate license plate recognition, and live surveillance video.

So, moving to the Enterprise segment.

Sales in the Enterprise segment were $726 million, an increase of 13% from Q3 of 2010 which was led by growth in our Enterprise mobile computing and wireless LAN portfolios.

Operating earnings expanded to 18.6% of sales from 17.8% last year.

Mobile computing, our largest product segment within Enterprise, continues to grow at double digits.

In fact, the third quarter was a record revenue quarter for this business as customers around the world deploy our mobile computing solutions to streamline their costs, enhance their top line, and drive business transformation.

Our mobile computing solutions are being used in a wide array of Enterprise environments, in customer-facing situations at a retail store to package delivery in one of the most remote places in the world.

Our Enterprise customers demand durable devises that offer a life cycle beyond the normal consumer device, together with Enterprise class security, device management, and flexibility.

In addition to growth in core verticals like retail and transportation and logistics, demand for our Enterprise mobile computing portfolio includes an increasing number of wide area network-enabled devises.

Our mobile computing portfolio now ships with over 35% of devices, including carrier WAN options reflecting expanded use cases among knowledge workers who travel outside the traditional four walls of LAN coverage in areas like field mobility and sales.

Improving upon our offering of unique industrial designs for our highly rugged mobile computing portfolio, we expanded our line-up of mobile computers for hazardous environments with a HAZLOC certified rugged device design to meet the needs of a broad range of mobile workers in the manufacturing, government, petrochemical, and pharmaceutical industries.

We recently unveiled the ET1 tablet, the first in an emerging category of Enterprise class tablets designed for verticals like retail, manufacturing and logistics.

The ET1 brings a true Enterprise class device with enhanced durability and optional bar code scanner and magnetic stripe reader, hot swappable battery packs and secure systems software.

Intended for demanding day-long use, the Wi-Fi enabled ET1 includes encryption and device management features that enable the device to be shared and provision for each employee according to their respective level of responsibility.

The ET1, an entire mobile computing portfolio, will be supported by Motorola's portfolio of Enterprise grade software modules, including RhoElements, a new HTML 5 application enablement framework from our recently-acquired Rhomobile.

Using this framework, businesses can now quickly and cost-effectively develop Enterprise applications once, and deploy them on both traditional Windows-embedded handheld and Android-based Motorola devices.

Demand for our Enterprise mobile computing solutions among customers in transportation and logistics also remains strong.

We won deals with Posten Logistik Group in Sweden for 10,000, MC65 units and with DHL in France for 1,500 units of EMC 9500 series, enabled with proof-of-delivery applications.

We continue to grow in the utilities vertical as well, with examples like GDF Suez, a French multi-national energy company who chose our MC65 for field mobility use.

And Eskom, the electricity company which supplies 95% of South Africa's energy, now uses 5,000 MC75 devices in their fleet.

In retail, we've seen continued adoption of personal shopping and self-scanning solutions enabled with our MC17 device.

For example, after a successful pilot, Jumbo supermarkets in the Netherlands decided on a $5 million store rollout of over 6,500 devices.

In scanning, a transition from laser to imaging in advanced data capture products continues to drive growth.

A primary driver for this transition is the requirement for retailers to read several types of barcodes, including traditional 1-D barcodes and new 2-D matrix barcodes such as quick response codes.

These new barcodes are often read from a consumer shopper's smartphone with mobile applications such as coupons and loyalty programs.

Retailers of all sizes are investing in tools to read these scans and capture the information to improve customer service and encourage customer loyalty.

Building on this trend, we unveiled 2 new products in the past quarter, including the compact DS457 fixed-mount imager and a sleek MK3000 micro kiosk offering premium 1-D and 2-D scanning capabilities, as well as the ability to read barcodes from mobile phones.

In RFID, we unveiled a next generation industrial class fixed RFID reader.

This RFID reader is designed for reading RFID-enabled pallets and bulk cases at dock doors, conveyors and other industrial read points that require high reader performance for rugged environments.

In the Enterprise wireless LAN, we have a leadership position in our largest verticals such as retail.

In addition to the vertical domain expertise and integration with the rest of our portfolio, WLAN differentiators for us include air defense and voice-over-wireless LAN clients for our devices.

Raley's, a $3 billion grocery store chain on the West Coast, recently chose our WLAN solution, combined with deployment and maintenance services for all of their 140 stores.

Our WLAN portfolio recently was recognized with a 2011 Research PilotHouse Award for market leaders based on our strength in technology, customer service, and overall value.

Last quarter we announced the formation of our Global Advanced Services Team led by Bruce Brda.

I'm proud to report that a recent contract with Sears demonstrates the power of this organization working with our field teams.

Over 83 years ago, our first recorded sale was to Sears Roebuck, and today Sears is transforming the way it serves increasingly connected tech-savvy shoppers.

Sears recognized the need to modernize their existing network infrastructure and they wanted a different model to align their business objectives with service level agreements from a leader in its industry.

Together we developed a life cycle proposal where we offered to build and operate and secure Sears' mobility infrastructure to enable on-the-go capabilities for its associates, and better mobile experiences for its shoppers.

The result is a strategic relationship and a significant Enterprise managed services contract which draws from our entire services portfolio, including integration, managed infrastructure and air defense security services.

Now, turning to a total regional view for the Company, all in, we saw growth in each one of our regions in Q3.

North America sales were up 6% which includes a 5% increase in Government.

EMEA delivered solid double-digit growth, driven by continued strength in Enterprise and growth in Government.

Growth in Asia was solid double digits, balanced across Enterprise and Government, while Latin America also posted a solid double-digit growth in Government and Enterprise.

Our solutions portfolio was more focused than ever on delivering mission-critical solutions to our core customers, with the announced sale of our point-to-point Orthogon, and point-to-multi-point Canopy businesses.

This business represented approximately $170 million in annual revenues and was not strategic to our core focus of Enterprise and Government customers.

Let me close today's call by saying that we had an exceptional quarter characterized by growth in Enterprise and Government and across all of our regions.

We also demonstrated operating margin expansion and significant return of capital to shareholders.

We did this while continuing to improve our cost structure and investing in strategic initiatives that we believe will improve our long term positioning as a Company.

Thanks, Greg.

Before we begin taking questions we want to remind callers to limit themselves to one question and one follow-up so that we can accommodate as many participants as possible.

Operator, please instruct our callers on how to ask a question.

(Operator Instructions) Craig Hettenbach with Goldman Sachs.

Greg, you mentioned solid growth across all regions.

Can you dig in a little bit to the Enterprise?

Good growth there as well but just with some of the recent macro concerns there, any change in order patterns or tone of customers that you're seeing and anything to call out by specific region?

Craig, no.

As I mentioned, we had 13% year-over-year growth in the quarter.

We had double-digit growth in both mobile computing and WLAN.

I just think that there continues to be demand for mobile computing overall.

And as more and more workers mobilize, those are favorable trends to us.

I think stepping back also, by the way, all-in for both Enterprise and Government, we saw backlog up slightly sequentially, as well which we felt was a good sign.

So I think that we continue to perform in our key verticals.

But at the end of the day, Craig, the whole emphasis is on ROI and enterprises to get their cost structure down while simultaneously trying to drive revenue, increase performance at customer point of contact are trends that are favorable to us.

And then if I could follow-up with Ed.

Good performance on the OpEx this quarter and you guided flat next quarter.

Can you just update in terms of the costs you identified at the time of the spinoff where you are and any additional measures you might look to take as you go into next year?

I think as we updated on the last quarter call, we felt confident that we had executed to the cost reduction initiatives to take out the overhang related costs that we had called out pretty early beginning last year.

So I think we feel pretty good that those actions have been taken.

The cost structure is aligned and the main reason why you're seeing us now relatively flat quarter to quarter and guiding to relatively flat expenses for the fourth quarter.

I think that as we go forward into 2012, we'll come back to you with specific guidance but you should expect us to continue to leverage the P&L going forward, whereas cost structure will not grow to the extent of the sales growth that we'll expect the next year.

Deepak Sitaraman, Credit Suisse.

Greg, in the past you've talked about long-term margin for the business being in the 16% to 18% range.

This year you're already on track to do about 16.5%.

Can you talk us through some of the drivers of margin from here?

Just beyond revenue mix and operating leverage, what are some of the puts and takes we should be thinking about?

I think that the levers on continued operating expansion, of course, start with revenue growth because we have gotten the cost structure further and further improved which is why you see the kind of operating leverage that you do this past quarter with OE, or operating earnings, growing 2X the top line.

I do think there's always opportunities to become more efficient, as well, as we have successfully spun off Mobility 10 months ago.

In a lot of the support services, we're always evaluating our shared services, our engineering footprint, our manufacturing capacity.

So we're looking at a lot of different things to ensure that we are as effective and efficient as we can be, while still investing about $1 billion of R&D.

So I think there's shared services, real estate footprint, obviously revenue growth.

And as we continue to be more efficient in the cost of goods side with the consolidation of suppliers, I think there's a number of different things that can help us continue to drive operating margin expansion over time.

Then as my follow-up, as you grow your services business, how should we think about the impact of that on margins?

Is that a drag to margins or is it a net neutral?

Different product lines will have different gross margin profiles.

And you're right; it is certainly likely that a lot of our services business will not have the gross margins that we enjoy in other segments.

Having said that, Deepak, we are not confused, and all-in will continue to manage the whole portfolio.

And our goal will be to continue to drive operating margin expansion and, of course, increase operating and free cash flow as well.

And so we'll manage that mix.

Just to add to that, I'd say that as you look at our services business, gross margins may be a bit lower, as we've disclosed.

But operating margins are not that different.

So we don't expect the services business as it grows to be a drag on the operating earnings growth that we've been talking about.

Pierre Ferragu with Bernstein.

I have a question on your acquisition and divestment activities in the quarter.

Can you tell us how you look at this at the moment, how the divestment of Canopy and Orthogon have -- how you've been thinking through that, and also the acquisition of Rhomobile?

And going forward, is there any particular area in your portfolio or in your geographic exposure where you feel you don't have the right exposure and you would see some further M&A activity?

So on the divestiture of what we call our wireless broadband business, our point-to-point and point-to-multi-point, the fact of the matter is it just wasn't strategic to us.

It is about $170 million of annualized revenue and was struggling from a profitability standpoint.

And we had a very small percentage of market share, and we competed with the big boys who are more sophisticated and have a more robust product line for backhaul, folks like Ericsson and Alcatel-Lucent, NEC.

So it just didn't make sense.

And it wasn't core to mission-critical communications.

As we configure our own designs and solutions for customers, sometimes we didn't even use our own product.

And that should be also a clue in terms of its lack of strategic value.

So it wasn't financially accretive nor was it consistent with what we talked about, about mission-critical communications.

Shifting to Rhomobile, we acquired that small software company because with HTML5, it will lessen the dependence on people writing applications for one operating system or another.

So today people write for Win Mobile 7.5 or they write for Android 2.3 or they write for Windows embedded handheld, or they write for BlackBerry OS.

And over time, this will be all abstracted and you'll have one set of developers writing to a standard base, what I would call API to HTML5.

So it really is designed to expand the applications portfolio for developers and to our Government and Enterprise customers and allow us the latitude of offering devices that may have either Microsoft or Android but do it in a way that attracts the ecosystem and developer community, and provides ultimately our customers with the choices that they want.

So, that was the philosophy behind Rhomobile which was an affordable all cash-in tuck-in that we think was fundamentally key to our mobile computing business.

And on the overall portfolio, as we think about our current product portfolio, we do not see a gap that we would identify today based on the franchises where we play and the platforms where we lead.

So we don't step back and say -- boy, we really need to fill in X or Y.

That said, we'll always be opportunistic in looking at opportunities that come forward but I think we have a very strong set of products and solutions at this point in time.

In terms of geography, you feel as though you're well exposed to all international markets you want to be exposed to?

You don't see any gap there either?

No, I don't.

I think with 1,700 feet on the street worldwide and 25,000 channel partners we will always use distributors, VARs, independent software vendors, and the mix of alternate distribution channels for us to reach and touch all corners of the world.

So I think as we continue to monitor and manage that mix, I think we'll be able to manage accordingly.

But, Pierre, as you talked about, we will continue to look for opportunities.

If there's ways for us to strengthen our presence in a particular region that will definitely be a factor if we're looking to inorganically grow in a region where we feel we might do better by going outside and acquire.

Ehud Gelblum with Morgan Stanley.

First, Greg, did you give the size of the businesses that you divested this quarter?

I know you talked about $165 million to $170 million annually but I'm not sure if I missed the actual number this quarter.

And given that it is generating losses, I'm assuming you didn't get that much cash for it.

So I just wondered if you have that number in terms of what you received for it, I would love that.

And my main question is on the Enterprise side.

It continues to be on a roll.

Is wireless LAN a big play in the -- obviously it did well, but can you give us some sense as to how well wireless LAN did and how large?

Is that a growing piece of the business or is the entire business growing that same 13%?

And equally, if you look at RFID, you didn't mention it this quarter; it comes and goes in conference calls in the past.

Was that a growth piece of it?

I'm just trying to get a sense as to what are the main drivers that are continuing to keep Enterprise strong, maybe from a product perspective, whether it's wireless LAN, or whether it's the introduction of the new scanners.

Just trying to get a good sense of what really is driving Enterprise.

And any way you can break it apart into smaller pieces would be great.

So what's driving Enterprise primarily, I would say the twin towers of growth are mobile computing and WLAN.

Now, that said, our advanced data capture business, while not very glamorous, is strong and steady, and it has density and materiality.

So that continues to be a positive contributor, as well.

The divested businesses are $170 million annualized.

In Q3, they are about $40 million or $41 million to dimensionalize what Canopy and Orthogon are in the Q3 results.

By the way, we haven't closed that transaction yet although we expect to do that shortly.

WLAN is growing much faster than the 13% Enterprise rate overall.

I think the industry is growing strong but between our performance in the verticals, utilizing air defense.

And by the way, we're positioning WLAN more in the kernel of our services offering as well.

Reference Sears.

And also, because cellular networks, as you know, continue to strain under the explosion of data and video traffic, from a carrier standpoint, WLAN is very well-positioned, and you know it came out of the acquisition of the Symbol organization.

RFID is -- we're still bullish on it and think that it will have significant opportunities going forward.

I think it wasn't simply mentioned because it was a bit lumpy and there wasn't a significant reference or contract to mention in Q3.

But that doesn't change our perspective that we think it's fundamentally key going forward.

If I could have a follow-up.

Actually there was just an earthquake in San Francisco, so you might actually get some more business out of that, depending on how many first responders have to take care of that.

Wow, I didn't know that.

It literally just happened.

But can you walk us through a little bit what's happening -- just completely switching on the Government side -- with Los Angeles and the LA-RICS project and the puts and takes that happened over the last six months, and where you stand with that?

And how you see your odds, or when they actually will choose a vendor for that, and how you think you stack up?

LA-RICS put out a bid, as you know, and we competed for that bid.

It came under review and ultimately was determined to be pulled back and rebid.

We led with, of course, our solution, along with Verizon, which is our anchor tenant partner on public safety LTE.

Interestingly, the new bid has not been let yet.

So we're very eager and prepared to respond.

And whenever it comes out, whether it's later this month or I guess more likely looking like November, we'll be anxious to compete on it.

I don't month if Mark you want to say anything more?

No I think you covered it very well, Greg.

We expect the current or the reissued, if you will, RFP to be done later this month.

And we expect there to be competition, as we would normally expect in a bid of this size in North America.

And obviously the entities, both LA City, the independent cities in the County and the County, are strong customers of ours, so we intend to compete very hard for this business.

Tavis McCourt with Morgan Keegan.

Thanks for taking my question, and great quarter.

The backlog you stated, Greg, I think you first said it was Government and then you said it was combined Government and Enterprise.

Can you just drill down into the Government and what's happening with that backlog?

I think last quarter you said it's been relatively flattish.

Did that change materially?

So backlog in aggregate is up slightly.

So we don't talk about the individual segments of Government or Enterprise.

So what I was describing was that overall backlog is up, which, quite frankly, we were pleased with given the 10% earnings growth in Q3.

I think it just reinforces what we have been saying about the mission-critical nature of public safety.

And there's a lot of different drivers that continue to both domestically and internationally expand our position in this key segment.

Specifically to your question, that slight growth in backlog was driven by the Government segment.

And when you have a quarter like this where obviously Government exceeded probably most of our expectations, and probably yours as well, is that typically because the turns business within Government got better, or because you were able to basically recognize more of the backlog revenue than you would have thought three months ago?

Yes, I think it was actually a combination of a lot of things.

But, as you said, it was better than we even expected because we were being a little cautious in some of the regions, given the headwinds that we were all facing.

As a result, we were able to turn backlog.

But we grew backlog, as you said, so new orders were also very, very strong.

So I think the exciting thing about that for us in the Government space is that there was growth in every region, including EMEA, which we've talked about previously as not showing growth.

And North America continues to be very resilient and show very strong growth.

So it was really a combination of all things coming together, as you said, in a better and possibly better than expected effort.

Larry Harris with C.L.

King.

I have a couple questions related to LTE.

I think you have indicated that your first release of LTE equipment will be available on November 11.

I assume that you'll be shipping at that time or thereafter.

When can we begin to see significant revenues related to LTE?

And do you think it will be greater initially maybe in international markets like the Middle East or Brazil than the United States?

So I think, as you said, we're excited about the initial release coming out in the middle of next month, and we will begin shipping to customers at that time.

As we've always alluded, really from a revenue recognition perspective, we will see revenue in 2012.

But we don't expect it to really become, as you said, in a significant kind of fashion, or in a meaningful fashion until 2013.

We expect initial revenues to be in North America actually.

But we're excited about the large opportunities in the Middle East and in Latin America, and also in Asia.

So I do think the LTE, we always said that it would begin in North America because of the good work that's been going on with the PSST and the DBOT spectrum that's still being discussed, but it will move internationally as it goes forward.

So it's really, from a revenue point of view, post 2012 in terms of significance?

That's correct.

Avi Silver with CLSA.

I wanted to ask just about, can you talk a little bit about IDEN revenue in the quarter, the outlook there?

And how do Sprint's plans alter your outlook, if at all, for the next couple years?

I think, as we guided for Q4, if that's what you're talking about, we had planned for the IDEN revenue to decline in the fourth quarter, largely in line with what we're seeing now with the outlook that we thought we saw at the beginning of the year.

So the IDEN decline overall for the year is a bit less than we expected and planned at the beginning of the year.

And I'd say going forward, given that a lot of the revenue we have today is related to services and support of the networks, we will see that business decline in '12 and '13.

But we expect the decline to be relatively consistent with this year and/or trail in the subsequent years.

And the other thing I wanted to ask about is the MC17 which seems to be a really interesting product and has, I think you called out Europe last quarter.

Just curious how that's doing in Asia and the US.

What are you seeing in terms of uptake?

And how big is this today as a percentage of the Enterprise revenue and how big could this become going forward with broader adoption?

So as we've indicated and as you indicated, the MC17 has had the strongest success in Europe, and it continues to do so.

But it is within customer deployments in all regions.

We have a number of customers leveraging it in the US and some in Asia, and we continue to look at, as we've previously talked about, what is the right product or variation of this product as we think about markets like Asia and Latin America.

So we're excited about this product.

But again, we're excited about our entire mobile computing portfolio.

So I think we continue to innovate and we continue to see good uptake throughout the world.

Steve Tusa with JPMorgan.

It's Drew Pierson in for Steve this morning.

Color on the 4Q guidance.

Did you guys talk about expectations by segment, which segment might be directionally above or below that 2% to 3% for the Q4?

We've not talked by segment.

The growth we've just given, the aggregate number for the quarter, that's the 2% to 3%, and backing out the impact of IDEN, approximately 5% growth.

But we do expect to see growth in both businesses.

We'll give you that level of color.

I'll pass it to Mark for more color.

I think Ed reiterated earlier.

This is in line with the guidance we gave previously and what our expectations were.

So excluding IDEN business, if we think about the original guidance that we've always given around Government segment performing in the low to mid single digits, and the Enterprise business performing in the mid to upper single digits, that's really the expectation that we see and how the buildup of that 2% to 3%.

Then the IDEN decline is what brings it back to those levels.

So again, the earlier question about the strength of Enterprise and how we see it continuing, it's still, even in the fourth quarter, coming off of a strong comparable, operating at normal rates.

I think that's right, Drew.

And if you look at last year about 14% growth in Q4 of last year, that's what we're referring to.

Okay, that's helpful detail; I appreciate it.

And then it looks like your 16.5% margin guidance is unchanged.

You've divested what looks to be a money-losing business, maybe a little more IDEN which is accretive to the margin.

Is there any other reason that's unchanged, or is it just the moving pieces aren't enough to move the margin guidance higher?

I really think it's the latter -- a bit higher expenses on the higher sales and just mix of product.

Just I'll call out, as well, the impact of the business that was divested was actually profit.

It was actually $0.02 per share, which is effectively offset by the impact of a share repurchase that was a favorable $0.02 per share.

Jeff Kvaal with Barclays Capital.

I have a question and a clarification.

I think first on the clarification, just to be clear, the fourth quarter guidance you were giving, the base is excluding the Canopy business?

That's correct.

It's in continuing operations.

That's going to help the numbers work a little better than they have been in the model.

Thank you.

And then Greg, for you I was wondering, could you talk to us a little bit about what the market and competitive position looks like for you in the Government business outside of the US?

That seems to have been a bit of a theme for you over the course of the last few quarters.

If you could spend a little bit more time going into that and what your share opportunities are, that would be super.

I think we're very well-positioned internationally.

As we talked about, we grew double digits outside of North America in all three regions.

I think it's a combination of our -- to an earlier point on this call -- the reach and capacity of 25,000 indirect channels which largely drive the Enterprise business and our embedded and incumbent position and strong sales force in different theatres on the Government side.

Overall too, I think that there's just a variety of different demand drivers in different parts of the world.

And as Mark Moon mentioned earlier in the LTE environment, the US, interestingly North America, will lead it first, with the Middle East following shortly thereafter.

So when we talk about the public safety LTE business, which is incremental to the business that we have at the moment, it will largely be lead first in the US, then the Middle East.

And over time it will take Europe and Latin America to get their spectrum position in place.

But those are places that will provide even further growth opportunities.

So I think we're in a good position but we can always do better and will always do more.

Can you talk a little bit about what your shares are relative to where they are in the US and which have a competitive landscape?

So we don't get into product market share per platform but it's fair to say, first of all, we lead in TETRA worldwide.

But we don't have the kind of market share in TETRA that we have in P25.

In mobile computing, our leading market share position is a little bit more consistent in North America as compared to other international theatres.

But we don't dimensionalize it beyond the aggregate.

Jeff Fidacaro with Susquehanna.

I was wondering if we could just get a little bit more color on the outlook on the Government side, particularly where budgets stand, your visibility at this point in time.

And any change into the sales cycles?

And ultimately, could we see this Government piece uptick in revenue growth in 2012 versus '11?

So I think Greg's talked on a number of occasions about the good thing about the Government business is we have relatively good visibility.

Many of these deals are long term acquisitions, and you do get deals that build backlog.

So we continue to have good visibility.

As I mentioned previously, our orders in the quarter for Government segment were up.

So we continued to see good performance in that particular piece.

So all-in-all, as we look forward, we certainly are keeping our eyes open to the economic situations around the world.

But we continue to feel that the current visibility is similar to what we've seen in the past.

And we really don't see any structural changes to our view of the Government business as we look into 2012.

And when you take a step back all-in, because the guidance is important, remember, number one, the wireless broadband business is out, is pulled out in Q4.

Secondly, our 2% to 3% top line which incorporates that also maps to more approximately 5% growth if you extract IDEN.

We're coming off a 14% year-over-year comp from Q4 of last year and backlog is up slightly.

So as you take things in composite, that should give you a full flavor of how we're doing.

And recall also that we've raised the full-year outlook to approximately 7% all-in for this year in 2011.

So those are the puts and takes and why we feel reasonably good about where our current position is.

And if I could just have one quick follow-up, just if you give you some color of a break down between international visibility versus US?

I think it's relatively similar.

If we lock at percentage of backlog versus revenue, it's not dissimilar in North America versus the international markets.

So again, while the portfolio may be somewhat different and sometimes the buying cycles are different, they've been pretty consistent and still remain fairly consistent in the position of backlog versus quick-turn business versus new orders that we need to convert.

Peter Misek with Jefferies.

As we go forward for LTE and for other network deployments, should we think that working capital usage is going to go up or down?

We had good free cash flow this quarter, so would love to get your puts and takes on free cash flow for next year.

Yes, I think as we look forward some of that still remains to be seen as the deployments are really just getting started.

But I would say I wouldn't see any appreciable change in the way that we're managing the working capital levels and the related cash flow impacts.

So you don't think we need a bigger investment as we see the growth accelerating?

We should be modeling similar working capital trends that we saw this quarter?

I think for now that's what I would assume.

As we get into these, we will give you updates if we think it's either more or less capital intensive.

As I look at it, as there are build-outs, it's possible there could be a bit more capital required to roll some of these things out.

But we're not seeing that just yet so we'll update you as appropriate going forward.

Matt Thornton with Avian Securities.

Good morning, guys, and congratulations on the quarter.

Most of my questions have been answered, but maybe a couple of general ones.

I guess, Greg, just on the competitive landscape, can you talk a little bit about any changes you've seen in behavior, in pricing, new entrants, new aggressors?

And then, secondly, more of a housekeeping question.

Ed, can you give us a quick breakdown as to where we stand regionally in the Government business and the Enterprise business, again just a rough estimate about the revenue mix by business?

In answer to the first question, no meaningful changes on the competitive landscape.

And you know who we consistently compete with in public safety North America on the system side.

It's usually Harris.

Occasionally we'll compete against a systems integrator in North America, as well.

On the professional and commercial radio business where we continue to lead worldwide, and have performed extremely well from a share perspective and a financial perspective, no significant changes.

WLAN same thing.

Whether it's Cisco or Aruba, I don't think there's any material changes.

So we continue to move forward.

And as a result of that, we also don't see at this point, any significant swings or changes in competitive pricing, as well.

Now, obviously bids are always competitive and when you get to these large tenders, price is very, very important.

But I'd say that's been very consistent over the last few years for us as we compete with large deals.

And that says we have to come up with the best product solution with the highest quality and continually drive costs out of this business so we remain competitive and win.

And that's our intention to do it.

I think on the growth by region color, I think as we mentioned, growth in every business -- in both businesses, I should say, Government and Enterprise -- and then growth in every region and every business for the quarter, which I think is positive, a little more color we could tell you, a bit more robust growth outside of North America across the board.

And the Government business in EMEA now coming to a point where we're talking about growth a bit more modest but getting back to growth, as Mark had mentioned.

So that's the color we'll provide there.

Jim Suva with Citi.

Thank you, and congratulations to you and your team there at Motorola Solutions.

When we look long term about the LTE announcement and opportunity there, is it fair to say that these product and service offerings there are comparable to your existing product profitabilities?

Or is there additional complexity added into the LTE initiatives that actually allow you to take your profitability up onto a little bit of a higher profitability level?

And then I probably have a follow-up.

So I think the way to think about it, Jim, is -- and this was referenced a few different times -- we have to continue to grow this business on top line.

We're well-positioned from an operating leverage standpoint, which means it would be our goal to continue to drive operating margin expansion.

And somebody mentioned the 16% to 18% framework that we have talked about, and we talked about as part of our model.

And there's no reason that we can see at this point why we shouldn't be able to continue to expand operating margins.

But we also recognize that there will be a different mix of products and services.

But we believe we should be able to manage that mix all-in, and therefore drive improved operating cash flow and free cash flow, as well as continue to increase and drive earnings per share and operating earnings.

And that's how we are approaching this moving forward.

Now, all-in, we still believe that organically, our long-term growth model for this business is 5% to 8%.

And obviously you've seen us do that throughout this year, year-to-date.

Again, for the full year of '11, we think we'll be able to grow the firm approximately 7%.

And we'll give you color in 2012 about that year in the January earnings call.

But the demand drivers are very strong.

We believe in the long-term model and we should be able to continue to grow earnings and cash, and that's our intention as a management team.

The follow-up is, for your calendar Q4 outlook, am I correct that assumes the debt retirement already built into that?

And then what would be the share count base that we should use, as it's a little difficult to know the linearity of the stock buyback?

And again, congratulations to you and your team there at Motorola Solutions.

So we will retire the $600 million of debt on November 1.

I think coming out of Q3 the diluted share count is 339 million.

We wouldn't forecast a share count going forward, given the puts and takes, but it was 339 million coming out of Q3.

And again, given the share repurchase of $744 million, we bought back 5% of the market cap of the firm at a price of $40.38.

So we'll continue to look at all those things carefully.

And the guidance we gave you for Q4 assumed the Q3 ending, just to make sure you know we're consistent.

I'll turn the floor back over to Mr.

Shep Dunlap, Vice President of Investor Relations, for any additional or closing remarks.

Okay.

I would like to remind everyone the details outlining highlighted items, our GAAP to non-GAAP P&L reconciliations, and other financial information can be found on our MotorolaSolutions.com Investor Relations site.

An audio replay, together with a copy of today's slides, will also be available on this site shortly after the conclusion of this call.

During this call we've made a number of forward-looking statements within the meaning of applicable federal securities law.

Forward-looking statements are any statements that are not historical facts.

These forward-looking statements are based on current expectations of Motorola Solutions and we can give no assurance that any future results or events discussed will be achieved.

Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.

Such forward-looking statements include, but are not limited to, our comments and answers relating to the following topics.

Future sales growth, including segment and region; earnings per share guidance; future tax rates and cash tax rates; expectations for operating expenses, operating earnings, the amount of other income and expense, as well as operating margins and profitability; expected cash generation and needs for working capital; expected improvements in operating leverage; demand trends for Motorola Solutions businesses and products, including wireless LAN, RFID, LTE, and our MC17 device; our expected decline in IDEN; and the timing ability to repurchase shares under the share repurchase program, or our ability to pay future dividends, along with the competitive landscape including pricing.

Thanks, and we look forward to speaking with all of you again shortly.

Ladies and gentlemen, this does conclude today's teleconference.

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