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We downgrade our recommendation on Motorola Solutions Inc. (MSI - Analyst Report) to Neutral based on its current valuation, which soared nearly 34% last year. Moreover, a recent Wall Street Journal report stated that the U.S. regulatory authorities are at present investigating whether the company adopted any unfair means to do business in the European regions.

The U.S. Justice Department and the Securities and Exchange Commission have asked the company to provide information regarding transactions in seven European countries over the past two years.

Nevertheless, thecompany remains the market leader in the lucrative U.S. Public Safety market. While the federal budgetary pressures will continue, the state and local level agencies have become a major growth driver for Motorola Solutions.

The company’s business model remains compelling and we believe the company will be able to maintain its current top-line growth in the future, primarily due to the critical nature of the public safety network in the U.S. and massive growth potential in the Middle East. Motorola Solutions boasts a healthy cash flow.  

In April 2011, Motorola Solutions completed the pending sale of wireless infrastructure assets to Nokia Siemens Networks for $975 million. Nokia Siemens Networks is a 50-50 joint venture between Nokia Corp. (NOK - Analyst Report) and Siemens AG . Further, the company entered into an agreement with Vector Capital to sell its Point-to-Point (Orthogon) and Point-to-Multipoint (Canopy) wireless infrastructure assets. However, the financial terms were not disclosed. We believe further disinvestment of wireless broadband assets is a move on the part of Motorola Solutions to concentrate more on its core public safety businesses.

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