摩托羅拉 (MSI) 2012 Q2 法說會逐字稿

Good morning, and thank you for holding.

Welcome to the Motorola Solutions second-quarter 2012 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.

Mr. Dunlap, you may begin your conference.

Thank you, and good morning.

Welcome to our call to present second-quarter results for Motorola Solutions.

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

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

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

These materials also include GAAP to non-GAAP reconciliations for your reference.

As always it's important for you to review the 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 a 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.

And with that, I would like to turn the call over to Greg.

Thanks, Shep.

Good morning and thank you for joining us today.

Q2 highlighted another strong quarter for Motorola Solutions as we delivered strong sales growth and operating leverage, resulting in excellent earnings growth.

In addition, we continue to place a high priority on the return of capital to shareholders through our quarterly dividend and share repurchase program.

This morning we reported record second-quarter sales of $2.1 billion, which represents an increase of 8% from Q2 of last year.

On a GAAP basis net earnings were $0.60 per share from continuing operations compared to $0.14 in the year-ago quarter.

Non-GAAP net earnings from continuing operations were $0.70 per share, compared to $0.54 per share in Q2 of last year.

Which represents a 30% increase.

For the remainder of this call we will reference non-GAAP financial results unless otherwise noted.

Our Government business revenues increased 14%, a record second quarter.

This reflects broad-based growth across all of our regions, driven by a combination of factors, including core market growth, new product introductions and narrow banding in the United States.

Operating margins in the Government business improved 330 basis points year-over-year to 16.4%, due to the sizable growth in sales across our portfolio, coupled with our continued focus on cost management.

In our Enterprise business, sales declined 2% from the year-ago quarter including an anticipated iDEN decline.

We have seen this business impacted by a number of factors including, most notably, a tougher macro-economic environment, especially within Europe, coupled with foreign currency head winds.

Let me spend a moment on capital allocation.

During Q2 we paid $64 million in dividends and repurchased $439 million in stock, bringing the total repurchase amount to $2.9 billion since the program was announced approximately 12 months ago.

One year ago we initiated a dividend, authorized a repurchase program, and introduced a capital allocation framework.

Today I'm pleased to announce that the Board of Directors has approved an increase in our quarterly cash dividend to $0.26 per share, an increase of 18%.

In addition, our board has increased our share repurchase authorization by $2 billion, bringing the total to $5 billion.

These announcements reflect the continued confidence we have in our business, as well as our earnings growth and cash flow generation opportunities.

Ed will speak more on this topic later in the call.

I will now turn it over to Ed Fitzpatrick to discuss our financial results in more detail.

I will then return to discuss operational highlights and provide additional commentary and perspective on our overall business performance.

Thanks, Greg.

Q2 was another strong quarter of earnings growth and cash flow generation for MSI.

Along with revenue growth of 8%, our focus on operating leverage yielded an increase in operating earnings of 15% compared to last year, despite an $11 million increase in US regular pension expense and $20 million of unfavorable FX impacts to operating margins.

The unfavorable FX impact was driven primarily by the weakening Euro.

We saw broad-based revenue growth in our Government business, with record second-quarter sales of $1.5 billion, an increase of nearly 14% from the prior year.

Operating margins in the Government business improved 330 basis points, from 13.1% to 16.4%.

This leverage was driven by strong sales growth and our continued focus on cost management.

Enterprise sales declined 2% to $689 million.

Operating margin in the Enterprise business declined 340 basis points.

The margin decline was primarily attributable to changes in sales mix, along with foreign currency head winds.

Turning to earnings, earnings from continuing operations were $0.70 per share compared to $0.54 per share a year ago, a 30% increase.

Operating expenses were $721 million or 33.6% of revenue.

Which represents a 210 basis point improvement from the year-ago quarter.

Our operating earnings for the second quarter were $350 million, or 16.3% of sales, compared to $304 million, or 15.3% in Q2 of 2011.

Total other income expense was a net expense of $38 million in the quarter compared to a net expense of $17 million in Q2, 2011.

The largest driver of the year-over-year increase in this line was a result of significant devaluation of a number of currencies versus the dollar, most notably the Euro.

This negatively impacted the quarter by $21 million compared to Q2 of last year.

In addition, we incurred a $6 million loss associated with the early debt repayment made in June.

Going forward, we expect this line item to be a net expense of approximately $20 million to $25 million, which includes incremental interest expense associated with the net increase and our debt levels during the quarter.

Our effective tax rate was 33.1% for the quarter.

For full-year 2012 we expect our effective tax rate to be 34% to 35%.

Cash flow from operations was $254 million during the quarter, driven by strong operating earnings and solid working capital management.

With respect to working capital, inventory management continued to improve and we achieved 8.9 turns compared to 7.5 in the year-ago quarter.

I'm also pleased with our receivable balance, as it continued to decline from Q1, driven by improved collection days and the continued liquidation of certain notes receivable we retained from the networks business we sold last year.

We ended the quarter with $3.7 billion in cash in investments and approximately $1.9 billion in debt.

a net increase of $350 million in long-term debt from the prior quarter.

We issued $750 million of new debt with a coupon of 3.75%.

And retired $400 million of notes due in November.

As Greg mentioned, we purchased $439 million in stock during the quarter, which brings us to over $2.9 billion in share repurchases since the inception of our plan.

We reduced our share count by approximately 19% since the start of the program a year ago.

With the purchase of 63.7 million shares at an average price of $45.80.

In addition, we paid $64 million in dividends during the quarter.

Year to date, we returned over $1.9 billion to shareholders by share repurchases and dividends.

We have shared with you our clear set of priorities with respect to capital return and allocation.

One of those priorities is moving to a net debt position by the end of 2014.

With that as background, I would like to now discuss the capital return announcement that Greg referenced earlier.

Today we announced a quarterly cash dividend of $0.26 per share.

This represents an 18% increase over the prior quarterly dividend.

We also announced that our board has authorized an increase of $2 billion to our share repurchase program.

With respect to our long-term capital allocation framework, we believe the current mix that we initially outlined is still appropriate based on our capital need and goals.

This mix is to allocate 25% of operating cash flow to capital expenditures, 30% to dividends, and 45% to a combination of share purchases and acquisitions.

Now turning to our Q3 and full-year outlook.

For Q3, we expect sales growth of approximately 3% over the third quarter of 2011.

Our outlook is for non-GAAP earnings per share of $0.69 to $0.74 from continuing operations based on our Q2 ending share count.

This compares to non-GAAP EPS in Q3 2011 of $0.66 per share.

Consistent with prior quarters, this outlook excludes stock-based compensation and intangible amortization expenses of approximately $0.12 per share, [net] items historically highlighted in our quarterly earnings releases.

Moving to full-year 2012, we are now increasing our outlook from approximately 5% to 5% to 6% growth, with operating margins remaining at approximately 17% of revenue.

This overall outlook assumed the Euro at current rates.

We now expect full-year growth for Government to be upper single digits.

While Enterprise growth for the year is now estimated to be relatively flat.

The revised Enterprise segment view, which is inclusive of the anticipated iDEN decline accounts for a more challenging macro environment along with the FX head winds we have mentioned.

I will now turn it over to Greg for business highlights from the quarter.

Ed, thanks.

In our Government business, sales for the quarter were $1.5 billion, an increase of 14% over Q2, 2011.

We saw strong growth in all regions.

Profitability also improved with operating earnings growing to 16.4% of sales this quarter, compared to 13.1% in Q2 of last year.

We've talked previously about some of the growth drivers for public safety that include interoperability, spectrum efficiency, and compelling return on investment.

Customers are seeking to overcome spectrum constraints by selecting our latest version of ASTRO 25 with P25 Phase 2, which is nearly twice as efficient as required by the current FCC narrow band mandate in the United States.

For example, Apopka, Florida, recently celebrated the world's first deployment and acceptance of a dual mode ASTRO 25 system with Phase 2 P25 TDMA.

They doubled their channel capacity for secure encrypted communications without the need for adding frequency bands, antenna sites or stations.

And our APEX radios provide multi-band functionality in one device, allowing first responders the freedom to seamlessly connect between multiple frequencies for interoperability between agencies, improved mobility and response time.

Another example of a Phase 2 TDMA system that's being deployed is Maryland's first responder interoperable radio system team, or Maryland FiRST, as it's known, a statewide 700 megahertz radio communications system designed for state and local public safety officials to communicate with each other on a common system.

And this quarter the city of Toronto selected our ASTRO technology with Phase 2 TDMA for a 700 megahertz shared police, fire and EMS system implementation.

Other significant ASTRO wins from this quarter include the state of Ohio for $80 million, Lakeland, Florida, for $12 million, State of Pennsylvania police for $10 million, and Center County, Pennsylvania, for $13 million.

In Latin America, our ASTRO solution was selected by the Chilean Investigative Police to cover the entire country with both trunking and conventional mode.

We also sold a $37 million ASTRO system to Ecuador's National Telecommunications Corporation for the national police.

In May, we participated in TETRA World Congress in Dubai where we introduced the MTP3000 hand-held radio, which redefines mission-critical performance with superior audio quality and improved coverage.

A TETRA-equipped version of our vision for the ultimate police patrol vehicle demonstrated the latest technologies and integrated controls to enable streamlined decision making.

In China we were awarded a $3 million TETRA system with Beijing Metro, and a multi-million dollar TETRA contract for the mass transit railway in Hong Kong.

The London underground recently chose Motorola Solutions TETRA equipment for a $6 million system expansion, as well.

Among our integrated command-and-control applications portfolio, Randall County, Texas, contracted with us for a $2 million advanced computer-aided dispatch solution that uses GPS to enable dispatchers to locate officers in vehicles.

While officers can run license checks from their patrol car without calling dispatch.

This solution also incorporates a public safety LTE network and expands the LTE core, which is owned by Harris County, Texas.

The evolution of public safety LTE in the US continues as FirstNet and the related D Block governance structures take form.

As we've said before, we do not anticipate material revenues from LTE until the back half of 2013.

Meanwhile, the market for public safety LTE is global.

As the tools and capabilities from this vital technology benefit public safety responders and citizens.

This quarter we launched a trial with the Brazilian army, and in May nearly 1,000 government officials and customers gathered in Tel Aviv for a showcase to explore the benefits of public safety LTE by Motorola Solutions.

In addition, we've seen continued interest in activity from several countries in the Middle East.

In our professional and commercial radio tier, double-digit growth continued.

We also expanded our industry-leading MOTOTRBO series with the release of the XPR 7000 and XPR 3000 series digital portables designed to meet the communications needs of public service, manufacturing, education, hospitality and service industries.

These new radios add to a growing family of devices, giving customers a choice of different form factors and feature sets, as seen in the ultra-thin and lightweight SL series portable and the XPR 5000 series mobile, which both launched earlier this year.

Moving on to our Enterprise business, sales in the Enterprise segment were $689 million, a 2% decrease from Q2 of 2011.

Operating earnings were 16% of sales, compared to 19.4% last year.

In June, we announced a $200 million cash offer to acquire Scion, another pioneer in the rugged mobile computing industry.

Scion works directly with its customers and partners to also develop mobile computing hardware, software and services that meet their specific rugged mobile computing needs.

The acquisition of Scion will allow us to strengthen our portfolio with ruggedized hand-held products and vehicle-mount terminals and deepen our presence in the global markets in which we compete.

The acquisition also supports our international growth strategy by providing an attractive global base of customers.

Scion brings a talented team with extensive mobile computing expertise, and professionals with key industry experience, and we expect this transaction to close in Q4.

We also hosted events in Boston and New York to share our view on the future of retail.

Drawing from our deep domain expertise and world-class portfolio, we framed a vision where retailers will rely on advanced solutions to control the path to purchase and turn browsing into buying and shoppers into brand advocates.

During the events, we previewed new devices like the SB1 wearable smart badge, which includes a personalized task manager, scanner and push-to-talk voice capability, along with the MC40, a sleek customizable touchscreen solution that runs on Android and offers enterprise class durability, secure payment processing and powerful voice connectivity.

Notable wins in the Enterprise for the quarter included a $2 million order from Tessco, which includes our MC17 devices and personal shopping system and a $3 million CVS purchase of wireless LAN infrastructure for their stores.

The UK Mail Group, the largest independent parcel mail and logistics company in the UK, selected our global services team for a $2 million contract to manage 2,000 devices with asset tracking, software upgrades and security management.

Our industry leadership was recognized by Gartner with a strong positive evaluation in their market scope report for the ruggedized hand-held computer market.

Noting several areas, including devices for harsh environments, specific market solutions and vertical solutions, and new task-specific devices.

We also hosted over 160 developers from across the Americas where we announced new investments for our developer community as part of the partner-and-power program.

Attendees learned how to architect next-generation solutions using our latest tools, platforms, products and technologies.

Including the Rho Mobile Suite 2.0, our latest tool for applications developers, which has been downloaded over 20,000 times.

Turning to a regional view for the total Company.

North America and Latin America both grew by 10%, driven by robust demand in government.

EMEA grew 5% with double-digit growth in government.

Growth in Asia of 5% was balanced across both Government and Enterprise segments.

So, in closing I would like to thank our 21,000 employees globally for their focus on providing solutions to our customers.

Q2 was another very good quarter for Motorola with strong growth, continued operating leverage and additional capital returns to share holders.

While we were pleased with these results, we remain clearly focused on execution, investing in new product and solutions, increasing our top line, earnings growth, free cash flow generation and return of capital.

Thanks, Greg.

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

Operator, could you remind our callers how to place a question.

(Operator Instructions) Peter Misek with Jefferies.

Just a question on R&D.

Obviously as we have LTE ramping, we've had R&D investments, you've invested well in front of that, as you have with previous major network changes.

Can you walk us through how we should think about R&D for the next few quarters?

Can we see R&D level off and maybe even come down as a percentage of sales?

And are there any sort of more temporal-type expenses there that we could see managed as we see the shift happening?

Thanks.

I just think that you will see us continue to focus on cost management overall as we look forward for the second half of the year.

In terms of R&D, we've talked in the past that we would expect R&D and G&A and other major functions on an annual basis to typically trend and improve from a leverage standpoint as a lower percentage against revenues.

So when we look at below gross margin costs against overall revenues we would expect to be able to continue to get improvement year-over-year.

And if I could just sneak a follow-up on the capital structure comments you made about going net debt position by 2014.

Can you help us understand the process that you and the Board are going through to think about what the appropriate capital structure is?

What are you benchmarking?

How should we look at that evolution?

Are we going to look at a reverse auction for buybacks?

Thanks very much.

Peter, the strategy is really just a continuation of what we outlined last year with the capital allocation model.

A piece described a dividend 30%, 25% to CapEx and that 45% to share repurchase and/or acquisition.

So, I think that hasn't changed.

The other key tenet is that the capital structure really will be driven off of an adjusted debt to adjusted EBITDA metric around 2, such that the debt levels will be calculated based upon our ability to bear and our improvements in EBITDA.

So, I think that's really the way we're looking at it and the way we're modeling it going forward.

Perfect.

Thanks.

Jeff Kvaal of Barclays.

Could you go into a little bit more into the change in the revenue picture a little bit?

I think if we cycle back a couple of quarters certainly the Enterprise outlook was a little bit brighter.

Could you help us understand that a little bit better?

I think, secondly, 3% year-over-year growth is not what's been in the range of the target model over the past couple of years.

Could you help us understand what is happening in that quarter in particular?

And then, why the December quarter would be better?

Just a couple of things, Jeff.

As we look to the remainder of the year, we now expect the Government segment to grow in the upper single-digits and Enterprise to be relatively flat.

Of course, Including iDEN for the year.

I think the moderation and the update in Enterprise is a reflection of the macroeconomic conditions, particularly in Europe, as well as the foreign currency headwinds.

Enterprise actually grew in all other regions.

If you look at Q3 and you look at our revenue guidance of 3%, I remind you that a year ago our Q3 comp of last year was an exceptionally strong quarter overall at 10%.

So, that's one factor to consider.

We expect continued decline in the iDEN business in Q3 of approximately $20 million.

And we expect the headwinds around foreign currency in Q3 to be approximately $30 million of top line.

So when you think through the previous-year comps, you incorporate the continued decline of iDEN and then the incremental headwinds of foreign currency, led by the euro.

Those are the ingredients that factor in.

Now, having said that, we're still raising full-year revenue guidance from about 5%, to 5% to 6%.

And we will continue to manage our costs closely and look to get continued improvement in leverage over the next few quarters.

Jeff, you also asked, I think, a question about linearity or seasonality in the quarter.

I heard you say something about Q4.

As we've talked about before, as our quarters progress, Q1 is typically always the lowest quarter.

We step function up to Q2.

Q3 is typically in line with Q2, sometimes up, sometimes down.

And then, we typically do step function up in Q4 from a seasonality perspective.

Okay.

Thank you.

And that $20 million and $30 million impact that you referenced, Greg, that is year-over-year impact?

Or sequentially?

I think Greg talked about the top line, about $30 million top line impact for Q3.

I would say it's $30 million to $35 million.

And that contemplates us in and around the current euro exchange rate of $1.21 today.

But it's year-over-year?

Yes, that's right.

Great.

Thank you.

Tavis McCourt of Raymond James.

I was wondering if you could talk about some of the backlog statistics that you talked about on the last call for Enterprise and Government?

And then a quick one for you, Ed.

I think there was a rider on the highway bill that had some impact to pension fund accounting.

And wonder if you could run us through the impact, if you know yet, on your pension fund issues.

Thanks.

If we look, Tavis, at our Q2 backlog, it's roughly $5.9 billion, which is down about $100 million from what we discussed last quarter.

Government relatively flat and Enterprise was down.

When we normalize for FX, really the backlog was basically flat.

So as we look at it, I think we were not surprised by the decline in Enterprise, as we have seen pressure there.

But we still feel fairly confident about our visibility and as we look at our guidance going into the quarter.

So relatively speaking, backlog has remained consistent to slightly down.

And on the pension piece, Tavis, as you know, and I saw your note on it, I think you had it right.

The change in the calculation and the discount rate should lead to a higher discount rate.

Which would lead to a lowering of the required annual cash funding.

So, that's something that we would look at and contemplate if that makes sense for us strategically going forward to close the funding deficit.

Also, included in the bill are some PBGC fees that are scheduled to go up starting in 2014.

So, we're going to assess all that in line with the overall strategies on pension as we go forward here.

And, we'll come back to you later in the year with our plans to address.

Great, thanks.

And did you talk about an Enterprise number ex-iDEN?

No.

What I was just commenting earlier that Enterprise was up outside of Europe and the regions.

Without iDEN it was up slightly.

Thank you.

Jasmeet Chadha with Bernstein.

I had a question on Enterprise.

So, it dropped about 30% in 2009, which was clearly an exceptional year.

What downside could we expect this time in a worst case scenario?

And if you are worried today on what you've seen in the second half.

And what kind of measures would you take if there was a pronounced weakness?

Then a follow-up on Government.

So where does the strength today in these Government revenues come from?

And is there any reason that we should worry it could snap back in 2013?

I will take the last part of that three parter first on Government.

Obviously we are very pleased with the record Q2 of 14%.

If we look at the growth of that and what makes it up, I would say 11% of the 14% are coming more or less from 50% of our core market growth.

Which includes continued expansion in both North America and international.

And the other 50% from a continued investment in R&D that has allowed for the expansion of new products and innovation.

And probably 3%, as best our estimate, of the 14% is driven by narrow banding here in the US

Now that said, we typically usually have structural drivers that continue to require our customers to upgrade and invest.

Whether it's in the prior periods.

Years ago it was Nextel rebanding.

It continues to be analog to digital, not only here under the narrow banding mandate in the US but the drive for analog to digital internationally.

There will be some number of customers that won't meet the narrow-banding mandate by the end of the year so they will continue to invest in more spectrum-efficient radios and mobiles and infrastructure.

And then also, as you know, there is a number of aged customer installations that are there throughout North America and another geographies that we will look to migrate and upgrade accordingly.

If you look at the 14%, our best estimate is that 3% of the 14%, is narrow banding in the US but 11% is still very strong, driven by core market growth and the expansion of our new products.

In terms of Enterprise, I will let Mark say a few words.

If you think about Enterprise, clearly I think Ed highlighted before, as we think about the year and we have got it now to relatively flat, it is down from what we've traditionally seen and what we have said is expectations.

Now with that said, I would say it's primarily macroeconomic driven because we have held ASPs.

And we believe we held market share in all of our categories, at least all of our major categories with a possible exception of wireless LAN.

The other piece that I would say around Enterprise, again, as Greg mentioned, was the growth in every region still gives us somewhat confidence, when you say without iDEN.

And even in Europe that was only slightly down, I would remind you that the previous year, the growth in Europe for Enterprise was 39%.

So again, I think, given the headwinds that we've got there, the Enterprise business has held.

So as we go forward we will continue to monitor it, continue to give you guidance.

But all in all, I feel pretty pleased with the way we've held and the way we've performed and continue to monitor as we go forward.

Sure.

Thank you.

Just one follow-up on that.

So when you say that regionally Enterprise was strong or up year-on-year outside of Europe, is that ex-iDEN or is that including iDEN?

That's correct.

Without iDEN.

I think the one big region there is Latin America.

I think his comment is correct.

Mark may have mentioned it, but I think in Europe, we talked last quarter that Enterprise was down, primarily driven by FX, otherwise it was relatively flat.

This quarter it was down due to FX.

Actually we were up net of the FX.

I think we're holding our own in the EMEA.

Thank you.

Craig Hettenbach, Goldman Sachs.

Greg, just following up on the revised revenue guidance, 5% to 6%, anything else you can touch on in backlog or just visibility this quarter versus a quarter ago?

I know you mentioned narrow banding but any other things that gives you confidence to nudge the growth rate up a little bit?

I would say just generally our visibility levels remain unchanged, Craig, which I think is good news.

We are just trying to have the guidance reflective of the macro conditions under which we are competing.

But as Mark referenced, backlog normalized for foreign exchange was relatively flat.

And we're focused to execute on Q3 and knowing this 3%, while it doesn't sound fantastic when you look at the sub components and the ingredients and compared to a very strong comp previous, I think we will continue to perform as we expect.

And we will manage all the levers available to us and we are not confused in terms of what needs to be done.

Got it.

Thanks for that.

And then, Ed, just a follow-up on the buy back.

In the press release it said no expiration date.

Anything to read into there versus the prior programs where you had it out 18 months or so?

Greg can add, but I think coming out of the gate as a separate public entity, MSI, we thought it was appropriate to have an end date there to ensure that everyone knew -- investors, we had a sense of urgency on return of capital to shareholders.

We think we've demonstrated that.

We will continue with the program and be delivered over a time line here.

But also be opportunistic as we were in prior periods.

We're going to get at it, as you have seen us do in the past, and we'll continue to execute.

Got it.

Thank you.

Ehud Gelblum from Morgan Stanley.

Couple of questions.

First of all, Greg, if we look at the Government side, the guidance for the full year of upper single-digits for Government, you have 11.5% growth in Q1 and 13.6% if Q2.

So to get to upper single-digits for the year, that would imply a huge deceleration in Q3 and Q4.

Somewhere in the order of 3% or 4% year-or-year for those two quarters.

Why would you think that is factoring into your guidance?

Putting aside the Enterprise side of business, and just think Government, why is it slowing down so much?

Does it have to do with narrow banding?

Does it have to do with macro?

And just understanding that a little bit better.

And then, Ed, I want to understand a little bit more of the FX.

I heard, but I may have misunderstood, the $25 million below the line expense that shows up in the P&L, is that hedging?

Is that what the FX impact is?

Or is that sprinkles out the earnings statement?

And how do we account for FX going forward?

Ehud, on the first part, I just think we've had fantastic growth.

Obviously records in Q1 and Q2.

We are just being a little bit more tempered.

We know that Q3 as a comp was higher, as I mentioned.

We have some incremental headwinds, as do many other companies around foreign currency.

I just think we are being cautious.

And in this environment, while we're confident of the business and confident as ever in the product portfolio and the underlying drivers, we think it makes sense to be a little bit more cautious now.

Does FX impact the revenue or does it impact just below the line?

It's a combination of both.

So if I talk about Q2, we talked about $20 million of impact to operating margins as a result of the decline, largely driven by the euro.

The top line growth impact there was about $30 million and the margin impact was about $20 million.

So if you look into Q3, there was also below operating earnings related charges.

You mentioned about $20 million.

That was driven by the fluctuation in the foreign currency in the net unhedged positions caused about a $20 million impact for the quarter.

If we move into Q3, I would say you should expect relatively similar impact, and our guidance contemplates that, for the operating margin piece.

I would say the piece below operating earnings, the other income expense, should be significantly less than that in the third quarter.

So if I got that right, there was a $30 million impact to revenue from FX this quarter, $20 million to --.

That's right.

To OpEx or to operating margin?

Operating margin.

So that means there was a $10 million gain from OpEx that offset the $30 million, part of the $30 million revenue?

I'm not sure where you're going.

We could take it off-line in the reconciliation with you.

Okay.

So the net impact was $20 million to operating income and $20 million below the line.

That's right.

Next quarter assume another $20 million to operating income, most of which comes in the revenue line which is where Greg's conservativism comes from the Government side.

And then, less below the line.

That's right.

That's right, Ehud.

Couple other things.

Why are taxes going up?

And did you guide 34% to 35% for the back half of the year or did you guide that for the full year?

And then, I'm not sure if you said how big iDEN was this quarter and what it is in your guidance for Q3?

What was the second part of that question?

Taxes.

They were 33% this quarter.

You're guiding 34% to 35%.

And I wasn't sure if that was, again, for the full year or for next quarter.

And how big iDEN was.

The guidance was really for the full year.

Still around 34% to 35%, so that hasn't changed.

And what we are figuring there, too, is the R&D tax credit.

If that does come through, it will be at the lower end.

If it doesn't it will actually be at the higher end.

But you had a 33.3% this quarter.

So to hit 34% to 35% for the year we are talking about 35% to 36% for Q3 and Q4.

I think there are discrete times and there's timing-related items that are driving that.

As you forecast it, you should forecast something at 34% to 35% for the full year.

So a bit higher in the second half.

And in terms of iDEN, it's in line pretty much with our expectations in terms of the continued decline.

For the year, 2012, we are now tracking for iDEN to be about $270 million in revenue for the year.

Okay.

Terrific.

Appreciate it.

Thank you.

Jim Suva with Citi.

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

My first question is a clarification and then I will just ask my follow on immediately after that.

For the clarification, for the outlook, am I correct it does not include acquisition revenues of Scion in your outlook?

And then my follow-up question is, can you just help investors and us bridge the gap between your strong outlook and results compared to the budgetary constraints that we are seeing in the work force reductions?

We know that in the first responders there is a priority.

But definitely we're seeing, when the police and firemen retire, the various communities are replacing them with less people rather than more.

Can you just help us understand that?

Then on the outside, is it just basically, it's more sticky business?

And if so, when we come into a more favorable economy does that just mean Motorola Solutions may not be quite the upside?

Or how can we think about -- it can't be heads you win, tails you win also.

Help us understand and connect those.

In order of your questions, you are right, Scion is not included in our second-half guidance.

The transaction is not closed yet.

We are anticipating that to be, Jim, in Q4.

Second, we continue to operate under the constraints of austerity, if you will, with governments across the world.

But interestingly, and you have seen the Government post 14% in Q2 our segment, our state and local business in particular is really strong.

And I think that's a reflection on -- we've talked about it before -- the prioritization of mission-critical public safety.

The deployment of additional technologies beyond just radios.

Whether it's video surveillance or integrated command and control or dispatch software, or other kinds of technology deployments that make first responders more productive.

It's a continued reflection on the high return on investment of what we sell.

Remember, with all of this, there is no usage associated on a private network, as these devices and subscriber units get deployed.

Unlike a cellular system that has per minute charges.

There is no usage cost at all.

And, of course, the durability and reliability and long installed base of 10 years, 15 years, sometimes north of 20 years all lend themselves positively as drivers for first responders to prioritize this.

I think your last comment is also correct, that what we have found with our business overall is that it is stable.

It is sticky and we believe largely sustainable.

And oftentimes our installed base and our incumbency allow us to continue the relationships with clients.

And allow us the dialogue to add equipment and upgrade and refresh and sell new solutions on top of the relationships and systems we have.

And we think that's a good position to be in.

Great.

Thank you.

Congratulations again to you and your team there at Motorola Solutions.

Keith Housum of Northcoast Research.

Gentlemen, can you share a little bit of light on what you are seeing in Asia?

I see 5% growth year-over-year.

It's probably a little bit lower than I had anticipated, and I know it's a area of focus for you.

But what are you seeing in Asia, perhaps, that's driving a little bit slower growth than what you guys have shed in the past few quarters?

Keith, I do agree with your comment that our growth in Asia, while we talked about mid single-digits for both Enterprise and Government is less than, number one, what we have been producing in the past.

And also what we have said was expectations for Asia.

But that being said, I also think, though, the primary drivers as we look at the business was really around the systems and the timing of the systems and project business there.

As we think about what's going forward.

China did slow to mid single-digits.

Again, we had not seen that kind of growth in China.

We traditionally have expected China to be stronger.

But for the full year we still anticipate that Asia-Pac will be double-digit growth.

And we expect China to be strong double-digit growth for the year.

So we are still very opportunistic and we view Asia still as a strong growth area for us as we look to go forward.

Great.

Thank you.

And then, finally, as you exited the quarter, were there any changes in the business that you saw in the previous two months that, give you pause or give you second consideration to your activity going into Q3?

That gives us -- what was the last part?

That gives you pause going into the third quarter.

Not really, no.

As I mentioned earlier, I think our visibility has remained reasonably consistent.

We've moderated to adjust for the segments.

Government being a little bit stronger than we thought.

Anticipating and managing the Enterprise headwinds mainly out of Europe and macroeconomic and with foreign currency.

Obviously, foreign currency was the one in the last 30 days to 45 days where the euro dropped pretty sharply from $1.32 or $1.31 to $1.22.

We certainly didn't anticipate that.

But as Ed talked about, the guidance for the second half for Q3 and Q4 assumes the euro at about $1.21.

We think we have incorporated that in accordingly.

Okay, great.

Thank you.

Tim Long with Bank of Montreal.

Two questions, if I could.

First, on the Enterprise side, particularly, could you talk a little bit about Windows and the transition to Windows 8?

And what you think that will mean for the Enterprise customer base.

Is there a risk that on top of the macro risks there is some potential product transition as Windows develops?

And then, secondly, Greg, you mentioned visibility the same.

But I'm just curious if you could scale for us how, with the bigger ramp in Q4 that you are looking for, how would you compare your Q3 and your Q4 visibility right now?

Does it drop off where you have much lower confidence in it?

Or if you could just scale for us the difference between looking out that extra quarter.

Thank you.

What was the first part of your question, Tim?

Windows 8 and just impact on Enterprise business.

Yes.

So our mobile computing portfolio in all products is supported by Microsoft with the exception of our Rugged Tablet, the ET1 which came out with Android.

We did that because the operating system that was required was a touch-based OS and Microsoft is in the middle of transition.

The majority of our Microsoft product is Windows 6.5.3 or Windows-embedded hand-held.

We were anxiously enthusiastic about Windows Phone 8. That's got to get into the market in October and then needs to be incorporated with the appropriate Enterprise features, Enterprise class features that would make it attractive for us.

We have always been Microsoft.

We have diversified in Android because of the requirements of our clients and the feature set that they need.

I would expect us to continue to engage in both going forward.

But I am cautiously optimistic that we can work more closely with Microsoft on Win Phone 8. We'll see when it ships and what feature sets in there.

And we'd like to work collaboratively with them on a joint road map for clients, especially on the deployment of that OS, the developer ecosystem and the individual feature sets that are required for a durable Enterprise-grade set of devices.

My question, Greg, is, is there a risk that customers pause spending because they want Windows 8 instead of 6.5?

I don't think so.

I don't think so.

Because our customers are different than the consumer.

They have customized software apps on 6.5 or Windows-embedded.

And I don't think there is a risk of that, that we see at this point.

On visibility, I've talked about, Tim, that in any given quarter we have about roughly 80% visibility into that quarter going in.

I would say that remains the same for Q3 and is incorporated into the guidance we have given you here at 3% revenue growth, all-in, and $0.69 to $0.74 per share on EPS.

If it's 80% for this quarter what is it for another quarter out?

We don't really get into that.

So we are not that prescient to get into that.

It drops off a bit.

Okay, thank you.

Kulbinder Garcha, Credit Suisse.

Greg, I just want to go back to the narrow banding issue.

You say, if you take that out you're still growing 11% in Government.

And I was always under the impression that with the sales cycles you have in this business you have very good visibility.

Is this a business now that, given either your R&D investments or otherwise, outside of even taking into account the macro concerns, you might be able to grow double-digits long term?

Or is it still mid single-digit growth as most of the industry forecast calls for?

Has anything changed or -- I'm thinking not just about the next quarter, two or three years out, whether the revenue opportunity for you guys is changing?

Then a question, Ed, just on the buy back.

Given the stocks roughly where you bought almost $3 billion of it, is there any reason why you won't continue to be this aggressive?

Or is there something on the acquisitions front beyond Scion that you are maybe thinking about.

Many thanks.

On the Government growth, as we said, for the full year we are now expecting Government on an annualized basis in 2012 to be high single-digits.

Kulbinder, I wouldn't forecast anything beyond that.

I would like to see things develop.

And we would watch the developments as a team between now and the remainder of the year and then update you on 2013 at that point in time.

And in terms of buybacks, Ed, said it well.

Obviously we were aggressive buying back $2.9 billion in the last 12 months.

That reflected two things.

The value of which we thought that's there in buying back the shares.

And the suboptimal excess cash on our balance sheet which required that sense of urgency.

We are pleased that the Board's authorized the additional $2 billion.

We will be opportunistic.

And that will be a key tool in helping us move towards net debt.

We wouldn't get into specific levels of buying at what levels or price points beyond that.

But we feel well-positioned for us to move forward.

Many thanks.

Matthew Hoffman of Cowen and Company.

Thanks for the earlier color on Enterprise wireless LAN and your market position there.

You called out weakness in Europe and iDEN is affecting results, but I was hoping you could add color around two things.

First, can you comment on the overall pace of the wireless LAN spending, especially your expectation for the second-half spending on the category.

And, second, can you comment on whether you are seeing IT managers shifting resources away from deployments of wireless LAN over concrete floors and now really focusing more on the BYOD and the carpeted spaces within the Enterprise, too.

Thanks.

So, Mark and I will tag team this.

I don't think we see a big shift to BYOD per se.

We do see continued demand for WLAN.

Q2 was down in WLAN for us due to a substantially higher Q2 comp a year ago.

We do very well in the targeted verticals, particularly retail.

And transportation and logistics where we are well aligned with great channel reach.

But overall I think the shares modestly down in WLAN.

I don't think that we have seen any chilling of demand.

We still expect for the full year for it to have solid full-year growth and be generally in line with what we expected.

I don't think anything beyond that.

Okay.

Drilling down on that, I think there is a wider expectation.

Gartner and other forecasters see double-digit wireless LAN growth overall.

Maybe this category is pulling back right now, a little bit below the overall wireless LAN growth.

But prospects gain from here.

We actually have a pretty good funnel of engagement around WLAN or managed WLAN networks.

A lot in retail and in the Enterprise segments.

We still think it will grow double-digit.

But I don't know if it will grow as robustly as it did last year.

I think the whole industry was north of 30% or 35%.

So it's TBD on that.

Okay, thanks, guys.

I will turn the floor over back to Mr. Shep Dunlap, Vice President of Investor Relations for any additional or closing remarks.

Thank you.

I would like to remind everyone the details outlining the highlighted items for our GAAP to non-GAAP P&L reconciliations and other financial information can be found at MotorolaSolutions.com/investor.

An audio replay, together with a copy of today's slides, will also be available on the 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 the 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 dates.

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

Future sales and earnings growth included by segment and region.

Earnings per share, future operating margins and leverage improvements, cash flow generation, the amount of other income and expense.

Future effective tax rates, achievement in net debt position.

The timing and ability to repurchase shares under our share repurchase program.

Ability to pay future dividends, capital allocation framework, expected decline in iDEN.

FX impacts, the impact of reallocation of the D Block for public safety use.

Market share and demand trends for our business and products, such as LTE.

The timing and impact of the acquisition of Scion.

New products and solutions introductions.

Because forward-looking statements involve risks and uncertainties, Motorola Solutions' actual results could differ materially from those stated in the forward-looking statements.

Information about those factors could cause, in some cases have caused, such differences.

Can be found in the morning's press release on pages 9 through 22 and item 1-A of our 2011 annual report on Form 10-K in the Motorola Solutions and other SEC filings.

Thanks again.

And we look forward to speaking with you shortly.

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

A replay of this call will be available over the Internet in approximately three hours.

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

We thank you for your participation.

And we ask that you please disconnect your lines at this time.

Have a wonderful day.