Dean Lindroth – IR
Greg Brown – Co-CEO, Motorola & CEO, Motorola Solutions
Gene Delaney – EVP, Product & Business Operations, Motorola Solutions
Mark Moon – SVP, Government and Commercial Markets, Motorola
Ed Fitzpatrick – SVP and CFO, Motorola
Eduardo Conrado – Chief Marketing Officer, Broadband Mobility Solutions, Motorola
Motorola, Inc. (MOT) Financial Analyst Meeting November 15, 2010 9:00 AM ET
Please welcome to the stage Dean Lindroth, Vice President of Investor Relations.
Good morning everyone. Welcome to Motorola Solutions 2010 Financial Analyst Conference. For those of us here in New York with us today, you’ll find on your table, agenda for today’s meeting as well as the copy of today’s slides. We’ve also provided a survey, we value your feedback and would appreciate you completing that at the end of today’s meeting. For those of you on our webcast, also welcome. We will be short break about mid-morning at which time we’ll put the webcast on music hold, so you don’t need to login again. An audio replay of today’s event and the accompanying slides will also be posted on our website later today or first thing tomorrow morning.
A number of forward-looking statements will be made during today’s presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola, and we can give no assurance that these expectations will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon representing our views as of any subsequent date. Forward-looking statements are subject to a variety of risks and uncertainties that could cause and in some cases have caused our results to differ materially.
You can consult these risks in our SEC filings. I hope you find today a very informative day. I’d like to now it turn it over to Greg Brown, CEO of Motorola Solutions. Greg?
Good morning and thank you for coming to the launch of Financial Analyst Meeting for Motorola Solutions. As you know we’ve been working pretty tirelessly for a long period of time towards separating the businesses. We announced it back in March of 2008. We didn’t think it would take this long but along the way we hit front and center one of the worst economic recessions in our time. So we have deferred but obviously continued along the path of separating Motorola into two businesses in Q1 of next year.
This morning we’re updating that, and now announcing that we are targeting separation for January, for some time in January of 2011. This is an exciting time for this business. I couldn’t be more pleased. We’ve got a leadership of both businesses. Mobility will be spun to the shareholders in January and as you remember the rational, they’re very different businesses. So one is Enterprise, one is consumer. Ours has solutions orientation. Mobility is more a device centric.
We’ve always believed and I’ve always believed that this bifurcation will unlock and unleash shareholder value. So the fact that it’s upon us and it’s happening in January is pretty exciting. It will afford both businesses increased strategic flexibility. For us in Motorola Solutions, appropriately sell, over the last few years, we’ve been redirecting capital towards the recovery and the turnaround of mobile devices. That was the right decision in terms of capital allocation and usage. Sanjay in Q3 announced a profit which is substantial, the first profit in 3.5 years you know the story on that end. Over 22 smartphones, great position, standardizing on Android, combining with the mobile – the connected home business for set-top box video. So it has great strength to launch as a consumer oriented organization.
Motorola Solutions is extremely well positioned. I think it gives us the opportunity to focus on this part of the portfolio with clarity, purpose and management focus. I think it’s also worth reminding you of a couple of things, Motorola Solutions, we are targeting to be solid investment grade at separation and also both companies will utilize the Motorola brand. Now Mobility will be the owner of the brand, but Motorola Solutions will have exclusivity, royalty free to the fields of use in Government, Public Safety, Military and the Enterprise which we think is very, very important.
I also point to you in terms of clarity and purpose, because I think that a lot of what we’re doing here, and I’ll talk about it in a minute with Eduardo Conrado, our Marketing Lead. This gives us renewed energy to define what Motorola Solutions is about. Both businesses will have the clarity and purpose to do the respective missions of what they’re set out to do. We in Motorola Solutions are defining what we call moments that matter. So on either side of the Enterprise, we are innovating to mobilize and connect people in critical moments that matter. It’s really truly a pretty exciting definition of the portfolio.
So what we’ll have post separation is an $8 billion company, worldwide leader in public safety, enterprise mobile computing, automated data capture, scanning, bar coding, RFDI. But it’s a business with a solutions orientation. It has an end-to-end set of characteristics where we are delivering infrastructure devices, software and vertically specific applications. So this isn’t a business that’s led by point transactions. It has the industrial grade, reliability, hardened characteristics for mission critical and business critical that distinguish and differentiate us in the portfolio and we’re clearly uniquely positioned and better positioned than anyone to pursue this.
If you take a look at the distribution of revenue, we will report in two segments, Government and Enterprise. Government will be about 65% of the revenue. Enterprise is 35%. I think the important thing to call out here is that there is growth in both segments. There will be growth in Government, robust growth and clearly robust growth in Enterprise as well. I think the other takeaway is that this is a global business that’s well diversified. We’ve had double-digit growth internationally in Q3, but most importantly it’s North America while it is our largest percentage of revenue. We also will see, and you’ll see some of the speakers reinforce the fact that North America represents an outstanding growth opportunity for us as well.
So as we move closer and closer towards separation, it’s that clarity of purpose. It’s the singularity and galvanization of all the associates of what we do. We have rolled this out, this marketing framework. This is not a tagline. This is the sole of what we do. This will permeate everything we do in our communications, in our customer engagements, in our discussions internally and externally and it is proven to be pretty inspirational with associates. It’s also universal in its appeal and international in scope. It says that in a crisis, in a moment that matters, with a critical shipment, or a critical transaction, it is the core of what Motorola Solutions does in situational awareness unparalleled reliability and delivery, uptime and when its needed, we are there in the moments that matter. Take a quick look at this and then I’ll reinforce more about what that means.
Just to reinforce and give you a quick compositive other examples both on the Government side and on the Enterprise side. We’re constructing these communications for internal consumption to rally associates around the world, but obviously they also tell the external real world story of what we did for customers. So you all are very familiar with miners in Chile and 33 guys, 69 days trapped, whatever it was, 3,000 feet below the ground and we had Motorola PRO professional and commercial 5150 radios that provided the critical response in moments that matter that allowed for successful evacuation and survivability there. Here this is just an example of our TETRA Network in Germany last year in G8.
Again unparalleled security requirement, mission critical availability and reliability, 170,000 conversations over a TETRA Networks for the G8 conference. And on the Enterprise side, again whether it’s a critical shipment, a package, a moment that matters to the enterprise to a retail customer, to logistics, to warehousing, we deliver that as well. So as we launch forward, and I think about the characteristics that make us successful and strong for a sustainable business financially going forward. We clearly have a Bluechip customer base. We are the number one market leader in virtually all of the remaining segments that we serve. We have worldwide scale. We will get into with presentations by Gene Delaney on the product and business operations side to give you a flavor of the width and breadth of the product portfolio that I think is unmatched in both Government and Enterprise and the areas that we compete.
The other thing to remember is that even though we take Motorola and there has been a lot that’s going on with the portfolio. And we’re spinning out Motorola Mobility and Motorola Solutions effectively launches today in our identity and characterization and then get separated in September. It’s the nucleus. It’s the core of Motorola Solutions that has often invented and or commercialized the products for what’s defined Motorola. Cellular was commercialized in Solutions. iDEN, P25 public safety, TETRA public safety, paging.
The point is that the core group of R&D people and the innovation and labs folks that are in Solutions at their very core have often defined technologies and/or launched their commercialized product that has defined multiple Motorola businesses and/or divisions that have been spawned from that point. I think you’re also going to find that we are in very attractive markets but even in the markets that we’re in, the addressable markets are expanding both core and growth and I’ll articulate what the differences between both, and we have many opportunities in front of us to pursue growth opportunities organically to drive top line and bottom line growth on the portfolio. And of course Ed Fitzpatrick will reinforce even more so the financial strength in the balance sheet that we expect to have at separation.
So you think of this, and this isn’t just a large install base. It’s international in scope. We’ve got 1,700 direct sales people worldwide, 25,000 indirect channel partners. The other important think is under Mark Moon, who you’ll hear from later this morning. We have taken the opportunity to integrate much of the go-to-market sales force and indirect channels. So whether it’s Government or Enterprise, there is opportunities for enhanced revenue synergies with both the Enterprise and the Government portfolio to be pumped through one go-to-market channel.
I think the other important takeaway here aside from the power of the go-to-market, we have an extensive relationship with value-added resellers, ISVs. So in addition to the power of the portfolio and the solutions that we have, they are being customized within these verticals, interconnecting to back-office functionality whether it be for Wal-Mart, or Home Depot or FedEx.
So it’s not just point product, it is hardware, software, applications and services customized through third-party partners and deployed vertically specific with software applications into the respective verticals. I think it’s also important to understand these aren’t point transaction relationships, these are multiyear client relationships. And while we have a great presence, the opportunity for deepening and expanding the relationships in the installed base of equipment that we have in terms of increased share of wallet, whether it be for a public safety installation, or a mobile computing or wireless LAN deployment for Home Depot, Gene Delaney and Mark Moon will highlight the opportunities that are in front of us to do that requisite expansion.
This is how we’ll look in terms of the scale and presence. We’ll have primary R&D in six countries, manufacturing in four, I would call primary manufacturing Reynosa, Mexico and Penang Malaysia, the US and Berlin, Germany are more assembly manufacturing. Employees in 65 countries, and a sales presence in over a 100 countries. This is not just a byproduct of separating the company. This is not just a residual of what we have. We worked three years to optimize and get to this structure. So if we were starting with a clean sheet of paper, would we look like this? Pretty much so yes. And we’ve taken the opportunities to optimize and rebalance manufacturing, integrate the supply chains of the respective organization, and also balance the engineering between high cost and low cost that takes advantages of the cost economies of low cost but also has the requirements around high cost in some of the higher value-add development that we do in the R&D engineering for public safety in the requisite engineering areas.
So we have in virtually every single category we lead and are number one. But while this is perhaps a little bit of a dizzying array of product, we don’t go to markets like this. So we have a portfolio of products that second to none in terms of width of breadth. But what we do with this through go-to-market is package and assemble solutions to our customers as opposed to individual transactions and again it reverses hardware, software apps and services. I think the other thing to mention is services represents a substantial opportunity for Motorola Solutions to grow. So we’ll take you through the product portfolio in Government and we’ll take you through the addressable markets in the product portfolio in Enterprise.
But we have a very strong services infrastructure today, and there are very logical extensions and adjacencies for us to pursue in the services area that I think make the business very attractive with very, very low risk for organic growth. From a technology standpoint, we will be a business with over 10,000 patents, either granted or pending. We have substantial leadership in standards development, whether it’s P25, TETRA, 802.11x, and other kinds of technologies, Motorola Solutions is actively involved and/or leading the standards development process.
So we have a strong IP core and we are driving the definition of standards in many of the markets that we serve. The other important part here is that as we move forward, we will always take the opportunity and have the ability to differentiate in what I would call standards plus and Gene Delaney is going to drilldown more specifically on this. So sometimes people get concerned and say, while in an open standard world, how do you avoid the commoditization of margins? How do you sustainably compete and win? What’s your source of differentiation? And the story behind what we do, that’s often misunderstood is even though we’re rolling out new product to open standards and of course, we’ll always follow and provide enhanced interoperability around open standards, there is two other things going on.
Customers want backward migration, inter-compatibility to their installed base. And we do a good job through the Bob Schaffer and Gene Delaney organization of customizing the feature functionality so it complies with the open standard, but also interconnects to the installed base from a backwards migration standpoint to maximize the return on invested capital that the customer has made with front investment in infrastructure. Going forward, the other opportunity we have is to follow the open standard but provide our secret SOX [ph] if you will, above and beyond that, what I would call standards plus to allow differentiation unparalleled feature functionality and performance around our portfolio that competitors find very difficult to replicate or match.
If we think about the addressable markets, we primarily play 95% roughly in the core today. So we have a great presence, we lead in the core, $13 billion business in 2010. But the newer growth markets are growing at a 15% compounded annual growth rate affectively virgin territory for what we believe Motorola Solutions can do and generate. So I think the takeaway here is a big core market, a growing core market where we lead. I think that the growth markets here actually are growing approximately 6% with the incorporation of iDEN for us in 2011 on the core which you know is declining, that core growth for us goes from 6% to about 4% to 5%.
It doesn’t change the dimensions that our longer term growth rates model is 5% to 8%. And the attractive areas not just in the core, but in the expansion areas are substantial. So even if you just looked at the core, again roughly 6% when you incorporate iDEN for us its somewhere between 4% and 5%, we’re refreshing the portfolio right now. We are rolled out and we continue to rollout multi-band new APEX radios. We continue to refresh the professional and commercial radio product line. You’ll see and what Gene Delaney talks about that – and this is non-public safety per se. The professional and commercial non-front radio business is overwhelmingly analog, I mean its dwarfed analog to digital, as all of those customers where we have sizable market share refresh from analog to digital, that’s a significant opportunity for us in the core, in the PCR business, that you’ll see how we size that market up over the next several years.
We also are expanding the TETRA portfolio. So we’re doing a number of things with R&D spend organically to get after that 6% core market growth. In addition to the core, when you step over to some of the growth areas, one of the most exciting things this business is doing is public safety LTE. So I think I often get a question about, are you well positioned in LTE, because you guys are selling off the networks business? Remember the networks wireless infrastructure business, we were 3% market share player. And Bruce Brda is here and he has done a fantastic job, fantastic job of getting economic return in cash, earnings, return on invested capital out of that position.
We made the decision to monetize that, and close that transaction targeted for early 2011 to Nokia-Siemens. That said, we remain in the infrastructure business. We remain in the public safety infrastructure business. So we’re delivering end-to-end public safety solutions. We made the decision two years ago to start investing in private broadband LTE or what I would call public safety LTE. We’re very well positioned. You’ve seen us reference the first award in the BayRICS, San Francisco area project.
Gene will show you that we have today over a $1 billion in the funnel for public safety LTE that is incrementally new business to Motorola Solutions. You’ll also see us in the Government context, new look to provide a companion device. So yes, we’ll upgrade the mission critical public safety and yes we’re equipping the infrastructure and the necessary investment areas for the provisioning of LTE over a public safety network, but that also says that public safety will need mobile broadband.
So you can see a companion or second device, that we think we can deliver very nicely and then have the interoperability encrypted Bluetooth between a first responder with a radio and a first responder with a second device. We’d like to deliver both that in Solutions, and provide the requisite encryption and security between the two. We don’t think anybody is well positioned as us to do that. And then lastly you’ll see us invest in integrated command and control. So that said, as we think about our Government customers from a business process standpoint, whether its 911 or dispatch centers, are we doing the kind of things that allow the interoperability between the command and control center as well as the dispatched first responders with both devices and integrated command and control, where this most appropriately is applicable as video, because video will grow substantially in importance, in full motion video led probably in the US with a 700 megahertz waivers in eventual deployment of the D Block.
This spectrum will be made available. We’re investing now, right now to drive this expansion – again this is growth beyond the core that we think we are setup nicely to pursue. In terms of the Enterprise, same thing. Enterprise has been growing in the core. Last quarter, we had 21% growth in our Enterprise business. Gene Delaney will articulate the way we think about the segmentation particularly as it relates to mobile computing. He’ll talk about a line worker, industrial grade. He’ll talk about a knowledge worker and he’ll talk about market expansion.
I think that we have substantial opportunities to continue to grow in the core, but you’ll also see us invest and expand on next generation mobile computing, on what we call integrated communications which capitalizes on our opportunity to deliver Wi-Fi devices or Wi-Fi – voice over wireless LAN where we’re combining the wireless LAN assets and then we’re also going to have a portfolio or radio products and Wi-Fi products interoperating regardless of the device and also from a manageability standpoint, to be able to manage the whole portfolio.
We have a very strong position in retail, but as stronger position as we have in mobile computing, RFID represents a substantial opportunity here. Mark Moon and I think Gene both will reinforce that RFID which is nascent, if you think about it from an inventory management asset tracking standpoint, the idea to deploy in a retail environment and then manage, read and provide the requisite analytics around RFID for compelling return on investment for our customer base, we think is very substantial. And RFID we have no interest in providing the commoditized passive tags, that’s not where the margin is. The margin is where you capture, read, assimilate and send back the real time information around inventory management so the customer can make the necessary decisions for inventory management.
Services you’ll hear more about. And while we do it traditionally today, again there is opportunities for us, this is – services I’d call in the core, but going beyond the core given the installed base that we have and the position we have with our customers. Could we do managed services? Network management, network optimization of private and public, hosted applications. And we just announced in advanced services organization within Motorola Solutions about a week ago and you’ll hear us talk more about that into next year, but services is a very good opportunity for us. And not to go directly against IBM Global Services or the big 800 pound gorillas, but instead to be surgical in the areas that we’re installed and get logical extensions and adjacencies where really nobody is doing it today. And extending our position to reinforce what we do.
So we clearly will have the product portfolio, the go-to-market resources, the channel operations, the relationships, the intellectual property portfolio, the necessary innovation in core, the global presence and scale. And again we’re targeting at separation to be solid investment grade. The business is a strong cash generator. When we look and deploy a $1 billion of R&D which is approximately the spend here in this business. We have a very strong, very strong return on invested capital. So as we think about other ways to grow this business organically or other, we look at the return on invested capital, we look at the operating margin and gross margin profile of what we do today and we want to strengthen it and/or extend it.
So we’re very well positioned from a strategic flexibility standpoint and we’ll have the ability and flexibility to make further decisions around capital allocation. As we move toward a more optimal capital allocation position, we will give full consideration for returning money to the shareholders including considerations for a dividends at some point in the future.
Lastly, I think that two last things for you to takeaway. We lead in virtually every business we play in today. Nobody has the width and breadth of product portfolio that we do and again it’s not just products, it’s the solutions orientation around hardware, software, apps and services. And in both Government and Enterprise, what we do has very compelling ROI characteristics which is why I think we’re able to withstand despite some of the headwinds in Government, we still grew Government 1.5% in Q3.
If you think about this business longer term, we see a growth rate – organic growth rate of 5% to 8%. Again for 2011, we see the core at 6%, you incorporate iDEN into that. So you’ll probably see a growth rate of somewhere between 4% and 5% in 2011 for us. And in OE longer term model of 16% to 18%. Now 16% to 18% is the target. Ed will talk about 16% comparable margins in ‘011. Now as we separate and prepare for separation there is a cost overhang of about 2% that we have begun to get after. So it will be worked that starts now or has started and over the next few quarters, will be completed so that we can deliver comparable OE margin of 16% in 2011. Having said that, we do have the goal of growing of the operating margin and expanding it. You should not take away from this slide that we see 18% as a cap [ph], I don’t.
It’s a model at this point in time. And we would never have the intention of stopping there and we think we will have absolute opportunities for extending and expanding beyond it. But that’s the model that we wanted to share with you today. The other thing that I’m really proud of is, this is a really good and this is not meant to be motherhood and apple pie. This is a team that’s been recruited, promoted very specifically to get to this moment of launching Motorola Solutions. Domain expertise, solid general management, fiscal discipline, international experience and diverse, everybody is here today. You’ll here there is four speakers, Gene Delaney will drilldown in product and business operations. Mark Moon, who runs worldwide field operations will also share with you his views on go-to-market, Eduardo Conrado will talk about the strategic branding framework and a strategic marketing framework around moments that matter, and Ed Fitzpatrick will drill down on the financials.
We’re going do as quicker pace through of individual speakers as we can. We’ll be back at the end for Q&A. Thanks for listening and most of all thanks for coming. We’re very excited about the competitive position of Motorola Solutions and what we can generate strategically and financially. And with that I’d like to turn it over to Gene Delaney. So thank you.
Good morning everyone. Nice to see all of you here and we really appreciate you taking the time to join us as we kick off the next chapter in Motorola and Motorola Solutions. You heard Greg talk a lot about the scope of the business from a Government and an Enterprise perspective and I’m going to play half of that. You also heard Greg talk about the core, which is the majority of the portfolio, but then where do – how can we take that core, how can we go beyond the core and I’m going to spend some time talking about that.
One thing I’d like you to keep in mind, because a lot of you have asked me in the past, how come other companies don’t penetrate this market the way you did? How come the competition haven’t been able to sustainably come after this market and nip away your leadership position, I want you remember that 1930 was when the Government allocated a few analog channels and said we are going to be specifically used for our public safety. Motorola at that time carved out a piece of our engineering group and said, I want you to focus totally on serving those frequencies that have been allocated for public safety. That was 1930. We introduced the first police car radio in 1931 that was never changed.
We have been committed into this market since it started. We have made investments since the 30s specifically tailored at this market. The same is through an enterprise. Since the day we invented scanning, we’ve never left the Enterprise space, we’ve never left retail. It’s now been expanded into transportation logistics. So Motorola Solutions in the Government and in the Enterprise, it is what we do and that’s we’d ever done. And the way that I’d like you to think about the portfolio, this is quite the – this almost looks like somebody told to a policemen there.
The way I’d like you to think about the portfolio, when you think about public safety and I’m going to take you through what we’re doing in the core and I’m going to take you through what we do beyond the core, what’s happening in broadband, integrated command and control so on and so forth. The way that we think about the solutions that we’re providing, the public safety and it starts from our market research into our product design into our product development is we have to make these solutions intuitive.
We have to make these solutions easy to use as technology transitions, we need to take the features, the functionalities that our first responders are used to because what we want, is we want our first responders always focusing on their mission. It’s our responsibility to focus on the technology and they should have the confidence in whatever incidence they’re responding to that the equipment will work, it will be intuitive as part of the fire fighting or policing activities that’s our responsibility, it’s something that we’ve done again back to the 30s and we continue to take forward as transition of technology occurs.
The same is happening in the Enterprise. More and more information is required in the Enterprise. If there is one thing that came out of the economic downturn in 2009, it’s virtually all of our enterprise customers are telling us that, I need to adopt technology. I need to get more information into the hands of my employees because I need them to make better decisions while they’re either stationary or mobile so that I can transform the organization, my enterprise.
Now that may sound like motherhood and apple pie, like Greg said about marketing thing. But when you think about, when I say transform the enterprise, I’m talking return on investment, talking same-store sales, I’m talking inventory turns. These are true financial metrics that our customers use to measure their business and to grow their business. That’s the way that we approach the portfolio. So let’s take a look at the portfolio. Greg just mentioned to you that the Government business and the Enterprise business is a 65/35 split, that’s how – this is how we’re going to be reporting the business. So let me give you a little color around that.
If I start on the Government side, you’ve got the device portfolio here. These are standards based, as Greg mentioned this is the new multi-band APEX 7000. This is our professional commercial radio business. This is our systems business and also within there is a services business. So if you think about modeling a little bit, the device side here it’s about 35%. The system side and the services would be the balance. If you looked on the Enterprise side, we have our advanced data capture products, our mobile computing products, and our wireless network products which include iDEN technology, okay?
So that’s the way it’s going to be reported from a product perspective. You’ll see Government and Enterprise. The one caveat I’d make is right there in the professional and commercial radios. These radios are actually sold across the landscape of our customer base globally. But they’re predominantly in the Government space and we believe it will be more reflective for your modeling if we just leave all the radio products in the Government portfolio there. So that’s how we’re going to report it.
The other key think to keep remembering is although they’re innovative products. It’s very much of an end-to-end solutions orientation across the portfolio. The other note I’d make is that many portfolios you have [inaudible], you have products that if you can get embedded then you can grow off of devices, you can grow off of software, that’s not the case in Motorola Solutions.
We have an excellent gross margin profile across this entire portfolio. Portfolio is also as Greg mentioned, we do services in the core, break fix predominantly here in the Enterprise space, installation optimization on the Government side of the business. Got lots of opportunities that go beyond the core with our service offering in the areas like hosted services, our optimizing networks especially as broadband comes out, security a big play both in terms of the Government as well as the Enterprise portfolio. So this portfolio is the core as Greg referred to it. Its 95% of the business right now, I’m going to take you through what are we doing with this core to continue to lead in this space and then where are we going to take it into the future.
So to think about the economy, there is nothing new here, you all know this. I think you also probably know that the two economic metrics you could use when you look at Motorola Solutions is around global GDP and IT spend. And you’ll see obviously 2009 a very difficult year. It’s very difficult year in North America which was the biggest part of Greg’s geographic breakout there. Very difficult on retail. But we did not lose our focus on the strategy of Motorola Solutions and we continued to invest because of the reasons that I’ve just mentioned of transforming in enterprise.
The priorities that are set even in difficult budget constraints that we’re seeing at the local level or state level. The priority remains public safety and we were confident that as the economy starts to come back and there is still some ways to go, that we would be on the front end of that turnaround and effect the device side of our business, that’s the radio portion that I showed you, the mobile computing, the advanced data capture and the RFID this year we’re up 17%. Greg also mentioned that this is not a phenomena were we’re growing in one region.
We’re actually growing in all regions. We saw double-digit growth in all regions on our device activities. Lot of this is sold through our indirect distribution channels that you’ll hear from Mark about. A million more units – just again to get – help to calibrate here, that’s about nine million devices for us, are significant numbers. We’re continuing to grow literally across the portfolio and we’re able to maintain our ASPs in our market share position, in some areas even grow the market share position.
So why is that that we’re able to come out of the decline of 2009 where our sales were off 13% and come back with the kind of growth levels that we have and it’s because we never stopped investing. We continued to invest at approximately $1 billion a year. In the good years 2008 certainly was, and then 2009 which had a lot of financial issues associated with it. We continued to invest. Things that I look at very closely is the R&D as a percent of sales, but more importantly is R&D as a percent of gross margin. If in fact, we’re making the right decisions, if in fact we understand this marketplace and we have the main expertise, we should be creating products that have value, and they should be valued by our customers. So I track that very closely.
Now Greg showed you the long-term goals on operation earnings. And again if you look at R&D as a percent of sales, you can see that 2008 a very good year, difficult year ‘09, we’re coming back in ‘010. I think there is room for leverage here for us. So as the top line grows, I think we have the compelling core portfolio. We have the investment and beyond the core that with some top line growth you’ll see flow through and we’ll go back closer to the 2008 percentage levels on R&D spend.
So what do we do with the R&D? I’m thinking the modeling things, so I always look at where does the gross margin portfolio, I’m going to show you that in a minute. How much do we spend in R&D? What is that as a percentage of gross margin? Within that R&D spend, what are doing with it? How much is going to maintenance and align? How much of it is going toward feature developments, refreshing the portfolio? How much of it is going toward innovation? And what I target Bob Sanders is to take – keep reducing the amount you’re spending on maintenance of the line if you will and move that up to refreshing the portfolio and innovation.
So although you see a pretty constant number of a $1 billion, the profile of what we’re doing with that money is changing. And we are innovating faster we ever have and we’re refreshing the portfolio faster we ever have and I’m going to show you that in a minute. I’ll show you this chart, because if you take some time and you go out and see what’s out in the booth [ph], all of these products that we brought the markets started, from where we committed to the innovation. And innovation if you look at our ES400 products, which has a new market segment I’m going to talk about later, what the innovation piece here is that we were more hardware centric in our Enterprise portfolio, we are now moving to having much more of a software orientation into this portfolio.
So this is an Enterprise user interface. And as I get to that part of that portfolio, you’re going to see that that now has been extended virtually across the portfolio. This is the APEX radio, we call it APEX Extreme, Greg mentioned the first multi-band radio was the 7000. This radio is specifically designed with firemen in mind, all right? If the voice of the customer a firemen, smaller grip but meeting the real estate on the top end screen on top that they can visually see very quickly and emergency button so and so forth.
In the middle obviously Bluetooth mission – critical Bluetooth. We do a lot of research in Government and Public Safety. We’ve done it for years and we’re fortunate enough that we have an employee base of researchers that really love doing it. So we have a lot of credibility inconsistency in the analysis of the market research. The market research says that in public safety first responders want two devices.
It’s what Greg alluded to. We refer to it as collaborative devices. In order to deliver on that, you can’t use a standard Bluetooth, it’s not secure enough. So Motorola through our investment and innovation created are mission critical highly secured Bluetooth connection which now allows those two devices to collaborate with one another in the field exactly what our first responders wanted.
And also you should note it’s a good proof point for those of you who have asked me in the past, when you bought Symbol Technologies where was the synergy? Where was the connection point? Now you can see, as we move forward, especially when broadband becomes deployed in a big way, it’s our expertise in mobile computing coupled with our expertise in mission critical radio that’s going to differentiate us in the marketplace. Talk about the other piece, the investing in innovation I just covered. What are we doing on feature functionality refreshing the portfolio?
We are refreshing our portfolio at a faster pace than anytime I can remember at Motorola. And I’ve been at Motorola in also a long time. We are refreshing the portfolio across the board. So when you think about that pie chart, that I showed you. We have pretty much refreshed the whole professional and commercial radio portfolio in all tiers, now some of those products haven’t hit commercial market yet, but they will in 2011. We’ve refreshed our P25 radios, I just showed you that on the APEX radio. We continue to make the investments on the network side. And I’m going to show you what we’re doing in mobile computing. Same thing in our wireless LAN, are virtually our whole portfolio is 802.11n now.
We’ve made investments in security so on and so forth. There is no part of that core that I just showed you and Greg showed you that we have not materially upgraded and refreshed the portfolio. So we have a very structured strong core as we move out as Motorola Solutions as an independent company. More importantly though, is that it’s been valued. It’s one thing for all of us to be proud of our portfolio and our innovation and I’ll quick coming to market. But what’s really important is the marketplace value in it.
Our gross margins you can see, we held gross margins over the three year period. Our average selling price across our portfolio at held, still very encouraging that number one, we’re spending a significant amount on research and development but we’re doing it in a smart way.
We’re doing it with a focus on our customers. We’re doing it faster than we’ve ever done it, and we’re hitting the mark. And it’s proving out in the gross margins that we’re receiving in our products. So let me take you through the core and what did we do as far as refreshing the portfolio, and where are we taking this core portfolio over the next several years. First of all as I just said, we’re starting Motorola Solutions from a position to strength. Greg mentioned we’re number one in virtually all of the product lines, we’re number one in all of the theaters [ph] around the world.
We have a very strong portfolio that we’re going to continue to strengthen and then after I talk about the core I’m going to take you through where we’re going beyond the core. So let’s look at this whole motion of standard based systems. Greg mentioned this. He called it standard plus. Remember how long we’ve been in this market? Although we are very, very committed and always will be to open standard based technologies. We have a trusted partner relationship with our customers.
We spend a lot of times at the working level of all of our customers in public safety. We take the standards and we add features because police departments are run differently around the world. There is not a cookie cutter approach. The same is with fire fighting. There is unique operational needs of our customers and we embed those into our software. Not only that as Greg was alluding to, we take that with us going forward. So when people ask me about compatibility, if things are compatible then another competitor can come in and match it, well they can at a standards level. But if you haven’t been in this market as long as we have, if you’re not investing a $1 billion a year into this business. If you’re not adding the feature functionality that differentiates you and is valued by your customers, then you can’t just come in and have backward compatibility.
And it’s the same holds true on forward migration. So when I get to beyond the core, I talk about next generation public safety. I want you to remember this. Once you remember the 500 plus really being conservative on the 500, over and above this standards, and our commitment in this marketplace that we take all of this with us, once you remember that point. The second area on the pie chart and the point was professional commercial radios. Greg alluded to this. The majority of professional and commercial radios is walkie-talkies as we refer to them or analog.
We are just now really starting to ship digital radios into this space. When you go out into the booths [ph] you’ll see our analog portfolio as well as MotoTURBO in the corner there which is the digital offering in the professional commercial radio market. So this business some of you maybe want to – how many push-to-talk radios can you sell into the commercial market, and we’ve had a great history of year-in and year-out having very good growth in this marketplace. What’s happening now on top of first users of push-to-talk, first users of radio is the transition processes beginning of those estimated 40 million analog users that are in the marketplace that are starting to convert to digital. Why are they converting to digital? Better sound quality, better voice, better capacity, more out of TDMA system than an analog system.
Security is important to others, data applications. So when I said the 500 plus standards and I was talking about P25 in particular there, we do that. That’s our software. We write that software. In the professional and commercial radio business, as we convert to digital, we will be using application partners. ISVs to write those software. That’s a new market for us. As successful as we’ve been in the professional commercial radio, we basically sell radios.
Now we’re going to be in a position where we can sell these radios and then begin the process of software selling. It’s a new revenue stream for us and a very important part of our market. So this business has got a lot of legs to it. And it has a lot of transition yet from analog to digital that will go for many, many years as you can see. Let me talk about mobile computing now. So those are the two key parts of the core that I wanted to cover in the time that I have allocated here.
Let me talk about the Enterprise side on mobile computing. We look at the mobile computing portfolio now in three areas, the line worker, the knowledge worker, and market expansion. When you think about the past in Enterprise, we for predominantly right here line workers. This was all about cost reductions, operational efficiency, ruggedness, scanning, but as the Enterprise continues to evolve and technology continues to be adopted on many, many ways. We need to expand our portfolio and now we’re looking into line workers which is again still has a ruggedness to it but its more focused around serving customers. Its top line growth if you will.
And you’re going to see some more products introduced into this space throughout 2011 and 2012. The interesting part on the market expansion piece is you see the ES400 and you’ll see it out there, I get the question a lot, why doesn’t somebody just use an iPhone? Why wouldn’t a smartphone just attack this market? What we’ve done in market expansion is number one, we’ve targeted a customer, an enterprise customer that quite frankly won’t really serving that well because we are mostly in that line worker area, at the top of the chart.
These workers are field sales force, field service force. They’re out, they’re mobile. They’re with customers. They’re doing service calls. They need to have access back to the enterprise specific applications. They need to be making decisions in completing tasks out in the field. What we’ve done in this group is we’ve taken what people have liked about the consumer world of size, of the screen size, the weight to look, to feel, but we’ve bridged that over to what’s really required in an enterprise. And what’s required in an enterprise is that device [ph] less.
The total cost of ownership is at the top of the list when the decision is being made by a CIO. That it runs the operating system of the enterprise. That is has security. All of the features and functionalities required by a CIO in running an enterprise we have bridged that with a consumer look and feel and this product which just started rolling out this quarter is ramping up faster than any product that I remember in our mobile computing portfolio.
The value tier, the lower end of the mobile computing portfolio. Another piece of the portfolio that we never touched. We really stayed at the higher end and as I said the line worker. Lots of activity around introducing new mobile computing products in that space as well. And I’ll just mention one another product in this space of market expansion. We refer to it as task-specific devices. It’s with really great customer, and our largest grocery chains in Europe. We get together frequently. He has a standard goal. He has to cut operating cost 4% a year, year-in and year-out.
So he always kids me that he likes to get the other Motorola because we work these things out and with the deployment of the technologies, he is well on his way to meeting his goals. But as we talked about, what we’re doing in mobile computing, what we’re doing in wireless LAN, what the future holds in video and things like that. He said – I have a lot of employees across all my stores in Europe. Most of them are grocery clerks. But I need them to do specific tasks.
And the way he referred to it as much as I love all your technology and I want it, there is a case where I want a little technology for a lot of people. And we refer to that as a task-specific devices and we’re partnering with him to get more devices into the hands of the retail employees so that again, better information, better decisions and you start to transform the organization. So the last category there a market expansion. You should think of that if you relay it back to what Greg just said, this is beyond the core for us.
These are market segments that we have not addressed in the past. So that’s what I have time to cover in the core. What we’re doing to refresh that core both on the Government side and the Enterprise side. But now I want to spend next couple of minutes talking about beyond the core. And I’ll go back and talk about public safety first. And I’d like you to hang in there with me on this chart. We debate this chart all the time inside the company as what is this thing. Is it solar system, is it a molecule or what it is but just hang in there and I’m going to explain it to you.
Our customers in public safety had made a significant investment already in communication systems. That needs to be protected. It needs to be leveraged and you need to grow it. That’s what mission critical voice is. Its what’s most important to a first responder and it always will be the most important thing to a first responder. So what is it? Because I always get asked this question, why don’t they just go on the cellular system? When broadband comes on why you don’t just jump on the LTE commercial system? So what is mission critical voice?
You need to think about mission critical voice as push-to-talk with very, very fast setup times. Very low audio delays. This is critical communication. You need to think about mission critical voice as group calls. And that group call could be all of us in this room and we could be geographically dispersed across the state of New York or quite frankly the whole United States or it could be this table right here in a very dense area responding to an incident.
They need to get their push-to-talk message simultaneously without delays. That’s mission critical voice. Mission critical voice is end-to-end encryption. Its security. Mission critical voice is prioritizing people on the system, so that even when the system is overloaded, this specific people identified get access to the network. Mission critical voice is about direct mode operations. We call it talk around. The ability to take a P25 radio for example, another P25 radio and talk to each other without the use of the network.
Something that would never happen in a commercial system, you always have to go back to the intelligence because the intelligence is in the network. Mission critical voice is radio to radio. All of the things that I just listed out are just being discussed now as part of an LTE rollout. Where will be prioritized? Personally I think it will probably on the lower end because of the opportunities are so great in the commercial area for a commercial operator. So when you think about where do you go beyond the core? Remember the big differentiator is the core. It’s what we’ve done in mission critical voice and the reason why this is so important as you think about Motorola Solutions, is if we’re going to be the company, that can pull all of these solutions together we got to add scale as Greg just showed you, we got to make investments that are very targeted as I just showed you and you have to have the footprint.
You have to be this mission critical voice and you know what our footprint position is. So let me just quickly go around this chart and then I’m going to spend couple of minutes on LTE, because I know it’s top of mine. These solutions which were created pretty much independently and again based a lot on the voice of the customer and partnerships that we’ve had with other companies, we’ve done a lot of work in things like integrated command and control that Greg has already alluded to. Video security, another area where we have a lot of activity, a lot of deployments going on.
What’s important here is that all of our customers around the world are not at the same place. They don’t have the same priorities. They don’t have the same budgets and they have to time these activities as they continue to take advantage of technology innovation and serving the public safety needs. So we have a mission critical voice system in Nashville, Tennessee. Nashville decided to upgrade their integrated command and control knowing that as a next step if they were to upgrade their video solutions, we are the company that’s going to tie all those together and give it that intuitive feel that I showed you on the first chart so that they’re focusing on their mission. We’re doing the technology piece.
City of Chicago is expanding their video security system. They chose Motorola. They use our mission critical voice. Abu Dhabi to give you an example outside of the US, full countrywide video deployment with Motorola. They also use our mission critical voice. So it’s our presence, it’s our trusted partner relationship that allows us to sit with a customer, start here and take him in whatever direction is the priority for that customer. So remember what I said about the important to mission critical voice and I really want you to remember what it is, because there is a lots of dialog in the marketplace about you can do just do voice on an LTE network, its different and I’ve already explained you why.
So that’s why this connection point here. This mobile broadband mission critical voice is so important because our first responders think about what I just said about the intuitive nature of our solutions. It has to be part of how they police, how they fight fires, so on and so forth. So lots of activity going on in this area, that I’m going to share with you. So I’m going to spend the next couple of charts on this piece of beyond the core.
Why would you need to? Hopefully driven home the point about how long we’ve been doing this and how much investments we have in our commitment to our customers to go backward as well as forward from a migration perspective. Our approach in LTE is that what public safety needs for Motorola is they need us to continue to understand the needs of public safety and embedded in the core. So when I referred back to that standards plus, the 500 plus, plus features from the standards and I said I wanted to remember that, that’s what I’m talking about in here.
We internally at Motorola are developing the LTE solution that incorporates the mission critical voice as well as the uniqueness and the priorities of public safety. We purposely did not develop a Node B. The LTE access point, why? Because we don’t have a distinctive competence there, that isn’t where we Motorola, could differentiate our offering within our own engineering ranks and prioritize our R&D spend. So what we did was we said let’s stay agnostic to the Node B which is essentially the pie. And as Greg said, we’ve been investing and developing this for a three years plus now.
And over that time, we created a partnership with Ericsson. So Ericsson will be providing this piece of our solution which is essentially the Node B. And what I really like about the partnership with Ericsson, I meet with them frequently is they said we want to be in public safety, but we don’t have the legacy to know how to really penetrate that market so I want to partner with the market leader and together go into serving this space. Very similar for us.
We didn’t have the expertise and a competency in Node B within Motorola Solutions. So we said we want to partner with the world leader who has got volume, who has got scale, who has got a leadership position in the roadmap of LTE and has the right cost points. So this is the perfect partnership as we start to rollout our unique public safety LTE system. So in the core, think about the push-to-talk and that’s a really tough stuff. It took us many, many years to figure it out but we perfected the push-to-talk activity. Think about quality of service. Think about the ability to be in a private public safety system and then roam into a public system and then come back. And all of the issues associated with provisioning a subscriber.
We take care of all of that up here, all right? And then we also provide the devices. So that’s what makes that’s why a public safety LTE system is different than a commercial LTE system. And I really like our strategy, I really like the amount of investment we have in here. I love our partnerships and again we are taking an end-to-end view. For those of you that have followed technology for a long time, one of the biggest issues in technologies that your favorite one whether it was TDMA, CDMA, UMTS, EVDO, was on the device side.
The infrastructure was there, the devices always followed. We are making the investments right now on both sides of the equation and the reason why we believe strongly we will have a robust device portfolio is because not only we’re going to leverage our radio experience, we’re leveraging our enterprise experience in mobile computing. So I want to show you an example of what do I mean by quality of service. And the example I’m going to use is when you think about a public Wi-Fi system. And you go onto that system. If you happen to be the only on there, a few other guys speed is pretty good. The speed is fast, you’re downloading quickly.
As more and more users get on that system, it starts to slowdown. What we do in a public safety system through the command and control center is we identify where the incident is and we dedicate spectrum for that incident and I’m going to show you in this case video. So here is the difference between Motorola system with the quality of service and a public system that doesn’t have the quality of service. And you can see the clarity, you can see the situational awareness is enhanced by again this is just one example of how we do differently and what would happen on a commercial LTE system.
So what’s happening in the marketplace? Lots of activity. Greg alluded to this, there is a $1 billion funnel for healthy projects. We won the first project as Greg mentioned in BayRICS. If you were to look at the customers that filed for waivers with SEC to deploy LTE, if you look at the list of people that received BTOP funding, I think Mark Moon will address the funding issues, you would see a long list of Motorola customers. People that we have been together with for years and years and years. People that we started with right here that now are going to continue to partner with going in that direction.
So I’m very bullish on our broadband offering. We made early investments, we made the right investments, we’ve got the right partnerships, we’ve got an end-to-end orientation in what we’re bringing into the market. From a modeling prospectus, I would think of 2011 as a lot of trial activities, lots of trial activities. Some revenue recognition, but I wouldn’t look for material revenue from broadband until ‘012 possibly ‘013. There is still issues associated with allocation of frequencies. All the funding has to get aligned things like that but that’s kind of how I would be thinking about it and that’s over the timeframe.
So let me take you through very quickly what’s happening on the next generation enterprise. And the theory is pretty much the same. You’ve got a lot of technology that Motorola has invested and a lot of solutions that we have bought to market, but as the Enterprise adopts technology, they’re looking for companies like Motorola to help pull it altogether. I’ve already talked about the advanced devices. What we’re doing in the line area, what we’re doing in knowledge workers and how we’re expanding into new wallets if you will with mobile workers, low tier task-specific type devices.
I’m going to go fairly quickly here because I’m running out of time. I’m only going to touch the next two items for you and try to use those to wrap in. What’s happening in the Enterprise space that we can take our core and we can go beyond the core? Enhance information, ROI from RFID, Greg mentioned this.
RFID is a technology that many, many companies invested in pretty heavily. We were one of them. The issue with RFID is what problem are you solving? It was great technology, compelling technology and people knew it had a place that world love it. And we spent the last really two years streamlining our investment in RFID but identifying a problem to solve in the enterprise and not just throwing technology at an enterprise and the area that we focused on was a line item inventory, high end apparel. You probably read in the Wall Street Journal that we partnered closely with Wal-Mart. We deployed it in the United States specifically around jeans.
We have trials with virtually of the major apparel retailers testing out RFID in their environment. And what’s coming back is pretty darn compelling. So remember when I said that we want to transform the enterprise with our solutions. This is what I meant, its financial transformation. And you see, increase in sales but number one issue in retail is when a consumer walks in a store and what they want isn’t on the shelf because they don’t wait around to find out.
And you’d be surprised because how much lost sales there are because the blue shirt you wanted was in the back room instead on the shelf. Through RFID we are increasing same-store sales, through RFID what used to take six people, six hours to inventory a store, now takes two people, a couple of hours. Huge productivity increases and of course as you would expect inventory turns improvement. So Greg said correctly, in a $8 billion this isn’t going to move the needle right now. But clearly it’s on a path of growth. Clearly, it's on path of solving its technologies, that solve the problem and when that happens the CAGR is pretty compelling.
So I’d keep an eye on this space. The next item that I want to talk about quickly here is this integrated command, integrated communications, excuse me. Think about the enterprise. We’ve got customers telling us, I need more information. I need the information in the hands of my employees so that they can make decisions. And those employees are out in the field, out with the customer. They’re also mobile as they’re walking the isles of a store.
You have a lot of activity going on within the four walls to manage those devices. And Motorola has made the investments in bringing our voice expertise from Government over into the Enterprise space with a portfolio called the team portfolio that some of you may have heard about. So I’m going to quickly show you what is happening in the enterprise for Motorola Solutions. In the past our conversations with a retailer were really around devices. What is the issue you have with your employees? We’ve probably got the mobile computing device that will fit your needs, how many do you want? And we’d sell a handful of them per store.
But as we now expand our solution set and we bring radio interoperability into the four walls of an enterprise. Now the mobile computer can talk to a radio, push-to-talk communications is now been expanded. Obviously in most cases that’s a Motorola radio, but it doesn’t have to be. We can talk to a competitive products in the rare instances if that happens. And it also gives us an opportunity to up-sell or to trade out those radio.
We’ve got the wireless LAN that we’ve deployed in an network so we bring voice over wireless LAN into the enterprise. The whole different conversation now we’re having with a CIO instead of actually the CIO probably wasn’t all that involved in how many more computers you want. They are involved in this conversation. And again we want that to be our wireless LAN and in the spaces where we play retail, transportation logistics, it is. But we are agnostic on the wireless LAN, it can be a competitive product, but we have a portfolio and you’ll see it out there of this product here that does voice over the wireless LAN.
It also does push-to-talk. It also runs Microsoft operating system. It also scans. So very high productive tool that’s running off the wireless LAN because some of our customers say I want my employees to be able to make calls but I don’t want them to go calling outside of the store area. So I only wanted on wireless LAN. So you can see, how we’re continuing to build the team badge gets back to this task-specific. A little technology for a lot of people, having the ability to have a badge in your hotel [ph] is push-to-talk. Another opportunity for us to sell more and more of our core products than we currently have today. And aspirationally we go all the way out and you’ll see a piece of this if you stop by the product demos. Where we can go all the way out to the branch office and now we’re doing the wireless LAN, we’re doing the voice, the radio interoperability, we’re doing security.
We got a full array of devices that offer the enterprise, and you can see from a world where there were basically how many do you want, the conversation has now turn to how do we increase productivity, how do we get more information in the hands of your users, how can we be the end-to-end provider? So the whole dialog, the whole relationship in enterprise has significantly been enhanced over the last 18 months or so as we started to rollout this portfolio. Mark is going to address this more later.
So I’ve completely used way more time than I think I was allocated. But I want you to remember these takeaways. Its committed, disciplined, objective, voice of the customer driven R&D investment that we’re making in Motorola Solutions. It is what differentiates us. It is what creates the stickiness. It is what creates the migration to the future. This portfolio we have is solid. It’s never been so solid, in all tiers, in all products. So we’re going from a position of strength that we can now take beyond the core and I believe we’re very well positioned in areas like public safety LTE, integrated command and control, video solutions and of course the whole enterprise mobility area that I just covered quickly.
So thank you for listening to me. I hope it makes sense, our commitment to this Motorola Solutions portfolio and customer segment. And I’m going to turn the microphone over to Mark Moon who runs our worldwide field operations and he is going to take you through what does this really mean from the perspective of a customer. Mark?
Okay, good morning. As it always is this product and operations guy takes all the time from this sales guy. But really Gene just told a wonderful story that makes the sales guys excited. If I can tell you I’ve been in this business 25 years and I’m very proud of what we’ve accomplished, what we’ve done for our customers. But I can honestly say I’ve been never been more excited than where we are right now.
When you stop and think and I always brag about I have a wonderful role because me and my team get the opportunity to number one or the honor to represent Motorola Solutions at the face to our customers, but we also have the responsibility to execute on our promise to our customers. And I feel very confident that we’ll indeed do that, in fact when you think about our customer base, when you think about what we really do, Greg kicked it all early but we really do help our customer be their best and moments that matter.
And we have a wonderful base of customers. Over a 100,000 customers. So while Greg talked about Bluechip customers which we have and we’re proud of, we survive customers. We have a very diverse platform of customers. We also serve customers in over a 100 countries. And the reality is we talked – Greg talked about it, Gene talked about it, but the 80 plus years of relationships domain expertise puts us in a very unique position with our customers.
The other reason I felt strong is that we really have reached, reached unmatched in this industry. Greg mentioned the numbers but 1,700 direct sales people no one else in this industry has that. Over 6,000 field people as the face to the customer. We have relationships and I would even call them partnerships with customers that extends 50 plus years when you think about right here with LAPD right in this city NYPD or FDNY, relationships that have gone decades and decades. We understand their operations and they understand Motorola.
So we can customize our solutions for those customers. We also have unmatched knowledge and I’m proud of that from the teams. So their main expertise is very important. I often say it’s important for us to know our portfolio and you just witnessed its very broad and it’s very difficult because we have a true end-to-end portfolio. But what is even more important is that we understand our customer operations. We understand what they do every day. We understand what their competitors are doing to me and we understand how to make their jobs better through technology.
We also are able to extend our reach with 25,000 partners around the world and those 25,000 you can think of have multiple feats in the street if you will representing those businesses. So it’s an extension of distributors, resellers, value-added resellers, ISVs. It’s a huge network in an ecosystem of which as Greg mentioned briefly re-branded under one channel partner program called Partner Empower to really bring all these partners together and to incent and reward the types of behaviors that we want to be successful. Vertical market expertise, technology expertise, investment in verticals and technology expertise, loyalty to this business and to our customers.
We’ve created a really strong bond and a stickiness that really attaches if you will those partners to us and I think a lot of us deserve our customers better. We also have a wonderful position in the marketplace. It sounds cloche but I really do believe Greg talked about and I talked about. We have the right customers and I’m going to talk more about what I mean about the right customers. We also happen to be serving the right markets. And as Gene talked about we have the right solutions.
It really is a good time for us and while we talk about a lot of things that are going on and a lot of things that are happening in the economy which I’ll speak to a little bit more, we really truly have the right solutions at the right time. I won’t spend a lot of time on this but Greg talked about our markets if you will and the growth. We talked about our core and he kind of highlighted 6% and 4% to 5% with iDEN in our core. Gene talked about the products that are in the core. We highlighted the growth of products if you will in growth markets and where we are.
The thing that makes me even more excited is when you look at this picture this way, and you talk about growth in the regions. For the last several years when we’d been in front of you or Gene or I had spoken to you, we talked about we really need to grow international markets. We’ve got a huge as you saw 58% of our business is in North America. We need to get more growth out of international market. And in deed we’ve done that in fact over the last couple of years, we’ve grown Latin America, Asia, and certainly Middle East and Africa double-digits. And as we look going forward, we plan to continue to do that, to grow each of those markets double-digits.
The interesting change in this chart though is, when you look at North America. North America is also a growth market and that’s powerful for us. When you think about 58% of our presence being in North America and it’s not that we got to get growth outside of North America. When you look at the markets where we’re not serving, Gene just spend a lot of time talking about private LTE and what that means to public safety.
We’ve talked a lot about advanced services in the growth markets. We have an opportunity to truly continue to grow the North American market. And I think that’s important as well as growing internationally. So I’ll talk more about that and why I believe that as we go forward. Our strategy for continued growth is really very simple. If we take and leverage and grow our installed base which we will do and again I don’t want to minimize that I’m going to talk more about that in a second but the fact of our presence here the market share that we enjoy, Greg talked about number one, in virtually every market we serve, the fact that we had footprint, the fact that we had that relationship is very powerful for us to grow from that point.
And then we also have the ability as we just said to extend within these customers and add new customers because now we have next generation technologies that we didn’t have to offer before. So let’s start, and what I’m going to try to do is a little bit like Gene did, I want to talk a little bit about governments first, and then I want to talk about the Enterprise market.
And first I’d like to set the table to say governments are continuing to buy. And I want to talk about why that is because we’ve all read a lot in the papers, or we’ve heard things or you know things that says well I’m not sure governments really going to buy. So I’d like to offer you a couple of reasons of why I’d say they are still buying and quite honestly the proof is just in the putting, if you will with what’s been done.
Greg mentioned that we grew 1% last quarter. We’ll grow 4% to 5% for the year in the Government space. They’re continuing to buy despite what we read. And if you think about it, safety and security is still a top of mind issues. Certainly as we approach the 10 year anniversary of 9/11. It may not be as top of mind as it was right after that but it only takes one quick second like a couple of weeks ago when we had the package instant with UPS to remind us how important it is to have the tools and the ability to have situational awareness to prevent that.
And quite honestly it’s not just about terrorism that keeps that concern. All the citizens, all of us in this room are concerned about problems [ph]. We’re concerned about what’s going on. And the law enforcement around the US and around the world are equally concerned because they’re asking how can we do things differently as we go forward and I’ll come back to that in just a second with what we mean. There is also strong flow through of funds with stimulus, not just in North America and that’s very strong but in China, in the European Union. Several places are stimulating the economy and we happen to be a benefit factor of those stimulus funds that R&D flow into our customers.
There’s also some mandates that’s impacting the fact that governments can grow, there is a need to grow and then they must grow. We talked about the broadband issue, we talked about spectrum available, there’s been a lot of talk about the Public Safety Spectrum Trust in 700 megahertz for broadband that’s been allocated. There’s been a lot of talk around [inaudible] which maybe more spectrum that will be allocated or auctioned. There’s a lot of carriers going in and our relationship that we’ve talked about with the public, private partnership as we go forward will allow us the ability to leverage that broadband growth.
There’s also as Gene talked about the SEC mandate for narrow banding and the issue around the 2013 or moving from, if you will, analog to digital. That’s a phenomenon that as you just saw the chart will generate the reason and the need to continue by. The economics and just the shear push, again as we talk about what’s happened around 9/11, to say we’ve got to interoperate together, we’ve got to share networks, we need to form regional networks or statewide networks, we need to partner better. And going back to our footprint, gives us a good position there.
And then, finally, there is clearly the need in government for productivity enhancement. Gene mentioned ROI when we talk about the Enterprise, I’m going to talk more about return on investment, but there is a return on investment in Government. Let’s be very clear that they’re asking governments to be more efficient and effective. One of the leading Police Chiefs at a recent Policing Summit in Washington DC made a comment that’s said, “For the last several years, we’ve been asked to do more with less. The fact of the matter is we’re being mandated right now to be better with less. We have to, officers are going down, the counts of [inaudible], the counts of firefighters. There is only one way to really be more effective and be better and that’s the use of technology.” That is exactly the market that Motorola serves today. And we can be the benefactor of allowing our customers to be better with less.
So if you believe that, and hopefully you do, and hopefully it’s not just the sales, which we believe, “Okay, customers are buying more. I get it. They want to buy. There is a need, there is a desire, but I’m worried can they simply afford it. Is there money to buy?” And when you think about that, I’d like to talk about just a couple of areas of what does that mean, how are governments or how do governments fund what they do with us?
First, there is a traditional funding method. It’s really tax based, revenue based, income taxes, sales taxes, property taxes, and let’s be honest we all know those revenues are down. But I would also remind you that even when they’re down the customers we serve unlike other folks that talk about public sector, when we really talk about government or the public sector, we’re really talking about public safety. That is the predominant cheese of the business we do in our Government sector, and that’s at the top of the food chain. That’s where the dollars are getting spent.
We’ve demonstrated year after year during tough recessionary times that Government business has stayed resilient. And, by the way, during boom times, it doesn’t necessary boom as fast either. Governments do other things like build roads or build schools or patch roads. So it is a resilient business and that piece of a business is indeed down. But there is other pieces of the businesses as well. And these things really are attractive to what we do and why I feel good about our continued growth in Government. In fact, I talked about what we’re going to do this year. I would say we’re going to grow Government again next year. I feel very confident that Government business will continue to grow on the trajectory that we established earlier.
But the special assessments, if you go and think about special assessments for a second, there’s things like 911 usage fee. While landlines are going down in most places, mobile lines are going up. So those fees or assessments are going up. That’s more of a revenue based to spend and be directed on communications projects usually designed specifically around public safety needs. There’s also special project funding and we’re still seeing bonding and other things designed specifically targeted at the projects that we’re going after.
There’s also Federal grants that continue to be very strong. We talked briefly stimulus and the Recovery Act, there is also the Broadband Technologies Opportunity Program, the BTOP program, Gene mentioned it. But over $250 million recently granted into agencies that quite honestly just like the Bay Area or just like LAPD, just like the State of Mississippi customers that we serve today.
Other programs, DoJ, Edward Byrne grants program, COPS programs, the HS Interoperability programs, NTIA Interoperability programs, there is a lots of government funding out there. And one of the things I’m excited about is we don’t just wait for the funding to happen. Quite honestly, we have a team of experts that’s been working for years to understand our customer needs, communicate those needs in Washington, understand back the other way how you leverage getting that grant funding, so we can get funding to our customers.
I’d say they’re probably – at the end of the day, we’ve got some of the top funding experts. In fact, people that have led the funding programs for the last several years in Washington, Domingo Herraiz who led the Bureau of Justice Assistance for DoJ, Carl Peed who led the COPS program, Dave Paulison who was the Director of FEMA working with Motorola. And what I pass them to do was just say help get money to customers. Do the job that you always wanted to do, getting more money to help first responders do their job.
We’ll do our job with making sure Motorola gets that money at the end of the day. We’ve proven year after year and our market share reflects it that if customers have money to spend, they’re going to choose Motorola, because we provide the best solution for them. And then we work hard to trying our account teams to incorporate these strategies into their plans and our partners to work with even the smaller agencies to benefit from these grant programs. So there is clearly still a lot of money flowing to government and governments are still spending.
There is also a huge advantage from the footprint that we have with our Government base. Footprint is very important. In Government, in this space, we have a market share that’s three times our nearest competitor. That provides an unique opportunity for us to continue to grow. In fact, it’s not just city, state, Federal, it’s internationally. We have countrywide systems in Europe, we have large networks throughout Asia, we have a huge footprint of which we can leverage.
We also have a chance that once you take that footprint to say, “What does that initial investment mean and how do you leverage it as go forward?” Similar to what Gene showed for Enterprise, in a Government situation, this happens to be an example of a statewide network. But that initial investment really builds out to be a huge long-term annuity, if you will.
When you think about the initial piece and when you go forward and say, from initial sale to a particular state, this happens to be the State of Michigan but it could have been the State of Arkansas or it could have been the State of Illinois or it could have been the San Diego area system or the Washington DC metro area. But once you make that, it was an additional 500 agencies join the system it was, “How do you go get other kinds of agencies within the state or within the local jurisdiction.” It was, “How do you add new technology zone?” So the revenue streams continue to grow. And again it grows off of that embedded base. And then when you think about the new offerings, I think it gives us the ability through advanced services, through LTE or integrated communications a chance to really grow that embedded base as we go forward.
So the reality is, when you think about what we do and you think about the things we do in Government, we truly do make our customers better in the moments that matter. And I’d like to share just a quick film that talks about some uses in public safety, if you will, and throughout Government that really exemplifies how you take the products, move them into solutions and allow our customers to truly be their best.
You know, I like the line in that when they say, “There are no do-overs it makes me think about standing on the [inaudible] and I like to have a lot of do overs,” but in this case it’s not a funny story it’s a serious business. There truly are no do overs. They truly need technology and situational awareness that enables situational awareness that enables them to be the best on their job. And I am excited, but I also fully believe that we have that technology, and customers today are demonstrating that they’re going to continue to move forward with our solutions to better their operation.
That’s the Government story and it’s easy to pull on, if you will, your heartstrings are grip in the Government business and it made us – it made me, I’d say us, those folks that grew up in there very proud to say, “It’s need to sell devices like some pieces of Motorola, but it really makes you proud to do something that truly helps people protect and save lives.”
And as Greg talked about earlier, it’s a huge rallying crafty wheel for the employees of Motorola Solutions. But what we quickly transitioned to is the phase equally important for folks in the Enterprise to be there best. It only takes one mispackage or when I was in Madrid a couple of weeks ago, one lost suitcase to remind you how important it is for that baggage handler or that clerk to have the tools to be their best as well.
So when you look at Enterprise, they’re also continuing to buy. Greg talked about 21% up in Q3 in the Enterprise space. And, you know, the reality is 2009 was a tough year, but 2009 is over. And you’ve seen all the economic factors that say Enterprise is responding, but equally important is the real business factors with why they’re responding and why they’re growing. It really is a return on investment model. It really is about productivity, how do we make our customers better. They’re just like Motorola Solutions, just like every company that you look at. They’re pushing to do more with less just like what I talked about with the police organizations. So tools are important.
There’s also the phenomenon that Gene talked about and I think Greg may have even mentioned it about 35% of the workforce becoming more mobile. While we have a wonderful embedded base of kind of traditional workers in Enterprise, this mobility gives us a huge new opportunity. In fact, there was a recent quote from Forrester Research that said, “Enterprises are increasingly looking to mobility as a strategic asset that drives worker productivity and flexibility and it enables new processes and efficiency.”
If you think about that research and you think about that comment, you’d think about what we do. There is a big driver for the technology, the products, and most importantly the solutions that we provide.
In fact, top CIO priorities when you think about it, they talk about improving business process, they talk about reducing costs, and they talk about increasing the use of analytics. Again, we talked about synergies Greg did earlier about bringing the teams together, but when you listen to this, there is no larger Enterprise than Government. There is a lot of the same themes here, “How do you use good analytics to make better decision whether you’re fighting a fire, whether you’re running in to save someone as a police officer, whether you’re running a business, whether you’re FedEx employee, or whether you’re working in a retail environment?” You’re trying to get the best information you can to do your job better and I think that’s still the push as we go forward.
This chart kind of depicts what we talked about earlier is to say that unlike maybe where you build on your footprint and you continue to expand, in the Enterprise market, we will build on our relationships from different entry points, if you will, into that customer base. We traditionally as we talked about had a lot of line worker kind of productivity that we’ve focused on, we might have been in the store or in the backroom, maybe some point of sale.
The emphasis now is we have solutions that go from the shop floor to the carpeted area and the efficiencies that go together and the ability as the story Gene talked about to tie those solutions together. In fact, even as we talk about advanced services, it’s easy sometimes to think about what are we doing with that when you think about hosted applications or hosted networks or managed services or third-party integration when you’re talking about big government implementations. But when you move that back to Enterprise and you think about managed security services or you think about hosted applications or huge asset trackings and technology refreshes, there is ability to really glue this together and grow our presence, our services presence in the Enterprise space.
Greg made a comment that, “We’re primarily break fix in Enterprise today.” And that’s correct. Even though we’ve expanded in the Government side, huge opportunities to expand our event services in the Enterprise side. And I think it will be the wrapper to connect all of these solutions, these point products into solution.
Gene also showed this slide earlier. Now, I think the important point of it is how it grows or all the things that we can do. This is a particular retailer, if you would, a North American retailer, it’s a real live example. And what it really depicts is the fact that as we have moved from just a simple device in the store, we’ve expanded our revenue opportunities.
Just in the last year, it’s increased 4x. It’s gone from $4,000 a store to over $17,000 a store. And, quite honestly, we haven’t moved the full breadth, if you will, of this phenomenon. Some of this is still aspirational, some of this is still we’re talking about doing. But the important point is the retailer has been very vocal about why this technology is helping them become more productive and to grow revenue, and we see what it’s doing for us.
You could also take another example that we’ve used that [inaudible] one of the largest global retailers. And in the last five years to 10 years we’ve increased our per store sales about 8x, because we really moved from simple point-of-sale to full, if you will, supply chain management to full RFID, to wireless LANs in every store, and now we’re talking about how do we move that even further.
So the opportunity now as Greg mentioned and as Gene talked specifically about, when you think about RFID, we’ve only had a trial in this particular retailer. But as it expands, the opportunity for our business to really grow and to impact or replicate this with all retailers is really, really powerful.
So if you can think about that, and clearly retail is the largest part of our business, but we happen to have wonderful opportunities in other verticals. We’re very strong in transportation logistics, moving strongly in warehousing and other things. But if you’ll think about that retail example for a second that we depicted here, I’d like to run a very quick video to just give you an example of how we’re helping retailers to be the best.
Again, helping people be their best when it matters most. This example was a retail example, but it clearly could have been a transportation example with DHL or FedEx or the postal service, it could have been a manufacturing example or any other vertical. Truly, we’re expanding our portfolio to provide solutions to all of these customers as we go forward.
So at the end of the day, I often say to my team and I would say here, I’m very confident we’re going to meet the goals that we’ve kind of established for you and I think we have the opportunity as we move forward to grow beyond those goals when you think about the exciting opportunities of the spaces that we haven’t penetrated yet.
But we’re going to do it and my confidence resides around the fact not that we have the best products that we do, not the fact that we really have the best technology but I believe we do, not even that we have the best solutions which I think we do, and I usually when I’m talking to my teams say, “You know what, we had the best people which is really what makes it happen at the end of the day.” It’s even not those first three things, but that really isn’t even the reason. The reason we’re going to be successful is because what we’re doing truly makes our customers better and it has a return on investment, it pays dividends for customers.
When you look at this chart and say, in supply chain there is time-after-time countless deals of 65% fewer areas when you use the Motorola technology. There’s an example of LAPD in the Jordan Downs Housing Project where we did a video project that truly allowed one of the most dangerous housing projects in LA, truly allowed officers as they’re rolling on the scene to see real-time video of what was happening. Think of a power that when you’re officer that’s not coming in blind, but coming in so that you can truly do real live policing and be very aware of the situation, reduce crime by 40%, documented in that particular area.
The example Gene showed, American Apparels, 700% increase in productivity. And in a number of places eCitation, in fact there was a recent report from Florida State University, I’m sure I’ll catch a little bit for that, since my oldest son just started at Florida State. But a recent report that said at least 15% of traffic citations are thrown out right upfront for either errors, spelling, eligible, whatever. There is a judge – that several judges has been quoted that says, “If it is contested” – now I guess I’m encouraging folks in this room, but then we’ll talk about other kinds of technology – “If it is contested, almost 30% of the cases end up getting thrown out, because again, because of the way the citation was written up.”
So now you step up and say, “You use a tool to go do that eCitation we’ve provided.” There’s been several customers, very large customers that ask us not to mention their name, because it’s never very popular politically to talk about you’re collecting more revenues for parking ticket, but instead 30% increase in revenues by using technology versus other people. For getting the productivity improvement, the 30% increase in revenues.
We have vast, vast examples of all of the things we’re doing to make our customers better. From the National Football League where we’ve installed 30 or 32 stadiums with wireless networking gear to allow them to enhance their seat sales, to enhance their productivity and supply chain for concessions and merchandizing, to actually provide better services for the media, and to enhance security so there is real-time information. All the way from the NFL to a Siberian coal mine in Russia, which by the way, Greg said if I don’t execute on this plan is where my next opportunity would be.
But in that particular Siberian coal mine in Russia, putting in a wireless network system connected with a voice system has allowed $2.5 million annual cost savings, 3x reduction in shift downtime, and it just continues on and on and on. We will win, we will succeed, because what we do makes our customers better. I’m confident of that.
So as you leave, I would say, I feel great about where we’re positioned, what we’re going to do, not only to protect and grow our core, but to move forward in the growth areas to really grow our future. We have the right customers, we serve the right markets, we have the right solutions, and I believe we have a wonderful team, this is our moment.
Thank you for listening and I appreciate you being here.
With that, I’ll turn it back over to Dean Lindroth, to move us to break. Thank you very much.
Thanks Mark. We’ll take a break. Why don’t we come back at about 20 minutes after the hour. There’s refreshments outside, we have some booths with the products to take a look at. Those of you on the webcast will go to music hold, then we’ll come up with Ed Fitzpatrick, Motorola Solutions’ CFO. So you see in about 25 minutes.
Ladies and gentlemen, if you could please find your seats, our program is about to begin. Please find your seats. And, once again, as a courtesy to your colleagues and presenters, turn cell phones and PDAs to vibrate or off. Thank you.
Ladies and gentlemen, please welcome to the stage, Chief Financial Officer, Ed Fitzpatrick.
Good morning. Welcome back, welcome back. You’ll probably be happy to hear that I have no finance videos to show you, I’m just take you through the numbers, so we’ll keep it basic and straightforward for you.
I would like to encapsulate what you heard today, lot of good information from Greg, from Gene, from Mark on the business. I’ll try to kind of pone in on what it means for investors in a few points.
So what’s the first point that you heard today or hopefully you’ve heard, we’re a scale player. We’re number one in most of the markets that we’re playing. We are out spending our competition in some cases by a large margin on R&D and innovation, but also have more feed on the street. Mark talked about 100,000 customers on a global basis and people in the countries to serve and serve those customers.
So, first thing, scale player. Second thing – and I’ll show you a little bit more in detail the numbers, but you’ll see that we’re a stable company. Motorola on a consolidated basis has been somewhat volatile over the last 10 years. This business not so much, very stable, as you will see, both the top line and the bottom from a profitability perspective. You also found out today about a bit of our diversity right from a technology perspective, Government products and Enterprise products as well, also diversity from a customer perspective, hard not to be diverse when you have about a 100,000 on a global basis. So not relying upon a single customer, we will continue to go after all the customers on a worldwide basis.
The third item here low capital intensity. What do I mean by this? Few things; CapEx spending for this business is relatively low. As you think about it – think about plus or minus 2% of sales is the capital we need to fund labs and to fund expansion in the business, so about 2% of CapEx. We also have low working capital requirements. If you think about our working capital, you’ve heard us talk about and I’ve talked about on the earnings calls before at Motorola about our cash conversion cycle, think about us with our net working capital of approximately a month-and-a-half of working capital on our balance sheets, so something in the 45 to 55-day range on a net basis, so low capital intensity business.
We are growing, Greg talked about it, growing – and the guidance we’ve given you of 5% to 8%. We’re growing this year as well, 7% to 8% is what we guided you for the full-year 2010. Next year, Greg talked about it as well, the core business is growing at 6%. If you incorporate IDEN which is shrinking year-over-year, the overall business should grow 4% to 5% in 2011. So as you think about forward-looking into 2011, you should think about that. But growth businesses that I think the guys articulated where that’s coming from pretty well across both businesses, both Government and Enterprise products growing, and both growing year-over-year.
High operating margins; I will show you that in a bit. But Greg talked to you and guided to 16% to 18% coming out of the gate, kind of consistent at a 16% level. But then we do expect to grow and get leverage, Gene talked about it, getting leverage and one example with R&D. As we grow the business, we think we can flow more through to the bottom line and we expect to do that in that range of 16% to 18%. We also – again we’re not going to stop at 18%. As we continue to grow, we do expect to continue to appreciate the bottom line overtime.
Strong cash flow generation; I think I talked a bit about this already with the working capital, with a low CapEx, we’re going to flow through as much as we possibly can of the operating earnings to the cash flow of the company. And another reason we’re going to do that I’ll talk about in a meeting is our tax rate. Our tax rate – cash tax rate will be significantly below the accounting tax rate that we record that I talk about on the earnings call of anywhere from 35% to 37%, I’ll give you a little bit more about that in a minute. But the cash tax rate is lower.
We’ve got tax credits and deferred taxes in excess of $2 billion. The tax credits on a carryforward basis something in the $1.5 billion range to shelter our income for the next seven years.
A solid balance sheet; I’ll talk about this a bit more. I’ll show you how much cash we’re going to have and you guys probably have already done the math and where we expect to start out within cash, and I’ll talk to you a bit as well about our debt position. We are at a nice net cash position to start out of the gate. And as we talked about, we’re a significant generator, so I feel really good about the balance sheet.
We’ll also employ very disciplined policies with respect to running the company from a financial perspective. So what do I mean by that? Each of our major projects; I talked about capital expenditures, that same applies to our new product introduction. Everything that we do is required to make a return that’s in excess of our hurdle rates, right? Our weighted average cost of capital as we’ve calculated it is somewhere in the 9% to 10% range. Every project we do needs to exceed that or we just won’t do it, and that discipline has been in place and it will stay in place at Motorola Solutions.
So a little bit more detail on the financial outlook of Motorola Solutions. Just talked about the solid balance sheet. We think our profile, both our steady earnings, sales and earnings growth, as well as the solid balance sheet position that I’ll talk to you about in a minute should go into a solid investment grade rating. As many of you know, today, we are investment grade with two agencies and one notch below investment grade with another. We think – and that’s the Motorola portfolio. We think the Motorola Solutions portfolio, more stable earnings in sales, solid balance sheet should garner solid investment grade.
I’ve already talked about the organic growth, 5% to 8%. Again that is organic growth, that’s not – we are not taking into account any acquisitions in that model, so that’s what we’ll plan to grow. I think we’ve given you enough details on that.
We also talked to you about the operating earnings profile, 16% to 18%. I will bridge you 2010 to 2011 operating earnings in a minute as we go through the results, it’s kind of a year-to-date results for solutions, so that you get an appreciation for what Greg talked about with this overhang that’s out there, I’ll quantify it for you. I think Greg talked about a 2%, so I’ll try to bridge it for you as you think modeling through from ‘10 to ‘11.
The cash tax rate of 20%, I think the key thing you just need to take away from this is we have significant tax credit to shield our income for the next seven years, such that the tax rate should be – cash tax rate should be approximately 20% over that time horizon. And we’re going to continue to try to maximize those tax credit, as you say optimize those tax credits going forward such that we can shield our income for as long as we possibly can going forward. And that will encompass some trade-offs, right? We’ll have cash and in foreign jurisdiction that we may hold off on repatriating such that we can keep tax credits for longer period of time and keep that lower tax rate for an extended period of time.
Return on invested capital is well above our weighted average cost of capital. So – and that’s – there’s not – it’s not that way for – by accident it’s not the way for reason, that’s the way we run our business. And there is – capital is limited and we need to make sure we allocate appropriately, so we go after the contracts and the bids that are most accretive to us from an ROIC perspective versus our weighted average cost of capital.
So last item here, again, I think you guys can probably figure this out and model it, we expect to have cash something in the $5.3 billion range coming out of the gate and debt of $2.9 billion which is pretty close to where we’ll be today as we made our Q4 payments of debt this morning.
So looking at an eight-year timeline of Motorola Solutions revenue and operating earnings, the top chart is revenue. So you can see in the bar chart, you can see the progression is upwards here and I will drill down the Government and Enterprise can get appreciated on CAGRs. I think it’s important to look at CAGR separate, because they are different markets.
Couple of things to point out on sales side, a big uptick in 2007, 28% really driven by the Symbol acquisition, okay? So – but absent that, we will show that that both of these businesses are growing. You can see what happened in 2008, 2009, the decline given the macroeconomic condition. But as we talked about for 2010, we are growing in the 7% to 8% range. So it is a growth story, it is a growth business in the aggregate. And when you dissect it by business, the business is well, and I’ll show you that in a minute.
The next thing to point out in the bottom side of the chart is operating earnings. The lowest point over the last eight years, our operating earnings were 13%, that’s with the ebbs and flows of the economy, with competition, et cetera. The lowest point in the last eight years is 13% and we’ve been 15%, 16% and above in these years. So very stable picture from an operating earnings perspective and one of the reasons why we think we are – we do have such a solid balance sheet, we also have a solid outlook and investment grade quality company.
So I’d to like add one level down, we report in two segments. The Government segment that I’ll show you here and the Enterprise segment. The Government business is growing over that time horizon from 2003 to 2010 at approximately 4%. The CAGR is 4% over that time horizon. If you take out the recessionary period of 9%, it grew it a little bit over 6%. So a nice growth, steady growth, you can see why we feel comfortable with that 5% to 8% range given the biggest part of the business growing and has historically grown in that sweet spot.
Motorola Enterprise revenue – segment revenue; so I want to show you – talk here a couple of things. The left side of the chart shows the total segment, blue piece is the Enterprise, traditional Enterprise piece, the gray piece is the IDEN business that Greg talked about earlier. So if you look at the blue piece of that business from 2003 to 2010, the 2003 to 2006 period includes the Symbol business prior to the acquisition by Motorola, but I thought it was important for you to see it, so you can see a longer-term horizon how this business has done over the time horizon that I showed you for the Government business. So in that time horizon, this business has grown by 6%. So again in that 5% to 8% sweet spot, again that 6% does incorporate the significant downturn in 2008 and 2009 with the macroeconomic situation. So without that three-day [ph] it was significantly in excess of that growth rate.
To the right side of the chart you’ll see, when we look at it – when we look at the macroeconomic conditions as I said what happened in 2008 and 2009, was really driven by a macroeconomic situation as opposed to a share situation, as the economy declined this business declined in line with the retail sales chart. You can see as it’s recovered, we’ve recovered as well very nicely. The other thing I’ll point out in this chart, because some of you asked me at the break about IDEN, to give a little bit more clarity on IDEN.
The gray chart in IDEN, if you think about sales for 2010, it’s in and about a $400 million business. As we look at it for 2011, you should think of it as approximately a $300 million business. So that’s the growth profile that Greg talked about. In the core businesses, we’re growing at 6%. If you factor in the IDEN impact, we’re growing somewhere in the 4% to 5% range. So I just wanted to clarify that for you. Hopefully I did.
So this is probably the third time you’ve seen this chart, but I’ll hammer it home for you as well. Year-to-date sales 65% Government products, 35% Enterprise products. And you can see the distribution by region. I won’t talk to that that other than 58% and that is better than it’s been I should say the distribution is more equally distributed than it has been. We’ve been in excess of 60% in the past, it’s now 58%. Mark talked about the great growth opportunities we have outside North America. But also going forward we feel pretty good about the opportunities we have in North America as well. So hard to say which way this is going to go in the future as you look at the model of the business in ‘11 through ‘12.
This is just a view of the businesses year-over-year, one level down. All I’ll point to here is we are growing in both the Government business and the Enterprise business in each quarter going from 2009 to 2010. So a nice story. Mark Moon talked about the Government business growing, had some questions at the break on this as well. Is the government business growing? Yes it is. 4% to 5% is the expectation for the full year 2009 to 2010, so it is growing. Enterprise growing a bit more robustly as Greg mentioned a little bit earlier.
So this is the year-to-date P&L, 2009 full-line P&L, 2009 versus 2010. Year-to-date we’re actually at an 8% growth rate year-over-year, so you can see why we’ve guided in that range, feels right. And given that we’re three quarters to the end of the year – through the year feels pretty good. Also note that we have improved the operating earnings from 14% to 15% with that improved leverage, with the cost action that we took in 2008, 2009, when the economy took a downturn, we took the cost out. We’re now leveraging that and improving the operating earnings at the bottom line.
So as you think forward to the separation – and remember we guided that 15% for year-to-date moved to 16% for the full year, right? So your framework for 2010 is 16%. As we go – head towards the separation, as we’ve now told your plan for some time in January 2011, we will be recasting the numbers for the impact of this overhang as we talked about as Greg talked earlier about. Certain cost that was previously allocated for the mobility business, think of it in 32% [ph], approximately $150 million will now be allocated to the Solutions business.
With that said, as I talked you about before, there is some give and take here. As we get into – and Greg’s already talked about it, we’ve started already to take certain actions to reduce the cost structure and align it with the new business of Motorola Solutions such that coupled with the sales growth that we talked about, approximately all in 4%, 6% if you look at the core businesses with the sales growth and the improved margins, where the margins that flow through from that sales growth align with the cost actions that we’re going to take, the business will return approximately 16% in 2011. That’s what we’re guiding, that’s what we’re expecting to plan for 2011.
So financial policies, I’ve got a bunch of questions on this as well that I wanted to go through, I’ll step through each of these, and just have one more slide for you, and then I’ll hand it over to Eduardo Conrado. Again we are targeting solid investment grade that does incorporate deleveraging. I talked about today we paid down the $520 million plus debt payment. We have a debt payment in 2011 of $600 million that we do plan to pay down, so that will happen. And with that, and incorporating that, we believe our financial profile will garner a solid investment grade rating.
We will employ disciplined capital allocation policy. First item on there is not mistake that it’s a first item, we’re going to focus on maximizing long-term shareholder value that’s driven by the operating earnings that we talked about in that guidance that we gave at 16% to 18%, we’re going to continue to drive that and continue to drive improvements in that such that we drive long-term shareholder value.
We will continue to fund R&D for next-generation products to sustain and maintain and expand if we can our leadership position. I talked about this as well; we’re going to prioritize investments that give us the highest return on invested capital. So funds are finite and the teams understand that. R&D funds are finite. We need to make sure that we put our funding into those items that give us the best returns. Gene talked about our process and we go through that process on a two times a year to make sure that we’re investing in the right places and that we are current.
We will retain our flexibility for strategic acquisition. It’s not included in any of the numbers that we talked to you about. Acquisitions it’s – we’re really assuming organic growth. But we’re not close our eyes to opportunities if they come to us that we think are attractive and can grow our bottom line and also keep in place their discipline of return on invested capital I talked about.
We will also and Greg mentioned this before, so I’ll reiterate it. We are going to evaluate the timing of return of capital and a dividend policy. But once we achieve what we consider to be an optimal structure. I think right now our debt-to-EBITDA ratios when we come out – when we come out of the gate at Solutions are a bit higher than where we’d liked them to be and where the rating agencies frankly would like them to be ensured to be in its solid investment grade companies. So once we get to that point where we feel we’re at an optimal capital structure we will consider a return on capital or dividend policy for this company. And, of course, the last item, we will continue to fund the pension plan as required by ERISA funding requirements.
The next item here is really perpetual. I talked about the phenomena of the overhang for 2011, because of the Mobility spinoff, but we’re going to continue to align our cost structure such that we can garner those returns that we talked about, 16% hopefully growing to 18% over the next several years. So we’ll continue to refine and make sure we’re spending in the right places on a perpetual basis.
I’ve already talked about the tax credits; we’ll continue to do that. I also talked about the tradeoffs. We do have as an example cash in certain foreign jurisdictions where I could repatriate today if I wanted to, I think it’s – but if I did that I might jeopardize some of the tax credits that will be available to us to keep our tax rate low, so we will keep that there just as one example. And we will maintain – we have a credit facility today, $1.5 billion facility, we will plan to keep that and extend the life of that as we become Motorola Solutions hopefully on terms that are at least as favorable as today if not more favorable in the terms we have today.
So cash and debt, I want to show you just two things on this slide. I talked about cash – an estimated cash of $5.3 billion, debt of $2.9 billion, for net cash of $2.4 billion. Also just wanted to show you we feel really good about the scheduling out of the debt that we have over the next several years, right? $600 million due next year, $400 million due in 2012, the next payment after that isn’t due until 2017. Now you can see the scheduled debt all the way up to 2097. So not a lot of refinancing risk on this company as you start to think about it. So feel good about the scheduling of debt. And on the pension front, I talked about funding that. The funding that we’re expecting to pay in 2011 is approximately $250 million to $300 million. So just as you start the model the pay down of that liability.
So last slide, really the same as the first slide. Wanted to make sure we hammered home, what we think the takeaways are for shareholders and why would you invest in Motorola Solutions. Skill player, number one in most of the markets that we are playing; stable, hopefully you got a picture of that from the charts that I just showed you; diversified, multiple businesses, 100,000 customers, low capital intensity, CapEx is low, working capital we will continue to manage and keep it at low levels. We are a growth company, core growing at 6%. We’ve shown you the growth in the past, we expect that trend to continue in the future. And if we go above those growth rates, we won’t stop.
High operating margins, I talked about that as well, 16% 2010. We’ll make sure we take the appropriate cost action such that we can meet that 16% again in 2011. We’ll flow as much as we possibly can through to cash for the company and for shareholders. We’ll make sure that we maintain that balance sheet as very solid and getting to investment grade. Solid investment grade is very important to us, critical to us, and we’ll make sure there is disciplined financial policies that I talked about stay in place and continue into 2011 and beyond.
So, with that, I’ll turn the stage over to Eduardo Conrado, our Chief Marketing Officer.
Thank you. Very good morning, everyone. I’ll talk about the brand framework that we have put together for Motorola Solutions. At Motorola Solutions we’ll have exclusive use of the brand for the segments that we serve, for the current and future product portfolio and solution portfolio that Gene showed you.
At the break we got a question on brands [inaudible] and how do we address it. We spent a lot of time over the last 12 months with the Motorola Mobility team on defining exclusive deals we use for each company that minimize and optimize our ability to grow our market.
Having said that, we’ve also developed joint brand framework and brand guidelines for Motorola that are shared across both companies. And going forward, since Motorola Mobility and Motorola Solutions are going to be using the Motorola brand, the CMOs of both companies and the Brand Managers of both companies will continue to work together to evolve the Motorola brand.
Now, as we get ready to launch Motorola Solutions in January, we’ll develop a brand framework that addresses two key components. Greg talked about purpose, more internally driven in terms of driving employee excitement and engagement, and the brand promise which is externally driven into our customers and the segment that we serve across Enterprise and Government customers.
Now, when we talk about the brand purpose, it defines why we do, what we do. As I mentioned, it’s an engagement tool for the employee base, but why is that important. Purpose has to be authentic, inspirational, and motivational, and it drives results. According to research done by Collins and Porras, organizations that are purpose driven outperform comparative companies in every key financial metrics out there.
We started rolling this out last month to a worldwide employee base. Their focus energizing as far with the purpose, [inaudible] that’s based on the heritage of the company, but it also holds a promise on where we’re going as an organization. So the employee base is ready to role as we separate and become Motorola Solutions in January.
Now, as we enter January and become Motorola Solutions, we’ll start rolling out our brand promise, which is actually the unique value proposition differentiator for Motorola Solutions addressing both Enterprise and Government segments tightly linked to the purpose.
So now if you look at the brand promise, Motorola Solutions innovate to mobilize and connect people in the moments that matter. Every word on that promise actually articulates the unique value proposition that as we have as Motorola Solutions into both the Enterprise and the Government segment. So innovates to mobilize and connect, it actually leverages to heritage around Mobility. Motorola brings providing Mobility solutions inside the four walls of the Enterprise, all the way out to the supply chain. It also allows us to highlight as Gene pointed out or end-to-end solution orientation, going from manufacturing to transportation and logistics, to warehousing, actually providing solutions out on to the retail store.
When we talk about moments that matter, when you saw that coming across a purpose and the promise, moments that matter actually fulfills your value into moments of truth from an everyday moment that Mark talked about in terms of getting the luggage in the right place, having the right product on the shelf for the retailer, making sure transportation on the logistics delivers the package to the right location, to actually heroic moments.
When first responders move out into a critical situation and we allow our solutions to connect them through voice, video and data networks, putting that information in their hands so they can rise to whatever that moment may bring, and that will get translated into the campaign that will activate the brand promise across the full marketing mix of Motorola Solutions.
And you’ll see that when we talk about a moment in time or a moment that is coming and having that activated, they’ll range from an opportunity that a customer has on a spike in demand, an opportunity that’s created in retail by a customer coming in and looking for a particular set of jeans and making sure those jeans are in the shelf and if they’re not there, we can move them from the warehouse to the storefront. It may mean for a Government customer, how do we address the suspect on the run, or it might mean how do we address a natural disaster. So our innovations prepare our customers to rise to whatever moment is coming.
Let me show you how we’ll bring that to live starting in Q1 2011, and I’ll show you a video that actually articulates and brings the brands promise to life very focused on each of the verticals that we serve, very focused on the solutions that we offer each of our vertical customers, allowing to rise to that moment that is coming.
So back to our purpose. Strategic framework allows for our customers to have a unique value proposition, very specific to the vertical that we serve, solution orientation, differentiator from the competition. When we look at the purpose we have the employee base focused and energized on serving both the Enterprise segment and the Government segment.
I’d like now to invite back Greg, Gene, Mark and Ed for the Q&A session. Thank you.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.