摩托羅拉 (MSI) 2012 Q3 法說會逐字稿

Welcome to the Motorola Solutions third 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.

The line will be opened 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.

Thank you.

Good morning.

Welcome to our call to discuss third quarter results.

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 third quarter results along with commentary and Mark will join us for Q&A.

We have posted our earnings presentation and press release at MotorolaSolutions.com/investor, these materials do include a GAAP to non-GAAP reconciliation for your reference.

It's important that you review these items.

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 actual results to differ materially from the statements contained in this presentation.

With that, I'd like to turn the call over to Greg.

Thanks, Shep.

Good morning.

Thank you all for joining us today.

Q3 was another excellent quarter for Motorola Solutions, as we delivered consistent revenue growth, strong earnings per share growth, expanded operating margins and continued to return capital to shareholders.

This morning, we reported third quarter sales of $2.2 billion, a 3% increase over Q3 of last year.

On a GAAP basis, net earnings were $0.72 per share from continuing operations, compared to $0.45 per share in the year-ago quarter.

Non-GAAP net earnings from continuing operations were $0.84 per share compared to $0.66 per share in the third quarter of last year, which represents a 27% increase.

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

Our Government segment revenues increased 12%, a record third quarter.

This reflects growth across the segment driven by a combination of factors including core market growth, new product introductions, international expansion and narrow banding in the US.

Operating margins in Government improved 390 basis points year over year to 20.4% due to the strong top line growth, favorable sales mix and continued operating leverage as we continue to manage costs.

In our Enterprise segment sales declined 13% from the year-ago quarter, including a $29 million decrease in iDEN.

This segment continues to face headwinds, largely driven by the macroeconomic environment, fewer larger deals and anticipated foreign currency pressure.

That said, we remain confident in our portfolio and excited about our new product introductions going forward.

I'll now turn it over to Ed to discuss our financial results in more detail.

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

Thanks, Greg.

Q3 was another strong quarter.

Revenue growth was 3% consistent with our total Company outlook with Government stronger and Enterprise weaker than we anticipated.

Given the difficult compare from the year-ago quarter, we are pleased with our top line performance.

This growth came despite anticipated foreign currency headwinds of $42 million or approximately 2 percentage points.

We saw another quarter of broad based revenue growth in our Government segment, with record third quarter sales of $1.5 billion, an increase of nearly 12% from the prior year.

Operating margins in the Government segment improved 390 basis points from 16.5% to 20.4%.

Strong sales, favorable mix and continued cost efficiency drove this improvement.

Enterprise sales declined 13% to $632 million.

Operating margin in the Enterprise segment declined to 12.2%, driven in part by sales mix and foreign currency headwinds; however, the largest driver was a sales decline, as underlying expenses remained relatively flat on a year over year basis.

Turning to earnings.

Earnings from continuing operations were $0.84 per share compared to $0.66 per share a year ago, a 27% increase driven by improved operating performance and share repurchases.

Operating expenses were $709 million or 32.9% of revenue, which represents an 80 basis point improvement from the year-ago quarter.

Overall, I'm pleased with our operating leverage improvement.

Operating earnings for the third quarter were $387 million or 18% of sales compared to $359 million or 17.2% in Q3 of 2011.

Going forward, we will continue to reinvest in our business and expect to generate returns well in excess of our cost of capital, while also improving R&D and SG&A as a percentage of revenue.

Total other income and expense was a net expense of $13 million in the quarter, compared to a net expense of $16 million in Q3 2011.

This line item was lower, primarily due to gains on investments during the quarter.

Going forward, we expect this line item to be a net expense of approximately $20 million to $25 million consistent with our view last quarter.

Our effective tax rate was 35.6% for the quarter.

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

We still expect a cash tax rate of approximately 20% for this year and we expect the tax cash rate to average 20% over the next several years as we utilize available tax credits.

Cash flow from operations was $182 million during the quarter, which included the impact of a $72 million pension contribution made in late Q3, rather than early Q4 to reduce pension related PBGC fees in 2013.

Our year-to-date 2012 contributions to the pension plan were $340 million, which satisfies the full year planned funding.

This represents an incremental $170 million of year-to-date contributions in comparison to last year when we had contributed $170 million through the first three quarters.

Let me spend a moment on the increase in working capital.

There were two main contributors to this increase.

First, earning inventory balance increased sequentially which was approximately $20 million higher than expected, due to softer Enterprise demand.

Second, our receivable balance was approximately $100 million higher sequentially.

This increase was due primarily to linearity in shipments, as well as linearity in billings which are more back-end loaded in part due to our Q3 ERP conversion.

Having said that, it is important to note that there was no meaningful deterioration in our accounts receivable aging during the quarter.

We remain very focused on working capital management.

As you know, this is a long cycle business with significant milestone billings that can fluctuate from quarter to quarter.

We remain confident that we will deliver approximately $1 billion in cash flow from operations for full year 2012, consistent with our previous outlook.

We ended the quarter with $3.5 billion in cash and investments and approximately $1.9 billion in debt.

We purchased $308 million in stock during the quarter at an average price of $47.47.

This brings us to over $3.2 billion in share repurchases which is over 70 million shares at an average price of $45.95 since July of last year.

In addition, we paid $63 million in dividends in the quarter.

Year-to-date we have returned over $2.3 billion to shareholders via share repurchases and dividends.

Now turning to our Q4 and full year outlook.

For Q4, we expect sales growth of approximately 6% to 7% over the fourth quarter of 2011.

Our outlook is for non-GAAP earnings per share of $0.98 to $1.03 from continuing operations based on our Q3 ending share count.

This compares to non-GAAP EPS in Q4 of 2011 of $0.87 per share.

Consistent with prior quarters, this outlook excludes stock based compensation and intangible amortization expense of approximately $0.13 per share and items historically highlighted in our quarterly earnings releases.

We are increasing our full year sales outlook to 6% to 6.5% to reflect the recently completed Psion transaction with approximately $60 million in revenue in Q4.

This transaction expected to negatively impact Q4 EPS by $0.02 per share, which includes transaction-related fees and purchase accounting adjustments and is reflected in the guidance for the quarter.

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

Ed, thanks.

In our Government segment sales for the quarter were $1.5 billion a 12% increase of Q3 2011.

We saw growth across the entire product portfolio and in North America, Latin America and EMEA.

Profitability also improved significantly with operating earnings growing to 20.4% of sales compared to 16.5% in Q3 last year.

We saw double-digit growth in both systems and Radio devices.

Safety and security remains a priority among governments and funding for mission critical systems continues to reflect this priority.

This marks the eleventh consecutive quarter of year over year growth in our Government segment, which demonstrates the priority that mission critical communications receives in various budget conditions.

State and local governments continue to face budget choices, but according to a recent National League of Cities survey, a majority of financial officers believe their cities are better able to meet fiscal needs and nearly half reported increased expenditures on Public Safety.

Many of the existing Public Safety systems have been in use for decades and will need to be replaced with Next Generation digital systems; however, these transitions will take place over years and on the timelines our individual customers want rather than forced migrations.

This underscores the importance of our solutions, which are backwards compatible and forward migratable.

Customers choosing to invest in new digital systems get enhanced features, such as voice clarity, text messaging and GPS and with digital's more efficient use of spectrum, additional channels means new users can be added to a system.

New technology also helps First Responders do their jobs better and more efficiently.

For example, our tactical incident command feature replaces traditional voice roll calls with accountability functions embedded in the Radio system.

Using this feature, Commanders can automatically keep track of First Responders on scene.

The Apex roll call function provides an update on each First Responder's Radio and when a critical situation arises, the large emergency button activates a Mayday alarm signaling a First Responder in distress.

Another example of a cost saving feature with many of our newer systems, is that changes to Radios can be programmed remotely saving valuable time and resources previously required to perform field service on the equipment in the field.

We continue to expand our industry leading portfolio to reach new markets and incremental users.

We extended our ASTRO system to include a refreshed conventional option, a system type that is commonly deployed in rural communities and the new Apex 4500 is a vehicle mobile Radio designed for public works, utilities and rural Public Safety.

New form factors also make Radio solutions more compelling to new and different users like the new Apex 3000 designed for covert operations.

This Radio helps undercover officers use a high powered concealed Radio while maintaining mission critical communications.

Or the MOTOTURBO SL series, an ultra thin and lightweight portable Radio designed for service and hospitality industries.

We now have over 24 different models on our Apex Radio platform.

This year, we've added 15 new models to the MOTOTURBO family.

Platforming helps accelerate new product introductions, drive cost efficiencies and by tiering features and pricing, we can compete in all areas from small rural agencies to large cities and from local to regional users.

I'd like to also spend a moment briefly to talk about the status of narrow banding in the US.

As you may know, the FCC established a VHF and UHF narrow band requirement nearly a decade ago, that applies to approximately 30% of the installed base in the US.

Most of these Public Safety users have spent years preparing for the January 2013 deadline.

Some communities are now finishing their narrow banding projects, although more than 50 waivers have been requested by smaller jurisdictions and large metro areas, many of which have outlined the significant effort that's remaining for them.

The FCC has granted extensions to several applicants ranging from several months to over three years.

And while narrow banding is a requirement impacting a portion of the market in the US, we continue to see solid international growth driven by the compelling features and applications that our new digital solutions offer globally.

Our Professional and Commercial Radio portfolio continues a multi-quarter trend of outstanding performance with solid double-digit growth in Q3.

With over 2 million devices shipped the MOTOTURBO portfolio clearly leads the market as it transitions to digital.

In fact, almost half of our Professional and Commercial revenues in 2012 have come from digital products, but there's still a significant opportunity ahead of us as the global installed base of about 40 million PCR Radios is still over 90% analog.

Growth in Government was across both products and services.

Services represents almost 30% of segment revenues and we're currently executing on more than 700 installation and integration contracts in North America alone.

Once these networks are deployed, we provide support services to these customers as well, given the mission critical nature of the systems.

As an example, in North America, we have over 3,000 support contracts with Government customers.

During the quarter, we had several terrific new service wins including an agreement with the State of Ohio valued at $80 million over 14 years, a $26 million Prince George's County, Maryland contract for 5 years and a $14 million agreement with the City of Phoenix for 6 years.

Revenues are recognized over the life of these contracts.

Also as Public Safety IP networks become more complex, we're working with customers to create enhanced services offerings like a $17 million agreement with York County, South Carolina which is a comprehensive life cycle services contract, where we'll upgrade, maintain and monitor all of their network components including third party equipment for seven years.

Predictable fixed fee arrangements like these help customers improve their total cost of ownership, avoid budget surprises and insures that they have our latest system features during the life of the contract.

Now, moving on to the Enterprise segment, sales in the Enterprise segment were $632 million, a 13% decline from Q3 of 2011.

Operating earnings were 12.2% of sales compared to 18.6% last year.

Despite fewer large deals in the quarter, we're encouraged by continued dialogues and proposal activity among large customers planning for a technology refresh.

I'm also encouraged by our backlog levels and traditional run rate business.

Favorable growth drivers also remain, including increasing worker mobility, drive for operational efficiencies, demand for wireless access and expansion products.

This quarter, we announced the MC67, the industry's first rugged mobile computing hand-held to incorporate a dual core OMAP processor with support for the latest generation of Microsoft Windows embedded hand-held.

The MC67 builds on the success of over 600,000 MC55 and 65 Enterprise mobile computers that are previously deployed, one of the industry's most field proven platforms.

The compact MC67 supports bandwidth intensive applications for data capture of high resolution images, concurrent voice and data communications, location-based services and other features for field service, field sales and direct delivery.

We also introduced the WAN version of the ET1 tablet for mobile task workers.

Our ET1 industrial tablet's been enhanced with dual mode WAN to bring the go anywhere familiarity to a true Enterprise class device with enhanced durability, security and hot swappable batteries for multi-shift use.

While our core focus remains in rugged mobile computing design for line workers, we've also been investing in an important expansion category to provide devices for new users like retail sales associates and customer service personnel.

For example, we've received terrific customer feedback on the MC40, our first Enterprise mobile computer with a full touch screen interface and a task-specific device, our Smart Badge 1 product.

These products are designed to perform tasks like scanning an item to check price and availability, reviewing product specifications and connecting Managers and other employees with push-to-talk.

The MC40 also enables mobile Point of Sale.

Both of these products are now scheduled to begin shipping this quarter.

I'm also excited that we recently closed the acquisition of Psion.

This investment strengthens our position in rugged mobile computing and bolsters our strategic position in important industrial segments like manufacturing, warehousing, ports and cold storage.

Together with the Psion team, we'll be better positioned with improved scale, reach and leadership in the Enterprise rugged mobile computing market.

One area of our Enterprise portfolio that saw continued growth was advanced data capture, as favorable market trends such as the conversion to 2D imaging helped drive demand.

This year, we've also seen the emergence of a new driver for our data capture business as retailers that previously didn't use bar codes now adopt scanners at the store level to implement mobile coupons and customer loyalty programs.

Some interesting new places where you'll now see these applications include large restaurant chains and coffee companies.

Now turning to a regional sales view for the Company.

North America grew by 9% while we saw declines in the other regions -- Asia 2%; EMEA 3%; and in Latin America, a 9% decline although that was entirely driven by iDEN.

Overall in our Government segment, we had growth across all regions except in Asia where sales were relatively flat.

The North America region saw exceptional growth in Government with double-digit growth.

Sales declined across all geographies in our Enterprise segment.

This past quarter, we were recognized as the official mission critical communications provider of both national political conventions.

Events like these bring together a diverse set of agencies from federal, State and local levels.

In Tampa and in Charlotte, our interoperable solutions met the challenges of instant and seamless communications providing real-time information to insure the conventions were safe for thousands of delegates and the cities' populations at large.

I'm also proud of our team for the recognition we recently received from Corporate Responsibility Magazine as a Top 10 Best Corporate Citizen in the information technology sector.

In closing, Q3 was another excellent quarter for us with consistent revenue growth; strong earnings growth; expanded operating margins; and continued return of capital to shareholders.

The fundamental demand drivers for our business remain solid and we continue to invest and innovate for the future.

Thanks, Greg.

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

Operator, please remind our callers how they may ask a question.

(Operator Instructions)

Pierre Ferragu, Bernstein.

I have a question on the evolution of your operating expenses, they were down $20 million sequentially and like $2 million year on year.

I was wondering first if currency played a significant role in there?

Then if you can give us as much visibility as you can on what other parts moved and how much of that is sustainable or more of a one off.

Then when you were looking to next year, as you integrate Psion, I would assume that there would be a high level of operational synergies there.

So I'm wondering how it's going to impact directionally your FX?

Then more broadly if you could give us some color on how you're managing OpEx at the moment on a day-to-day basis, if you have ongoing cost optimization plans and how you're thinking about operating cost reallocation as the time goes.

Okay.

So there was -- you snuck in a bunch of questions in there, Pierre.

I think we got most of them, but if not we'll come back to you.

On the cost in the quarter, FX had a slight impact as we talked about.

Top line was $42 million of FX impact.

At the spending line, it was a few million dollars, probably $4 million or $5 million that offset that as a benefit.

So, the bottom line when we guided at the beginning of the quarter -- really, the net impact on earnings was effectively in line with what we expected.

The top line was a bit higher than we expected.

If you remember, we talked about $35 million of impact on the top line.

So cost from FX relatively minor in the quarter.

They were relatively stable, which is very much in line with the way we talked to you about our spending -- that we're going to -- the spending may remain relatively stable, but we've done a lot of work to insure that we're spending it in the right place.

In other words, taking down a certain area that are not as critical and ramping up where we think we need to and from an innovation perspective and from a go-to-market perspective.

So savings really on the G&A side, so we'll continue to grab for that.

Pierre, as it relates to Psion, as we mentioned, we expect $60 million -- approximately $60 million of revenue in Q4.

The guidance we're giving you of $0.98 to $1.03 EPS in Q4 also obviously incorporates Psion which is probably a negative $0.02 in Q4 which includes the transaction fees and purchase accounting adjustments.

Going forward, we're excited about the ability to integrate Psion into the Enterprise mobile computing product group.

There will be synergies, but nothing we're going to share at this point.

I think we'll incorporate that and give you a little bit more color in the January earnings call.

As it relates to operating expense management, we as a team were pleased with what we got done in Q3.

We thought we did a pretty effective job around disciplined cost management.

Now that said, we will continue to invest where we need to in R&D and maybe sales coverage and other areas where we think warrant the investment.

But, having said that, we will watch operating expenses carefully and prudently going into next year, and we will philosophically look for R&D and SG&A as a percentage of revenue to continue to improve over time.

Did that get everything that you asked, Pierre?

I think you got absolutely everything (multiple speakers) (laughter).

Kulbinder Garcha, Credit Suisse.

Just a question, Greg, on the narrow banding effect.

I think, last quarter you said it was two to three points of growth.

I missed whether you mentioned what the impact has been year-to-date.

Just on a wider comment, what confidence can you give us as we're getting closer to 2013 that you're not borrowing sales from next year on the Government side given you are just so much above the normalized revenue growth rate in that business.

Many thanks.

Yes, thanks, Kulbinder, first of all, when we give you what we think around growth for the quarter, it's an estimate.

But this quarter, for Q3, we think of the 12% Government growth, approximately 3% of that was narrow banding driven.

Remember, as I mentioned earlier, narrow banding for UHF/VHF is 30% of the installed base, in terms of kind of proportionately sizing it.

As I mentioned, there's currently 50 plus waivers that are filed with the FCC, where customers will go beyond the January 2013 deadline.

My view is that number will go up and many of these waivers will be granted, which my view means it won't necessarily be a cliff as we go from 2012 to 2013.

I think, kind of moving back, Kulbinder, there's no question narrow banding helps; however, more broadly the overall demand drivers for the business, new features, better efficiency, the aging of the installed base and quite frankly, our Government growth outside of the US which has been pretty robust.

We think that will continue.

That's obviously incorporated in the 6% to7% growth for Q4, but we expect Government to perform -- continue to expect strong almost double-digit performance in Q4.

Just one other question on the margins in Government.

As you hit these record highs, I guess, is there anything temporary in that just mix wise that's driving it or is this just maybe the effect of the portfolio introduction that you guys have been introducing over the last year coming through?

I think it's a combination, Kulbinder.

I think part of it is the portfolio where we've deepened and broadened both the APEX and TETRA product portfolio which expands the addressable market available to us and makes us more competitive at different price points.

I also think that -- it's my sense, that State and local governments, while not in great shape of course, are incrementally improving.

As I mentioned earlier, we're getting just a little bit more positive indications from our customers that they're willing to spend a little bit more on Public Safety.

We've always said, quarter in and quarter out, that we think it remains a very high priority within these budgets and that not all Government spending is equal and I think our results reflect that.

Keith Housum, Northcoast Research.

Great quarter.

A question for you on LTE and as you look at it out to the future.

You guys previously said that you expect the revenue not to be material until 2014.

Has anything changed in the US or abroad that would perhaps impact your thoughts there or can you provide any color on your thoughts on LTE as we look at it now and into the future?

So I think FirstNet obviously has been formed.

They had their first Board meeting at the end of September.

I think that process has to unfold and there's a lot of work to be determined there by FirstNet.

That said, we feel very well positioned in LTE broadly given the investments we've made in previous periods from a product portfolio standpoint.

I'd also remind you that this is clearly not just a US opportunity, it's a global opportunity.

We've mentioned previously that we think LTE as we kind of look out is probably no more than $100 million of revenue in the second half of 2013.

I think the large dimension of that $100 million will be more globally derived than US derived, the Middle East being a particular attractive area for discussion.

But just going back to FirstNet, I think they are going to work hard.

I also think -- I'm confident that they will engage the Public Safety users in the States and put a high prioritization around the users' feature set for Public Safety.

But that will take several months and into 2013 to play out, but in the meantime, we continue to invest and I think we're well positioned.

Of course, we're also well positioned with our strategic partner Ericsson.

Ehud Gelblum, Morgan Stanley.

(Operator Instructions).

Tavis McCourt, Raymond James.

Greg, I wonder if you could give us the backlog numbers for the quarter.

Ed, when you referenced the $1 billion of operating cash flow this year, was that a GAAP number or was that excluding the pension contribution?

Backlog, Tavis, was relatively flat sequentially, essentially flat for both Government and Enterprise excluding iDEN, pretty pleased with it.

Do we give the figure?

Yes.

It's about $5.9 billion.

So effectively flat.

On the operating cash flow, Tavis, it's $1 billion operating cash flow, that's all in.

So it includes the pension contributions.

The only commentary that we made really during the call was to -- as people are looking at $1 billion of cash flow, you divide by four you might expect on a straight line basis by quarter it would be about $250 million, we're a bit lower than that, $182 million, as we mentioned.

Really driven by -- primarily by the acceleration of that one pension payment of $72 million into Q3 a few weeks early to save some PBGC fees in 2013.

AR was elevated a bit as was inventory, but really, as we mentioned that's really a timing related item that we expect to close that gap and again remain confident in the $1 billion for the full year.

Just to make sure my numbers are correct, that would presume somewhere very close to $500 million for the fourth quarter?

That's right.

Okay.

Then, final question.

Within your Government segment, remind me how big a percentage the Private Commercial Radio is and is that growing faster than the Government segment as a whole right now?

I don't know that we've talked to the sizing of that.

I think we've shown pie charts in the past, but I would say it's growing.

I'd say it's relatively comparable rates with the rest.

That's correct.

Craig Hettenbach, Goldman Sachs.

Greg, despite some of the weakness in Enterprise, you did mention you're encouraged by the backlog.

So any commentary on that in terms of spending expectations for Q4?

Well, so I mean, obviously, Enterprise was weaker than we thought, but that said, if you normalize for foreign exchange which was headwinds of about 3% and iDEN which declined 4% of the 13%, we're at about a 6% or 6.5% decline for Enterprise, still not what we would like it to be but normalized for foreign exchange and iDEN.

I think that there's fewer larger deals in terms of the year-over-year compare at the moment.

But the discussions, the engagement, especially in the core verticals that we have give us reasonable confidence and comfort into the guidance that we're giving you for Q4.

I think that as we think about the full year, Craig, we think that Government segment on an annual basis will be double-digit and Enterprise all in for the full year will be mid single-digit decline, but that also obviously includes the planned for decline in iDEN.

I like the fact that [yearish] and other people have some significantly new products coming out this quarter and next quarter, so while we're not pleased with it clearly, we should be able to do better.

I think we're managing it okay and we'll keep a close eye on it.

Obviously macroeconomic headwinds impact more the Enterprise segment than our Government Public Safety segment.

We'll keep an eye on it.

If I could have a follow-up for Ed.

The Company continues to be aggressive in returning cash through buybacks as well as the dividend but on the dividend front you do have a lower pay out than your overall market.

I'm just curious to get your thoughts in terms of how you view that longer term.

Is that an opportunity to kind of true-up and where you stand on the dividend on a go forward basis?

That's something that we look at perpetually, Craig, and as I've talked about in the past, that's something we --as we look at that we look at that more of on an annual basis, but as all part of the capital allocation strategy.

We outlined the 25% to capital expenditures, 30% to dividend and add 45% to that flexible combination of share repurchase or acquisition.

So that's where our current thinking is, but we'll continue to look at that over time to make sure that fits with our strategies, with acquisitions and the other elements of that allocation.

Jim Suva, Citi.

Congratulations to you and your team there at Motorola Solutions.

When we look at strategically long term your big picture, I believe earlier this year, you laid out some goals which I think was kind of sales growth of -- long-term about 5% to 8%.

I believe that was for more than just this year.

It was for multiple years and maybe I'm misspoken on that, but I think that was the case.

If so, given the macro and climate plus the LTE D-block changes and all these waivers going on, should that be reassessed or are other areas picking up to make it still in that confidence range?

I think the short answer, Jim, is -- well first of all, we're always going to look at it and continually reassess it periodically.

But at this point, I don't see a need for those kind of goal posts long-term targets to change at this point.

The dimensions may change obviously.

I think just picking up on LTE -- I think LTE for us more near term will be more of an international contributor than a domestic US contributor, which is different perhaps than what we thought several quarters ago.

But in the main, I think we should be able to with the portfolio and the segments to be able to drive reasonable consistent top line growth.

Whatever that growth rate is then, commensurately keep the P&L in shape where there's good operating leverage which came through really well in Q3 with operating earnings growing 8% and revenue growing 3% and then earnings per share of course given the significant repurchase growing at 27%.

So it's all about growing the business, but it's also for us, all about operating leverage and investing capital with high return on invested capital to insure a strong and superior return for shareholders.

Great.

Then my follow-up would be on the M&A front, Psion seems like a great natural fit there and a lot of synergy.

Are there a lot more companies out there on the M&A front?

How robust is your pipeline and any changes in that given the recent economic uncertainty?

Are more companies entering the pipeline or are valuations adjusting quick enough or kind of slower?

How can we think about the acquisition M&A pipeline.

Thank you so much.

Congratulations to you and your team.

Thanks, Jim.

I think the funnel around acquisitions for us and things to evaluate remains pretty constant.

To your point some valuations are getting a little bit more attractive, but at the end of the day I think we're pretty disciplined around this and we're certainly not going to buy things just because we have money in our wallet.

It's got to be a high strategic fit, a strong return on invested capital.

We have to have the ability to execute and integrate the acquisition.

Psion is ideal, because it's in a space of mobile computing that we play and lead.

At the end of the day, whatever we acquire has to have a very, very high cultural compatibility quotient.

Symbol had it, Psion has it, but I would say it's a pretty steady view and stream of evaluations but I don't think our thinking around acquisitions have changed in the last few quarters just because of the macro economics.

It remains pretty consistent.

Congratulations to your team at Motorola Solutions.

Jeff Kvaal, Barclays.

Greg, could you spend a little bit more time talking about what is happening in the Enterprise side of the business?

I mean the ex-iDEN revenue number last year was plus -- last quarter was plus 5%.

Now you're talking normalized down mid single-digits.

Obviously the macro isn't great, but has it deteriorated that much?

What are some of the drivers across the different regions that are hurting growth there?

Thank you.

Yes.

Jeff, so again 13% year-over-year decline, normalized for FX, that takes it to about a 10% decline.

You back out the $29 million iDEN decline -- forgive me, I'm just doing the formula here, it takes us to about a negative 6% to 6.5% growth for the quarter.

Remember, the previous compare was robust in Enterprise.

It was up 13% and I think at the end of the day, it is really just fewer deals.

We also by the way, one other thing, we are no longer pursuing as aggressively as we were, what I would call low end WLAN sales in certain parts of Asia where we were ringing the bell on top line revenue but the commensurate margin or profitability was more challenging.

We've chosen to walk away from that and not compete.

So we're not going to pursue revenue for revenues sake.

That was a contributor in the decline of our WLAN business.

So those are kind of the ingredients, mobile computing is down.

At the end of the day, we believe we're -- for the most part holding share, which is really important in these times.

As I mentioned, given the refresh in a number of new products in the Enterprise portfolio, we'll watch it closely but we think we will be able to come back a bit and start to grow again.

Jeff, just a little clarity, when Greg mentioned earlier that he felt optimistic about the funnel, when you think about regional clarity -- Latin America I would remind you is up in Enterprise ex-iDEN.

North America, there was two very large deals in the previous year.

Absent those two large deals, it's mid to high single-digit growth.

EMEA is primarily due to FX, so given a comparable of approximately 20% in the prior year, we're very pleased with the performance in EMEA.

Then in Asia Pacific, as Greg just mentioned, absent or normalized for the business or the product area that we decided not to pursue in China, Asia-Pac is also high single-digit growth in Enterprise.

As we look forward to fourth quarter and the guidance that we gave you, Enterprise growth in fourth quarter is mid single-digit growth.

So I think that while we're not proud of 13% decline, I think that's why we're speaking that we're also reasonably optimistic about where we are today.

Okay, great, thank you.

Then Ed, on a follow-up, could you remind us how much of your buyback you have left?

Thank you.

I think we've done $3.

-- I think we have $1.8 billion left of the last authorization, so about $1.8 billion.

Ehud Gelblum, Morgan Stanley.

So we did a lot of math on this iDEN and that seems to be a lot of the decline on the sequential basis as well.

I apologize if you mentioned this before, but it looks like iDEN was down over 50% sequentially.

So it seems like it's almost pretty much out of the run rate and not going to impact Enterprise going forward, anywhere near the extent that it did in the past.

So we should actually see a softening effect in Enterprise going into next year.

Just want to make sure that math is right.

I got a number somewhere in the mid $30 millions for where iDEN is down to.

So on iDEN, Ehud, it declined $29 million in Q3.

That's a year-over-year example though, right?

It is.

We also talked on an annual basis that we thought it would be approximately $270 million for the full year of 2012.

I think it's within the range of still being that, so -- I think for the quarter in Q4 --

A little bit less than the $29 million is what we're thinking -- something in the lower $20 millions.

$20 million.

For Q3?

About $20 million for Q4.

For Q4.

So I'm right.

So it basically is in inconsequential in four?

It becomes a smaller piece but the trajectory of it, Ehud, as we talked about, it's somewhat of a similar trajectory is what we're thinking into 2013, but we'll give you more specifics on that in the next quarter's release.

Okay, great.

That's actually very helpful.

There was a story out.

I don't know if you can comment on that, but it was interesting a day or two ago about the deal in Scandinavia perhaps being reopened.

Someone looking into it or someone objecting to it.

I wonder if you can comment on that and is there any validity to that?

Clearly, there isn't, but how should we look at that story and if you've seen it?

Ehud, this is Mark.

I think as you said there was a story out where a competitor or a potential competitor in Norway had complained about the procurement process of the contract transfer from NSM that you're aware of to Motorola.

That request is directed at DNK who is the customer in Norway.

The customer feels very compelled with the process that they followed and the legal aspects that they looked at.

We're obviously -- we're a piece of the contract before, now we've taken on a prime contract responsibility.

So we feel confident that we'll continue to execute on the contract and move forward.

We'll let the process run its course in Norway with the customer.

Okay, that's helpful.

Then back to the Enterprise.

I don't mean to beat a dead horse on this, but clearly macro has a lot to do with the decline going on right now.

How do you tell the difference between a cyclical and a secular issue with Enterprise?

Home Depot is a huge account for you now.

It was a big win.

When you walk in there, they all have Motorola handsets and it's a great innovative system, but then you walk across the street to Lowe's and they're using iPhones now.

Did you compete for that Lowe's business or were you not allowed to compete because you were so big with Home Depot?

How should we be kind of viewing what Lowe's did with respect to how this business proceeds going forward?

So I think, Ehud, Mark and I will probably tag team this.

But a couple of indications of the difference between cyclical and structural are -- one, backlog; and two, the forward-looking funnel and the degree of discussion and engagement prospectively that we have with customers.

Now I won't get into the detail per se.

You're right, Home Depot is a great account.

Microsoft orientation, we worked with them for several years.

Lowe's chose a different path.

I think that my view is oftentimes whether it's Pepsi and Coke or McDonald's and Burger King or Home Depot and Lowe's, perhaps part of that decision was incorporated that if one company's going with one vendor maybe somebody should consider going with another.

That said we watch closely, folks like Apple and how visible they are or what degree of engagement they have with customers.

In the Enterprise, remember for us, I know you know this, Ehud, our sweet spot is the industrial rugged mobile computing.

So we're doing the heavy lifting, the blue collar, the warehouse, the back office.

Yes, we go into the store.

Of course like a Home Depot, but we're going into a store with a rugged application with a Microsoft orientation with ubiquitous push-to-talk and customized applications and a durability factor with a device that's Enterprise grade versus Consumer.

We will continue to watch more anecdotally.

Apple continues to -- we see anecdotal evidence of those conversations with certain Enterprise customers but it's more TBD.

We feel overall pretty solid about our position.

We'll continue to invest in it and we'll watch to insure that we aren't just breathing our own fumes here on cyclical versus structural.

Just a quick add too, is that we did compete for the business.

Obviously, we don't want to lose any piece of the business.

But I would just add that Lowe's is still a very strong customer for us.

While Apple did go throughout the store associates with the units that you just mentioned that you see when you go in the store, we still do the wireless LAN network for them.

We still do other aspects.

We continue to work very closely with Lowe's just as we do with all of our customers.

Great, thanks.

Can you give me a quick update on the Android units and your conversion to Android.

Is that just a part of the portfolio or will you be keeping both Windows and Android going?

I think you'll see us do both.

Obviously the installed base is overwhelmingly Microsoft.

Windows 8 -- by the way, I should have mentioned Windows 8 too.

I think that is part of the pause in Enterprise spending, in part -- I can't give you a quantifiable number but as Windows 8 comes closer, I think some customers wait to see what it's about and its affordability and how we incorporate it in our portfolio.

Ehud, we will continue to do both Android and Microsoft.

We're in very good strategic discussions with Microsoft at the highest levels.

We will look to incorporate in the future some devices around Windows 8 that will support the customized Apps and do comprehensive security and VPN support and integrate and optimize voice over, Wi-Fi and Enterprise WLAN, so we'll do both.

Matthew Hoffman, Cowen.

Another narrow banding question.

If I'm reading your comments correctly, compared to the three points of growth you estimate you got in the Government business this quarter, next year in 2013 we should expect the effect of narrow banding to be lower because of the wind down of the mandates effect.

But that there are 50 municipalities out there looking for extensions, so it should be greater than zero.

Is that the right way to frame that argument out?

Then I'll have a follow-up, thanks.

Basically, yes, Matthew, it will be greater than zero given the 50 plus and there will very well be more waivers between now and the end of the year.

So yes, that's probably the right way to frame it.

All right.

Then can you help us think about the 50 relative to the overall addressable opportunity within the mandate, so we can -- help us size that?

I can't, because I can't dimensionalize or quantify the 50, or size it and the mix between rural and major metro.

Maybe on the next earnings call as we exit 2012 and look forward in 2013, we'll have a better appreciation of framing it and quantifying it.

Thanks for that.

One quick --

Matthew, just a couple of -- just to give you a little bit more color on that to maybe make you feel a little more comfortable.

Remind, that Greg made in his comments that the narrow banding mandate is just 30% of the user base.

So even when you're talking about the residual, you've still got the rest of the population of users in North America.

I would also remind you that the narrow banding mandate is not an international phenomenon.

When you look at our Government growth internationally year-to-date, we're 20% plus in Latin America and mid to high single-digits in Europe and in Asia.

So that's why we say, if you think about the fall off from narrow banding, certainly it's going to impact the growth in North America.

But we still are seeing very strong growth internationally and in North America as a result of new product introductions, all of our offerings and the benefits that we provide to our customers.

All right, appreciate the color.

One last one, a housekeeper.

Wireless LAN, I didn't hear you call it out on the Enterprise side.

Can you just fill us in on the trends there on the wireless LAN business?

Thanks.

Wireless LAN declined for us year-over-year.

I think I mentioned earlier in part because we chose not to pursue some lower priced lower margin low access point opportunities primarily in Asia -- actually mainly in China.

But it did decline for us year-over-year.

We would look for that to improve going forward.

Ben Bollin, Cleveland Research.

When you look at your platform investments you talked about Windows and Android, but could you talk a little bit about how you're thinking about investments into App developments themselves, actual software to be more vertically integrated with your customers?

So two things in that regard, Ben.

We do work closely with our independent software vendors to insure that vertically specific Apps are customized whether it's retail or transportation logistics.

In some very large accounts we have some of those software App people doing that customization with a Motorola badge.

The other thing around App development is the acquisition we made of Rhomobile or RhoElements and the notion is that we over time provide an HTML5 toolkit, an SDK if you will, where App developers write to that, that's agnostic, it's indifferent to whether it's Windows 8, Android 4.0, or iOS.

So we have a common toolkit that's written at the browser level that's then supported irrespective of the underlying Operating System.

So we're really doing it on two levels.

Working customized Apps, organically, internally and with ISV partners today, Microsoft and Android and investing in a software element that can simplify the portability of applications and lower the cost and make it more ubiquitous over multiple Operating Systems.

That's the twofold strategy we're pursuing.

Okay.

Then as a quick follow-up.

You look at Psion, you gave us the 4Q run rate.

Could you give us an idea on the annual run rate, the margin profile of that business and the headcount?

Then where does the onshore/offshore cash stand at the end of 3Q?

So a couple things.

First of all, on the onshore/offshore I think the cash balance was somewhere in the mid $30 millions, so consistent with where you'd expect $3.5 billion in total.

On the Psion business I think I'd keep it very high level.

I did talk about the impact for the fourth quarter being a negative $0.02 per share.

Really as coming in the businesses roughly breakeven, ex those purchase accounting and transaction related fees that are out there related to that transaction.

Going forward, you would expect that we will drive to improve the earnings of that business such that as we've talked about previously it will be accretive on a non-GAAP basis in 2013.

On a GAAP basis it should be accretive in 2014.

So the plan is definitely to improve the profitability of that business such that the return on invested capital that we assumed on that business when we acquired it comes to fruition.

The headcount, Ben, is approximately 800 people.

Blaine Carroll, Avian Securities.

Congratulations on the quarter guys.

A couple of questions.

First of all, on the narrow banding is there any incentive for the 70% that don't need to move to that 12.5kHz, is there any benefits to them to move to it and could that extend the narrow banding process as well?

Certainly, I think when we talked about the growth that's occurring, certainly we talked about the contributor of narrow banding, but we also talked a lot -- when you think about double-digit growth and we said narrow banding and double-digit in the US and narrow banding contributing to 3% of our overall growth, we talked a lot about the aspect of moving from analog to digital and the new features, the better efficiency that's there, the ability to add more users because you're spectrum efficient when you do that.

The fact that a number of the 70%, if you will, which was your question are aging infrastructures, they need to upgrade anyway.

So they are attracted to the digital aspects of the system.

So that again is a big explanation of why we're getting growth way beyond just narrow banding.

Okay.

Then there's a new product out that's predominantly or prominently displayed on your website, the HC1 Headset computer.

I'm wondering if you could talk about that device and what your sort of prospects are for that?

Yes.

I think that's really much more of a niche device.

It's got a high ASP price point.

I think you're looking, you're referring to the helmet computer device.

I think it's -- I love the fact that we have it.

It's a small addressable market.

I would look to it to be more niche application than broad based.

Any thoughts on unit -- this to me looks like that Google Glass application, any thoughts of moving it over into that space or is this just a --

No, I think this is more of a demonstration of the innovation capabilities, where we have a very unique set of requirements for clients, we'll sell it in kind.

But I don't think it's -- it's more representative of the art of the possible and for very unique circumstances to fill that need.

But I wouldn't look at that product as expecting any broad based deployment.

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

Thanks.

Yes, I'd like to remind everyone the details outlined in the highlighted items, our GAAP to non-GAAP, P&L reconciliations and other financial information can be found on our Investor Relations site.

An audio replay together with a copy of today's Slides will also be available on this site.

During this call, we made a number of forward-looking statements within the meaning of applicable Federal Securities law.

Such forward-looking statements include but are not limited to our comments and answers relating to the following topics -- future sales and earnings growth, including by segment and region; earnings per share outlook; cash flow generation; the amount of other income and expense; future effective tax rates and cash tax rates; future pension funding requirements and PBGC fees; the impact of the acquisition of Psion, including revenues and EPS; the financial impact of reinvesting in our business; new products and solutions introductions; future operating margins and leverage improvements; our future dividends; capital allocation framework; expected decline in iDEN; market share and demand trends for our businesses and products such as LTE; and the impact of narrow banding.

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

Information about these factors that could cause and in some cases have caused such differences can be found in this morning's press release on Pages 9 through 22, in Item 1-A of our 2011 annual report and Form 10-K in Motorola Solutions and other SEC filings.

Thanks.

We look forward to speaking with all of you soon.

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

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

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