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Public-safety unit eases Motorola’s pain
Police radio business faces recession squeeze
February 09, 2009

By John Pletz

Motorola Inc. co-CEO Gregory Brown is counting more than ever on public-safety equipment, the company’s oldest and most profitable unit, for a rescue.

Profit from selling two-way radios and other equipment to police and fire departments is helping keep Motorola afloat as its cell phone business hemorrhages money. Public safety accounted for the bulk of the $1.5 billion in operating earnings Motorola’s enterprise mobility unit posted last year. The phone business, meanwhile, had a $2.2-billion operating loss.

“Without public safety and set-tops, Moto would cease to exist today,” says Jim Suva, a San Francisco-based analyst at Citigroup Inc.

The recession is putting increasing pressure on government budgets. That’s raising concern over how much longer Motorola’s public-safety unit, along with the division that sells cable set-top boxes, both run by Mr. Brown, can carry the company. Last week, Motorola reported a $3.6-billion fourth-quarter overall loss as phone sales dropped 51%.

Schaumburg-based Motorola is by far the country’s top player in public-safety equipment sales, controlling about 80% of the market, analysts estimate. A decline in that business would add to the mounting list of woes for Mr. Brown and for Sanjay Jha, hired as co-CEO in August to oversee an overhaul of Motorola’s phone division.

Public-safety spending in the U.S. probably will slow later this year and decline 10% to 20% in 2010, says Dominick Arcuri, vice-president for RCC Consultants, a New Jersey-based telecommunications adviser.

Some of Motorola’s government customers already are cutting back: Last month, Missouri shelved an $80-million contract for an emergency radio system won by Motorola in 2008 as part of a review by new Gov. Jay Nixon of the state’s long-term contracts.

Even Mr. Brown acknowledges concern. “There’s no question state and local governments have delayed procurement in public safety,” he said in an interview last week. “We’re going to have to navigate those waters.” He’s counting on more international growth and a piece of the stimulus spending planned by President Barack Obama.

As government budgets tighten, Mr. Brown must contend with rivals such as M-A/COM, a Massachusetts-based subsidiary of Tyco Electronics Ltd. M-A/COM last year won contracts to supply new radio systems to suburban Naperville and Aurora. At $10 million, M-A/COM’s bid was 40% cheaper than Motorola’s, says Don Carlsen, director of management services for the city of Naperville.

“We had been with Motorola a long time,” Mr. Carlsen says. “There was significant price difference, and Tyco had more current technology and we’d get more life out of it.”

Motorola remains the dominant public-safety player, at home and overseas, where it generates nearly half its sales. The company recently won contracts in Houston and Jackson, Miss., as well as in Ireland, Romania and Malaysia.

Meanwhile, Motorola’s deteriorating standing in the global cell phone market continues to take a toll. The company has laid off nearly 10,000 workers in the past year.

“They have a lot of distractions inside the company,” says Jeff Orr, an analyst at New York-based ABI Research.

(c)2009 by Crain Communications Inc.