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Morningstar | Motorola Solutions Maintains Leadership in Public Safety

Motorola Solutions is the major supplier of land mobile radio, or LMR, technology for the public safety space, controlling more than 80% of the U.S. market. The firm has divested low-margin segments that were outside of the firm's core competency of emergency communications infrastructure and two-way radios while increasing investment in software and services, which helps make its competitive position more secure. The firm now generates attractive returns on invested capital and benefits from tight customer relationships and institutional knowledge of municipal and national governments, primarily in the U.S. but increasingly abroad. We see emergency equipment as a nondiscretionary expense for governments and believe that technological disruption typically moves slowly in the public sector because of the potentially high cost of failure. In total, we believe Motorola Solutions benefits from switching costs and intangible assets that should enable it to maintain its strong return on capital profile for the next decade and thus warrants a narrow-moat rating. Looking ahead, we still foresee governments investing in Motorola's services and software solutions as well as Project 25, or P25, radio systems and devices. Despite competition and threats of regulation, Motorola's devices are considered the standard within the emergency services world. We believe the firm can leverage this device dominance through its increasing suite of service offerings for public safety command centers, such as computer-aided dispatch and, increasingly, analytics, to be an even more integral component of the public safety landscape. We believe the eventual implementation of FirstNet and increased LTE adoption in the public safety market will be challenges for the firm, but we are not of the view that these threats will rapidly disrupt the Motorola's trajectory. The wheels of local and municipal governments move slowly and even if the technology becomes viable in the near term, we do not see technological comparability (or even superiority) as an imminent enough threat to supplant the firm's moat over the next decade. That said, we are watching LTE trials with great interest.