Yesterday, the Financial Times reported that Motorola Solutions Inc. (MSI - Analyst Report) has entered into a deal with Zebra Technologies, to divest its Enterprise Business segment for $3.5 billion in cash. According to the daily, the deal is expected to be officially announced on April 15.
The Enterprise Business segment of Motorola offersmobile computing devices, scanning devices, wireless broadband systems, RFID data capture solutions and iDEN infrastructure to large business houses. On the other hand, Zebra Technologies is a leading barcode printer maker. In fiscal 2013, this segment generated $2.7 billion in revenues, down 2% year over year and adjusted operating income was $358 million, down 9.4% year over year.
During the last couple of years, the Enterprises Business segment of Motorola has been reeling under global macroeconomic fluctuations. Uncertainties surrounding future business prospects have prompted large enterprise customer’s to postpone capital spending or to place small orders instead of big ones. Several business verticals of this division got severely impacted due to huge spending cuts by customers.
Motorola happens to be the largest manufacturer of barcode readers and small rugged mobile computers. Despite this, management provided a weak financial forecast for the first quarter of 2014, primarily due to the vulnerability of the Enterprise Business segment.
We believe that the sell-off of the Enterprise Business segment will generate strong cash flow to concentrate more on Motorola’s core public safety businesses. The company has won several lucrative contracts from various municipalities in the U.S. The U.S. government’s decision to install a nationwide wireless network for public safety may become a long-run revenue driver for the company.
Other Stocks to Consider
Motorola Solutions currently carries a Zacks Rank #3 (Hold). Other better-ranked stocks in the wireless equipment industry include Juniper Networks Inc. (JNPR - Analyst Report) , Shore Tel Inc. (SHOR - Snapshot Report) and Qualcomm Inc. (QCOM - Analyst Report) . While Juniper and Shore Tel carry a Zacks Rank #1 (Strong Buy), Qualcomm has a Zacks Rank #2 (Buy).
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