摩托羅拉 (MSI) 2013 Q2 法說會逐字稿

Welcome to the Motorola Solutions second quarter 2013 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 discuss second 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 and President of Sales and Product Operations.

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

Earlier this morning, we posted an earnings presentation and Press Release at www.motorolasolutions.com/investor.

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

It's important for you to review these materials.

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

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

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

Any forward-looking statements represent our views only as of today, and should 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.

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

Thanks, Shep.

Good morning and thank you for joining us today.

Solid results in Q2 Government helped us succeed our earnings outlook, while our Enterprise business declined, resulting in overall sales at the lower end of our outlook.

As I think about the quarter, there are four key messages.

First, weakness in Enterprise continued.

Second, our Government business remained strong over record results last year.

Third, we're still targeting 18% operating margin for the full year.

And finally, our overall confidence in these businesses is reflected by our announcement today of a $2 billion increase in our share repurchase authorization along with a 19% increase in our dividend.

In Enterprise, we expected improvement this quarter, but that didn't happen.

While we continue to have positive dialogue with customers, along with additional user trials for our expansion products, we still have yet to see a meaningful pickup in sales conversion and large Enterprise deals.

This demand environment we face in Enterprise is not unique to us, as the broader industry is impacted by customers carefully managing their IT budgets in the face of macro uncertainty.

As a result of this environment, we now expect a more modest recovery in this business toward the latter part of the year.

Having said that, strategically, our Enterprise business remains well-positioned to capture a rebound in Enterprise spending as that occurs.

In light of this elongated recovery in Enterprise, we now expect full-year sales growth for the total Company of approximately flat to up 1%.

The Government business continues to perform well, especially when you consider the record revenue and profitability levels from last year.

Backlog in Government remains healthy, and both ASTRO and TETRA had solid growth in infrastructure sales, which is typically a leading indicator for future subscriber demand.

This business continues to demonstrate its resilient characteristics where incumbency, innovation, support for future migrations and legacy compatibility are important differentiators for Motorola.

Our 18% operating margin target for 2013 is unchanged, although clearly our path to achieving it is now primarily driven by Government and proactively taking costs out to offset our lower growth expectations.

I will now turn the call over to Ed to provide additional details on our Q2 results, and then I'll return to discuss the quarter a little bit further.

Thanks, Greg.

Q2 sales declined 2%.

Q2 Government sales were $1.5 billion, a decrease of 1% from the prior-year quarter.

Operating margins in the Government segment improved 120 basis points from 16.4% to 17.6%.

Better gross margins due to mix and lower general and administrative costs led to the improvement in profitability.

Enterprise revenues declined 5% to $656 million.

Excluding the impact of Psion and iDEN, Q2 revenues declined 9%.

Operating margins in the Enterprise business declined from 16% to 11.9%.

Lower product sales volume, the addition of Psion, and a decline in iDEN drove this margin decrease.

Operating expenses were $709 million, or 33.7% of revenue, which is flat from the year-ago quarter.

We will continue to actively manage our cost structure and invest appropriately based on our business needs, which will include modulating spending in a way that factors in the macro and Enterprise environment.

Our operating earnings for the second quarter were $334 million, or 15.9% of sales, compared to $350 million or 16.3% in Q2 2012.

Total other income expense was a net expense of $42 million in the quarter, compared to net expense of $38 million in Q2 2012.

We expect this line item to be an expense of approximately $40 million per quarter going forward.

Our effective tax rate was negative for the quarter, driven by $118 million of net tax benefits, largely as a result of our new, international holding company structure, which represents the year-to-date amount of the full-year tax benefit.

Based on our current outlook, we expect our effective tax rate to be in the range of 10% to 13% in Q3 and Q4.

After 2013, we expect our ongoing effective tax rate to return to approximately 32% to 33%.

Cash generated by operating activities from continuing operations for second quarter was $82 million, as compared to $254 million of cash generated in the second quarter of 2012.

The lower cash flow results for the quarter were primarily driven by lower sales and linearity of sales within the quarter.

Specifically, we had higher sales in June in the year-ago period which drove lower AR collections.

Lower accounts payable days also contributed to the decline year-over-year.

For the full year, we now see risk of up to $150 million to our operating cash flow when compared to last year.

This is primarily due to three items.

First, a lower sales -- lower full-year sales outlook.

Second, $43 million held by the India Government, which relates to tax amounts currently under dispute.

And third, $25 million to $30 million of incremental restructuring actions as we adjust our cost structure to match our lower growth profile.

Let me also remind you that as we compare our cash flows with prior-year levels, that we expect to pay an incremental $150 million in withholding and other taxes in 2013.

These tax payments are in line with our international holding company strategy that we announced at our Analyst Day in May.

We ended the quarter with $3.2 billion in cash and $2.5 billion in debt.

With respect to capital return, we repurchased $550 million of stock, or 9.5 million shares, at an average price of $57.80 per share.

Since we began repurchasing shares in Q3 of 2011, we have bought back $4.5 billion, or 92 million shares, at an average price of $48.62.

In addition, we paid $71 million in dividends during the quarter.

We remain committed to capital return as part of our capital allocation framework.

This morning, we announced a quarterly cash dividend of $0.31 per share.

This represents a 19% increase over the prior quarterly dividend.

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

Now, turning to our Q3 and full-year outlook.

For Q3, we expect sales to be flat to down 3% compared to the third quarter of 2012.

Our Q3 outlook is for non-GAAP earnings per share $0.97 to $1.02 from continuing operations, based on Q2 ending share count, and this incorporates the new effective tax rate of 10% to 13%.

This compares to non-GAAP EPS in Q3 2012 of $0.84 per share.

Moving to full year 2013, we now expect sales to be flat to up 1%.

We expect Government to grow low single digits, and we now expect a low single-digit decline in Enterprise.

In addition, we previously expected favorability from foreign exchange tail winds in the second half of 2013, based on a more favorable euro rate.

However, we have seen significant weakening of the Australian dollar and Japanese yen, as well as weakness in the British pound, and now expect an unfavorable FX impact of approximately $30 million in the second-half revenues.

We remain focused on driving operating leverage and still plan for full year operating margins of approximately 18%.

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

Thanks, Ed.

As previously stated, Government sales for the quarter declined $8 million from Q2 2012, or 1%.

Profitability for the business increased, with operating earnings of 17.6% of sales compared to 16.4% in Q2 of last year.

In our ASTRO portfolio, total sales declined single digits off of last year's comparable record 20% growth rate.

Having said that, new system infrastructure sales actually increased over Q2 last year.

We had a number of new wins during the quarter, including an $88 million contract with Maricopa County, Arizona to implement a digital radio communications network with coverage across the county.

The Phase Two TDMA network will replace a 15-year-old system and increase capacity with the available spectrum.

We also received a $20 million order from the City of Phoenix regional wireless cooperative to upgrade their 13 -year-old ASTRO system that serves the inter-operable communications needs of first responders and other municipal users in 19 cities, towns and fire districts.

In Canada, we were awarded a $28 million contract with the York region in Toronto to replace a 20 -year-old system, and another with the city of Quebec for $10 million.

And Carroll County, Maryland awarded us the contract for a $12 million system upgrade.

The P25 standard and our ASTRO portfolio continued to extend beyond North America into over 60 countries.

For example, the Taiwan coast guard selected us for a $10 million ASTRO system, and the Kuwait Ministry of Defense awarded us a $17 million contract for an upgrade to ASTRO 7.14, our newest infrastructure product, scheduled for Q4 release.

This latest version of our ASTRO system includes enhanced mission-critical redundancy and a seamless migration path that can be performed with no system downtime.

The system architecture is also designed for improved serviceability and scalability, including future LTE upgrades.

Mission-critical users expect technology that must be intuitive to use, easy to deploy, inter-operable with legacy systems, and future-proof.

And we continue to innovate around these requirements while tailoring our portfolio for adjacent verticals.

For example, NRG, a large utility in the South, is investing in a $44 million ASTRO 25 Phase II TDMA network to replace their legacy analog platform.

The new system consists of APX radios and dispatch consoles for daily requirements, as well as communications during storm restoration.

And the Imperial Irrigation District in the California desert, a community-owned electric and water utility, recently chose us for their ASTRO system.

The Port of Seattle's $4 million investment in an ASTRO system this quarter is another example of our radio systems used to secure mission-critical infrastructure.

Our TETRA portfolio grew strong in double digits in total, driven by new systems and installation.

We had several notable wins in TETRA during the quarter as well.

In Singapore, the Ministry of Home Affairs recently awarded a contract for a next-generation nationwide network and selected our latest broadband-ready TETRA digital radio technology.

The initial phase of the award is valued at $79 million for us and our local consortium partner to deploy the nationwide network, which will serve the police and Singapore Civil Defense Force with a total of 42,000 officers.

Other TETRA awards include Entropia Digital, a Dutch network operator serving commercial users such as transportation, utilities and power generation industries.

And we had continued success in the rail transportation market, with large awards from Shatin Central rail in Hong Kong for $15 million, and Taiwan High Speed Rail for $8 million.

At Critical Communications World in Paris, we introduced our next generation of TETRA infrastructure, including the first combined TETRA and LTE base station.

This innovative solution is designed to facilitate a cost-effective and staged migration to a unified TETRA and LTE network.

It equips network operators for future needs and gives them flexibility to choose when and where to add LTE to their core networks, and on which frequency.

Our professional and commercial radio sales were down slightly compared to Q2 2012, where we had record double-digit growth.

We continue to tier our PCR portfolio around a digital platform.

Several years ago, we were the first to introduce a digital radio in the professional market, and today our MOTOTRBO is the most widely deployed adopted digital platform, with more than 2,000 systems deployed and 2 million units sold globally.

We're extending MOTOTRBO and bringing benefits of digital such as better capacity, coverage and voice quality to additional tiers as well.

This expanded MOTOTRBO lineup will bring digital features to an existing install base that is still about 90% analog today.

In terms of new contract awards for PCR, we've seen continued rollout across multiple production facilities in North America for Chrysler, utilizing MOTOTRBO, and General Mills is also deploying it for their on-site communications.

We continue to invest in applications and control points that are important tools for public safety, like the command center.

We released our premier one next-generation 911 call control solution designed to transform incident management operations by integrating CAD and 911 systems, eliminating data entry for dispatchers during emergency calls and improving their focus and productivity.

Another area where public safety is incorporating more technology is in the police vehicle as an integrated communications hub.

We recently made a very small but strategic acquisition of 54ward Integrated Solutions, a provider of software and hardware interface components that connect in-vehicle public safety equipment including radio, light and siren, radar, license plate recognition and mobile computing.

And our real time crime center solution was featured at the recent annual conference of mayors in Las Vegas, where their technology and innovation task force explored the topic of using data and analytics to fight crime.

Finally, wrapping up our Government results for the quarter, the business continues to perform well and the demand drivers of an aged legacy infrastructure and its corresponding need for upgrades continue.

Now, moving onto the Enterprise segment, sales in Enterprise were $656 million, a decrease of 5% from Q2 of last year.

Operating earnings declined to 11.9% of sales, from 16% last year, driven by negative leverage from lower sales, Psion sales and lower iDEN revenues.

Enterprise sales results were driven by double-digit declines in the Enterprise mobile computing portfolio, excluding iDEN, an expected iDEN decline of $31 million, a mid-single-digit decline in data capture, and a mid-single-digit decline in WLAN.

Our uniqueness in Enterprise is characterized by designing technology around the specific user experiences, whether it's for a truck driver at a logistics company, or a manager or customer in a retail store.

Integration with legacy applications is also vital for our customers, many of whom have millions of dollars in back office investments that they intend to leverage.

A great example of this is our work that we are doing with Tesco.

They continue to roll out our MC17 devices with a $3 million order to expand their scan-as-you-shop program across large-format stores in the UK.

The MC17 also supports their dot com program, which enables shoppers to have groceries delivered to their door.

Tesco is piloting our new SB1 Smart Badge and mobile workforce management software with their customer service teams to improve in-store communication and customer response times.

One area of strength for Enterprise this quarter was in Asia Pac Middle East, where the business grew double digits.

We had several new wins in the region, with retailers like Coles Supermarkets for $3 million, Kmart Australia for $2 million.

And our new value Tier MC2100 positioned us well to win a $3 million award for China Post and a $1 million order for Deppon Logistics in China.

And Australia Post continued their deployment of our MC67 devices with another $5 million order.

We have also updated several of our industrial mobile computing products.

We recently introduced the MC9200, an expansion to the world's most popular investor mobile computing product with more than 2 million devices shipped over the last decade.

We also released a new imaging device, built on the legacy of our most popular scanner.

This next-generation linear imager expands our portfolio to provide another option for retailers looking to read both printed 1D barcodes and electronic barcodes displayed on mobile device screens, a common application for loyalty cards and mobile coupons.

We have seen encouraging early demand indicators from the channel for this specific product.

Two new Psion products are designed for use in cold temperatures.

Freezers and cold storage environments, which are common in perishable food and medical industries, present some of the most extreme specs for computing hardware.

The United States Cold Storage recently chose these devices for their requirements.

With respect to some of our new expansion products, we've engaged with numerous customer pilots.

We remain enthusiastic about the opportunity associated with these products, but the rate of sales conversion has taken longer than we initially anticipated.

The Android-based MC40 multi-function device that's designed for inventory management as well as point-of-sale invoice, has several pilot deployments among major retailers in Europe and North America, while the SB1 is deployed at a major shoe retailer at 130 locations in North America and a pharmacy chain with several locations here in the US.

We won a $7 million project with Canadian Tire to deploy more than 5,000 of our devices in their stores as a digital hub for an improved customer shopping experience as well.

Moving on to the regional results this quarter four the total Company.

With respect to the Americas, North America sales declined 1%, with continued strength in Government up single digits while the Enterprise business declined high single digits in North America.

Following a terrific quarter in Q1, Latin America was down 24% off of a tough compare last year, where Government actually grew over 40%.

Large deals can drive quarterly variability in this region based on its relative small size.

However, we remain confident in the double-digit growth outlook for the full year for Latin America, excluding iDEN.

Turning to Europe and Africa, we grew 4%, driven by single-digit growth in both Government and Enterprise.

Excluding Psion, the Enterprise business declined double digits.

And finally in Asia Pac and Middle East, sales declined 2%, with a high single-digit decline in Government and double-digit growth in Enterprise.

Sales in China were up double digits, and these regional results were consistent with our Q2 expectations as we make progress at returning this region to growth for the full year.

I made two trips during the quarter to this region, meeting with customers and Government officials and our new leadership team, and I'm encouraged about our continued gaining momentum in that area.

Our services line of business grew single digits in Q2.

We renewed several significant support agreements for systems, including the East Bay regional communication system for $8 million, and a $10 million maintenance agreement with the State of Mississippi for their statewide system that currently provides mission-critical communications to over 17,000 public safety users.

Within our managed services business, the South Australian Government radio network extended their managed network service contract, and UK Mail continued to adopt our mobility lifecycle management solution to help monitor, manage and improve the availability of devices deployed across their 52 sites and 2,500 vehicles.

This comprehensive solution includes our Enterprise Mobile Computing devices, combined with lifecycle management, enabling the customer to utilize the latest in mobile technology while maintaining a focus on their customers and strategic business objectives.

In terms of specific milestones, we continue to implement the Norway contract, with over 200 live sites and best in class system availability metrics, since we acquired the prime responsibility in Q1 of 2012.

So let me share with you a few closing thoughts as I wrap up our prepared comments on this call.

First, I'm proud of our team's ability to execute and meet our Q2 expectations, despite record comps in Government last year and a challenging industry environment in Enterprise.

Second, we remain committed to innovation and leadership in both our Government and Enterprise business, as we know this is the best way to generate returns for our shareholders over the long-term.

Third, while there are factors impacting our Enterprise business that we don't control, we're going to work hard on managing the things that we can, and we will be rigorous in driving profitability across the entire Company and remain committed to our 18% operating margin target.

And fourth, our confidence in our business and our commitment to shareholder return remains strong, as evidenced by today's announcement for a 19% dividend increase and a $2 billion increase in the share repurchase authorization.

Thanks, Greg.

Before we begin taking questions, I would like to remind callers to limit themselves to one question and one follow-up in order to accommodate as many participants as possible.

Operator, could you please remind our callers on the line how to ask the question?

(Operator Instructions)

Kulbinder Garcha, Credit Suisse.

First of all, Greg, I guess, and Ed, for you.

In terms of the guidance, in slight fourth-quarter ramp in sales and operating income is very high.

You can obviously play with the ranges, but it looks like you're implying that sales would grow maybe 20% quarter-on-quarter, the operating margins would scale to being well over 21%.

And I know it's various scenarios that get you to that very high number in Q4, but can you maybe explain what gives you the confidence of that ramp today, in terms of order book visibility, customer conversations?

However you want to frame that discussion, that would be helpful.

And the second question is, I guess for Greg, and I mean this with the greatest respect, the forecasting of the Enterprise business had proved very challenging, so can you speak about what you've done now in this new guidance to give us the confidence that we're not going to be here in three month's time and maybe that Q4 number gets pulled down?

Kulbinder, that's a fair question.

I'll take the second part first.

At the end of the day, we're disappointed in the performance of the Enterprise business and what we now see is a few things.

First, an elongated spending recovery.

Second, quite frankly, and we have detailed conversations and engagements with customers, but the conversion of some of these critical engagements are taking longer.

In addition to that, I think many customers are taking what we thought would be larger purchases and breaking them into smaller chunks.

And quite frankly, and Mark Moon can maybe reference this later in the call as well, we had a number of customers where we still have very good visibility to a deal.

And we still believe that we're more likely to win the deal but not only, Kulbinder, has it slipped out of the quarter, because of tight CapEx spending, some of these customers have deferred until early 2014.

And quite frankly, we didn't anticipate that.

On the new product side, we still have good engagement on the SB1 and the MC40, the biplane scanner, but quite frankly, some of those are converting to more pilots and trials as opposed to projects and deployments.

And then lastly, as Ed referenced in his comments, what we had thought would be FX tail winds for the second half, are now FX, or foreign exchange, headwinds.

So we've taken those into account as we've more thoughtfully guided the second half of the year, and that's where we are.

So on the sales by quarter, I -- the 20%, we could talk to you off-line, but the mathematics, it more implies a mid-single-digit or a little bit higher on a comprehensive basis or across both those businesses.

Mark can talk to them, but one of the key items, if you look at the biggest business, Government, as we look into the future, and we look at our backlog, and the aged backlog that we're seeing at this point in time of the year versus this point in time of the year last year, it's up significantly.

It's up, I think, over $100 million versus where we were last year.

So the competency in adding visibility into the fourth quarter for Government.

And as Greg just mentioned, the Enterprise opportunities are still there.

We weren't forecasting growth in Enterprise based upon just a general macro economic improvement.

It was based upon real deals that, as Greg mentioned, pushed out.

Some of them into Q4, as you mentioned.

So we are planning for growth in both Government and Enterprise in Q4, but some of those deals did push out into 2014.

And that was the rationale for the guidance coming down.

I'll let Mark add any more color there.

I think the details, to what Ed just said in total mathematics are -- were correct.

If you break it down by segment, if you think about the Enterprise business in fourth-quarter, and really for the second half in general, it's really -- we're only anticipating normal linearity from first half to second half.

I would remind you coming off of the soft first half, so while it looks big, it's really normal growth adjusted for normal seasonality with a bottoms-up build.

I would also remind you that Q3 and Q4 of the previous year was actually down 10% in each of those quarters, without Psion and without iDEN.

So we're coming off of a weaker compare as we talk about those particular quarters.

In Government, Government is a stronger Q4 and it really is just the loading of the projects when you look at that.

From a Government perspective, we definitely have been resilient all throughout, as Greg mentioned in his earlier comments.

But Q4, in particular has strong aged backlog already.

We have good visibility to Q4.

In fact, as we entered Q3, we had similar types of backlog already aged into Q4, which we expect to build throughout the quarter.

We also have good funnel visibility to the projects that are actually going to happen.

And as Greg mentioned in his comment, a major ASTRO infrastructure release, 7.14, which would be our newest infrastructure release, will occur within the quarter.

So we really do have good visibility into what we're forecasting for second half and fourth quarter.

So Kulbinder, just one added piece of detail.

As you look at it, and we look at the ranges of the guidance, if we're at the left side of the range to down 3%, you'd need to do 7% to get to the right side of the guidance of 1% growth for the full year.

If we go flat for the full year, and we're down at 3%, we need to grow 2.7% in Q4.

So that's how it all comports as we do the mathematics.

Andrew Spinola, Wells Fargo.

Just looking at the different pieces of the Government business, you had said TETRA was up double digits for the year.

P25, I think, it sounds like, was a little soft, but infrastructure on the whole was up for the year.

When I think about those data points together, I'm wondering, especially when I compare 2013 with 2012 and your Government business, how -- maybe -- and the infrastructure being up is a weakness in the hand-helds maybe bigger because of the narrow banding mandate in 2012?

Do you think that maybe more demand was pulled into '12 than you originally thought?

And any color there?

And I have a follow up on the PCR business.

So I think in particular, the narrow banding in North America did have an impact, as we talked about throughout the year, on all of our portfolio, but particularly on the subscriber base.

I would describe the subscriber performance for this year is not really being weak, but really coming off of a very strong compare.

And as Greg mentioned, we are excited about the infrastructure growth that's still continuing to go, which usually is a indicator for future subscriber add-ons.

So, all in all, I think your analysis around the narrow banding in North America as well as the first push around analog to digital around the world led to some good, strong subscriber sales last year, and we're banging up against that comparable as we look at subscriber sales for this year.

God it.

And then on the decline in PCR, could you maybe break down a little bit the -- where you are seeing the softness?

Is it in your Government customers, or Enterprise customers, and maybe what's driving that?

Again, as think about last year, very strong year for our PCR business, both narrow banding driven, very similar to the comment you just made on ASTRO, as well as conversion from analog to digital around the world.

So as you look at those comparables both ways, the comment I just made earlier, our subscribers are flat year-on-year, and we really expect PCR to be roughly flat year-on-year, so we're still seeing good demand.

I think it is coming against the tough comparable that we have the previous year.

So we don't really see any fundamental drivers changing in either of those businesses.

The only thing I would add is we saw PCR dip slightly a little bit in Asia, and I would attribute that primarily due to some factors in Japan.

And we are refreshing and tiering new subscriber PCR products that will begin to be rolled out later this year that I think will improve that individual regional situation.

Tavis McCourt, Raymond James.

Ed, a couple of clarifications for you, then a big picture one for Greg.

In terms of your comments on operating cash flow, can you refresh us of either what the original operating cash flow guidance was for the year or what we should be thinking about now?

And then also on tax rate, I think you mentioned 10% to 13%.

Is that the effective tax rate we should expect for Q3 and Q4, or for the full year on an average basis?

Okay, so on cash flow, let me refresh.

What we had talked about what we had mentioned at the financial analyst meeting, in general our model will be to grow operating cash flow in line with net income.

At the analyst meeting, we had talked about, given the softness in the top line where we were going to -- we took it down for 5% down to previously to the 3% to 4%.

We had talked about getting cash flow relatively flat year-over-year.

That was even with the $150 million of tax payments that we're making, aligned with our strategy, our international hold co strategy to reduce ongoing taxes.

At this point, given the continued softness in sales, the biggest contributor for the full year will be the lower level of sales that we now expect.

With that, we now see $150 million of risk to the full year, driven by that top line softness.

Second, we had mentioned the $43 million of taxes that were seized by the Indian Government that just, given the delays that are taking place there in the courts, there's no guarantee our we'll be able to get that back before the end of the year.

The third item that I'd mention relates to the restructuring costs that we have incurred and plan to incur for the rest of the related to the sizing of the business, given the softness in the business.

And with that, we expect to pay, as I said, about $25 million to $30 million more of restructuring costs for the full year.

So those are the key highlights.

So with that, we've guided to be relatively flat.

We do see $150 million of risk related to that for the items that I had just mentioned (multiple speakers).

Go ahead.

(inaudible) the tax rate question.

And on the taxes, it is.

It would be -- we're expecting it to be the 10% to 13% for Q3 and Q4.

And as I mentioned for 2014 going forward, we expect the effective tax rate to be in that 32% to 33% range.

Got you.

And then Greg, I wondered if you could give us a first responder, LTE update, anything noteworthy since the May Analyst Day?

Yes, and that's a good question, because that's also incorporated into the adjustment to the full-year revenue outlook of from 3% to 4% to flat to 1%.

It's primarily driven by Enterprise, and we've now basically extracted out any planned LTE revenue contribution for this year.

As I said in earlier comments, including at SAM in May, I always believed that our LTE revenues from a material standpoint would be largely internationally-led first, I still believe that.

And our engagements, particularly in the APME region, remain constant.

But we're the longer, and I'm no longer, counting on closing that for those engagements this year and converting it to revenue.

I think it's more prudent not to plan for that.

And having said that, things in the US continue to move forward in general, but NTIA has a continued to freeze the BTOP grants, and FirstNet continues to move forward in their engagement.

The only new development, I think, is LA Ricks and LA Ricks negotiated a spectrum agreement with FirstNet, which we believe is positive.

But having said that -- and that's important, they still need to, they, LA, need to work through how they're going to fund it, whether it's organically through their own means or a grant from the feds.

But even after all that, they will then do a bit that will be forthcoming, and we would expect revenue from that if we were to be fortunate to win it, more in 2014.

So interest remains high and engagement remains high, both domestically and internationally, and we will move forward accordingly.

But we've taken LTE revenue out of our forecast for the remainder of '13.

Jim Suva, Citigroup.

This is Asiya on behalf of Jim.

Very quickly, can you tell us what iDEN was for this quarter, and what the expected contribution is for the year?

iDEN was down $31 million in Q2, and we still expect it to be approximately $185 million in revenue for the full year this year, down from $265 million last year.

Okay, great.

And then on the OpEx side, I know you continue to maintain your operating margin guidance of 18%.

Can you talk to us about some of the items that are impacting OpEx down so much?

And sort of looking further out, how should we think about your OpEx run rate into 2014?

I'm not going to guide to 2014 yet, but what I will say is we remain committed to the 18% operating margin target for this year.

I think, quite frankly, we've been pretty proactive along the way for the first half of the year in managing costs.

We have taken action or are in the process of taking action that will result in annualized run rate savings of about $50 million for next year.

I think it's also important to note that for the full year this year, we expect total OpEx dollars to be down from last year.

So we will continue to modulate the cost structure to reflect the pacing of revenues and size the business accordingly, and that is our plan.

And quite frankly, I feel pretty confident in that.

Simona Jankowski, Goldman Sachs.

So you commented on the macro challenges in the Enterprise segment and some of the large deals that have pushed out into Q4 and 2014.

Are all of those deals still in the pipeline?

Or have any of them gone to competitive solutions?

And then just specifically to the traction that you talked about with the MC40 and the SB1.

Just wanted to get a little bit more color there of who you're going up against, what you're seeing, if anything, in terms of off-the-shelf solutions, either iOS or Android-based, and just how those competitive discussions are going?

So when you think about the push outs for Enterprise, Simona, in North America in particular, we had four very large nationwide retailers that actually selected us, but in very detailed conversations, said that they were going to push other deployments for later in the year, or a couple of them into next year.

We also had a very similar conversation with a big box retailer in the UK.

So to answer your question, we're not competitively losing these deals.

It really is a delay in IT, CapEx kind of spending that is driving this piece, much different than what we really anticipated when we gave our previous guidance.

I think, as we think about competition, we believe that we're still holding share.

So as Greg mentioned, we think this is a phenomenon that's been experienced throughout.

And we're excited about that particular piece, but disappointed that it is pushing out.

When you think about new products, the SB1, as you mentioned, is primarily a task-specific tool to give workers the ability to do tasks on the go.

Not really competing against consumer devices necessarily.

It's really a device to give more efficiency and effectiveness to a broader base of workers.

Our MC40 does move into the expansion category of customer-facing, where you would see competition against consumer devices, other types of products.

You ask about trials, we're trialing with several major customers, both in the US and in the UK.

In fact, the SB1 was really designed around the requirements for Tesco in the UK and they are trialing it.

We're also doing a number of pilots here in the US with the MC40, some of which have tried consumer devices.

So I think it's very positive.

The piece that has been less positive is that the pilots continue, and I will say continue successfully, but to conversion to actual projects have clearly been delayed.

Terrific.

Ehud Gelblum, Morgan Stanley.

First Ed, it's a clarification on the tax credits this quarter of, I think I got $118 million, is what you said.

Is that -- I had down a 0% tax rate, so I think that was -- if you could just go over where the tax credit this quarter came from, and how they differ from what we had before.

And I might be just remembered things wrong from the Analyst Day.

That would be great.

And then, Greg, when you -- by going towards an operating margin target at 18% and making that the number one goal even on the lower revenue rate, can you give us some insight into where the areas are that you cut to get there?

And if in fact that is partially in R&D, how can you be sure you're not maybe mortgaging the future by cutting back a little bit too much when you should actually be investing to grow the business, as opposed to just focusing on the cost-cutting?

And then as you look at, again, at these push outs from these retailers and from the other -- the things that are slowing down the business, how do you get comfortable with the fact that this is either a secular trend towards consumer.

Especially because retail, of all the different sectors, is probably the primary area where people are at least testing consumer devices like iPhones and other devices, as well of the Microsoft OS shift and how that's impacting this.

Is that perhaps what's causing some of these push outs as they're looking for the OS to get more stable?

How do you get comfortable with the difference between a secular trend and one that is just cyclical with Enterprise push outs?

So let me, Ehud, let me take the cost reduction one first.

I mentioned that we've already taken action that we think will result in annualized savings for $50 million on an annual run rate.

When I think of the larger areas that we've taken action in, they're largely in manufacturing capacity.

They're in supply chain and procurement.

They're in sales & marketing.

R&D is on the lower end of the reductions and the actions that we've taken.

So we remain committed to continue to lead and get a high return on invested capital of R&D spend, which I anticipate will be right around $1 billion again.

So I don't think we're impairing -- we're impugning any of our capacity from a new product and innovation standpoint, and we're not confused at all about that point.

Your second point about cyclical versus structural, I'll -- is in part jumping on Mark Moon's earlier answer to Simona.

We're engaged on some of these new expansion products.

We're very mindful of the engagements.

In fact, some of these pilots are customers that have rolled out or trialed consumer product.

And for a variety of reasons, whether it be voice, whether it be optimize voice, integration with Wi-Fi, post sales support, ruggedization in fact, they are reengaging us around the MC40.

So I still believe, and we still believe, that this compression in Enterprise is more cyclical than structural, because of the engagement and the direct discussions we have with customers.

To your point, I think Microsoft OS transition is a component.

They have the big reorganization just a few weeks ago.

They're reintroducing or modifying WinPhone 8. When they do that, typically, they then add the Enterprise version, in our case Windows Embedded Handheld, that trails that.

So that's OS, for Enterprise utilization for us, is a mid- 2014 phenomenon.

We do think that is a contributor, but we still believe it's largely cyclical versus structural, but we watch it very closely, Ehud.

So Ehud, on the tax side, if you remember, at the Analyst Day, I had talked -- or roughly orders of magnitude, talk about a $100 million benefit that we record in the second quarter.

It was $118 million.

It was a bit better than we expected, the full-year benefit I had quantified at approximate $300 million.

It will be a bit better than that for the full year.

And with that, we embedded that into the 10% to 13% effective tax rate that we will see for Q3 and for Q4, and that which we tightened the benefit from 10% to 15% that we had talked about at the Analyst Day.

Okay, so I guess I just had gotten it wrong before, the Analyst Day, so that's very helpful.

Can I speak on one more thing about the LTE funnel?

Greg, you had spoken in the past about $1 billion LTE funnel, and then some time ago, raised that to $1.5 billion LTE funnel, mainly driven by international.

Is that something that we can still look towards at some point?

Or is that -- has it gotten a little fuzzier with the recent changes in the LTE landscape?

Ehud, this is Mark.

I think the funnel size has really remained unchanged or actually would have increased slightly.

What has happened, though, is it continues to elongate -- actually traction so, you understand what's going on in North America, and I think as FirstNet continues to delay, we know about the delay.

We talked about this primarily being international, and I think the international engagements that we've had have been slower than we thought to bring to actual contract, which is why now we have pushed the revenue out of the year.

But funnel activity and engagement and really no competitive losses have really stayed intact.

Great.

Keith Housum, Northcoast Research.

Question for you on the Asian management change you guys discussed occurring earlier in the year.

How that progressing in Asia, (inaudible) the traction you're seeing in the Government space, in terms of trying to penetrate lower into the smaller regions.

And then, obviously, as it plays out into the WLAN business as well?

Perfect.

So, as we talked about earlier, and we've talked each quarter about Asia, I think the management transition and actually our restructuring in the region is progressing very well.

In fact, while we talked about Q1 the Government business was down further than we expected, we also commented that we expected it to improve each quarter as we went throughout the year, and for us to build backlog as we are going through the year.

That has indeed happened.

Our losses in second quarter are less than what they were in first quarter and, as we move to third quarter, they will continue to improve.

We are also exiting the quarter with more backlog, so the plan is in place and the team is doing well.

I'm also very pleased with the Enterprise traction that we're gaining as we move to our different geographic structure to get more attention.

So the Enterprise business in total is also improving throughout the region.

I think in the emerging markets that we talked about that we really wanted to get after, that will be more new order activity as we exit the year to build for future growth.

But again, I think we're making good traction and I'm pleased so far with the actions that have been taken.

Great.

And how does that parley into the WLAN business?

Is that recurring at all?

Because you obviously have had a few past quarters of some significantly down year-over-year comparisons?

This is Greg.

WLAN improved from last quarter, but it still declined.

It declined 5%.

And we know that's not satisfactory, especially given the fact that the industry as a whole is growing probably double-digit or low double-digit growth, so we continue to lose share there.

Now interestingly enough, we have some very nice opportunities and customer discussions that are going on right now.

Cautiously optimistic, and as I have said before, we're in transaction from WLAN as a product play to more of a services play.

And -- but we're closely monitoring the business, and we need to do better, and we know that.

Great.

Tim Long, BMO Capital Markets.

Two questions if I could.

Sorry about the voice.

First, on the margin expectations going forward, you talked a little bit about OpEx, just give us a little view on gross margin?

Do you see any potential for that contributing in the second half and as we look out into next year?

And then second, Greg, if I could, a longer-term question on LTE.

What is your view as these networks become more standardized networks?

What you think the impact would be on MSI's more device-related business?

Does it make it much more competitive, since it's a much more open type of technology?

I think -- I'll take the second one.

I think LTE in general is a favorable trend to our business.

On the voice side, we -- there's literally billions of dollars installed base for narrow band inter-operable voice.

It's built around a P25 standard.

You know the position that we have there in ASTRO and TETRA.

The idea in the US behind FirstNet is a very good one.

It dedicates spectrum in the 700 megahertz slice.

It designates an open standard of LTE, and it provides money.

So, historically in public safety, some of the gates have been spectrum, standards and funding.

And the legislation here in the US contemplates and largely solves for that.

I think what also will happen as these broadband networks get contemplated in the US and internationally, and specifically around public safety, preemption versus a carrier model of prioritization, control, group call, direct, redundancy, encryption.

I think those characteristics about inter-operable LTE broadband are generally favorable to us, because we have those -- that expertise, we have that domain expertise, and we can build an end-to-end LTE network of infrastructure, software and subscribers, to your point.

So we view it as a favorable trend, both domestically and internationally.

On the margin front, I'd say the expectation to be relatively stable.

The fourth quarter typically we do a bit better.

Shipments are typically higher.

You'll see a higher component, likely of products sales, as we talked about compression a bit in the Enterprise space, because product sales have been the majority of the decline.

As that returns, we will expect a little better.

And overall factory utilization being a bit higher fourth-quarter, you typically will see a bit higher in the fourth quarter as you traditionally would.

Throughout our core businesses in general, margin performance has been very good.

We're pleased with that.

We'll be down slightly year on year, but as we have mentioned in the past, that's primarily driven by Psion and iDEN.

So again, throughout the core portfolio, margins have held fairly consistent.

Okay.

Peter Misek, Jefferies.

The big question that we have is around the timing of the Enterprise product launches for the balance of the year.

Really want to help understand that.

I have difficulty, again, on the Q4 ramp, as many of my peers are, and really would appreciate that.

In terms of product launches, we've already launched, largely, the products that we're referencing.

The SB1 is launched, the multi-plane scanner is launched, the MC40 is launched, and the other discussions that -- some of which Mark has referenced are all with products that are already available.

So we're not betting on the come here.

And again, when you incorporate the flat to negative 3% for this quarter, and then you look at what growth needs to be in Q4, and we are typically a seasonally very, very strong Q4 business, it is -- contemplates a mid-single-digit growth rate.

Again, on Enterprise coming off of a negative 10% compare in Q3 and a negative 10% compare in Q4, so that's the foundation of logic that we have moving forward.

And if I may squeeze one in on the competitive landscape for LTE.

There's been some discussion that -- and I know you said generally you felt LTE was a tailwind for you folks.

There is a hypothesis out there that LTE actually removes some of your advantages.

Can you help us understand the key differentiators that you would have versus a Harris or Raytheon in the LTE deployment?

Maybe in and around the peer-to-peer technologies that you have, ruggedization, et cetera, just maybe a little bit of elaboration there?

I think that, respectively to our competitors, there's no one that has the R&D spend, the patent portfolio, the domain expertise, and the product portfolio that we have in LTE.

Remember, we started investing over three years ago in infrastructure, software and devices, whether it be USB dongle, a converged LEX 700, a vehicular modem and the like.

In addition to that, we have a strategic partnership with Ericsson worldwide, with eight years left.

So as you take the worldwide leader in public safety in Motorola Solutions, and the worldwide leader in commercial LTE in Ericsson, and we're optimizing our two product portfolios to be able to marry and merge and inter-operate between a private network and a public network and seamlessly roam accordingly, I think the distinction and differentiation is substantial.

And we expect to maintain or extend that competitive lead.

Okay.

I'd like to remind everyone the details outlining the highlighted items.

Our GAAP-to-non-GAAP T&L reconciliations and other financial information can be found on our MotorolaSolutions.com Investor Relations site.

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

As mentioned at the outset, during this call we have 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 related to the following topics, future sales growth, including by segment and product, future operating margins, EPS outlook, operating cash flow, the amount of other income and expense, future tax rates and tax payments, tax benefits to be realized as a result of a new Holding Company structure, impact of FX rates, share repurchase and dividends, recovery of our Enterprise business including timing and competitive pressure, management of our cost structure resulting in savings, the impact of narrow banding, the timing and impact of new products and solutions introductions, including OS developments and demand trends for our Business and products such as ASTRO, TETRA, LTE and WLAN.

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

Information about the factors that could cause, and in some cases have caused such differences, can be found in this morning's Press Release on pages 8 through 12 and item 1-A of our 2012 annual report on form 10-K and Motorola Solutions' other SEC filings.

Thanks again.

We look forward to speaking to you soon.

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