Motorola Solutions, Inc. (MSI) Q2 2012 Earnings Report, Transcript and Summary

Good morning, and thank you for holding. Welcome to the Motorola Solutions Second Quarter 2012 Earnings Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. The presentation material and additional financial tables are currently posted on the Motorola Solutions Investor Relations website. In addition, a replay of this call will be available approximately 3 hours after the conclusion of this call over the Internet. The website address is www.motorolasolutions.com/investor. [Operator Instructions] I would now like to introduce Mr. Shep Dunlap, Vice President of Investor Relations. Mr. Dunlap, you may begin your conference.

Thank you, and good morning. Welcome to our call to present second quarter results for Motorola Solutions. With me this morning are Greg Brown, Chairman and CEO; Ed Fitzpatrick, Executive Vice President and CFO; and Mark Moon, Executive Vice President, Sales and Field Operations. Greg and Ed will review our second quarter results along with commentary, and Mark will join us for Q&A. We have posted an earnings presentation and press release at www.motorolasolutions.com/investor. These materials also include GAAP to non-GAAP reconciliations for your reference. As always, it's important for you to review these materials. A number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola Solutions, and we can give no assurance that any future results or events discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Forward-looking statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this presentation. And with that, I would like to turn the call over to Greg.

Thanks, Shep. Good morning, and thank you for joining us today. Q2 highlighted another strong quarter for Motorola Solutions as we delivered strong sales growth and operating leverage, resulting in excellent earnings growth. In addition, we continue to place a high priority on the return of capital to shareholders through our quarterly dividend and share repurchase program. This morning, we reported record second quarter sales of $2.1 billion, which represents an increase of 8% from Q2 of last year. On a GAAP basis, net earnings were $0.60 per share from continuing operations compared to $0.14 in the year-ago quarter. Non-GAAP net earnings from continuing operations were $0.70 per share compared to $0.54 per share in Q2 of last year, which represents a 30% increase. For the remainder of this call, we'll reference non-GAAP financial results unless otherwise noted. Our Government business revenues increased 14%, a record second quarter. This reflects broad-based growth across all of our regions driven by a combination of factors, including core market growth, new product introductions and narrow banding in the United States. Operating margins in the Government business improved 330 basis points year-over-year to 16.4% due to the sizable growth in sales across our portfolio coupled with our continued focus on cost management. In our Enterprise business, sales declined 2% from the year-ago quarter, including an anticipated iDEN decline. We've seen this business impacted by a number of factors, including most notably a tougher macroeconomic environment, especially within Europe, coupled with foreign currency headwinds. Let me spend a moment on capital allocation. During Q2, we paid $64 million in dividends and repurchased $439 million in stock, bringing the total repurchase amount to $2.9 billion since the program was announced approximately 12 months ago. One year ago, we initiated a dividend, authorized a repurchase program and introduced a capital allocation framework. Today, I'm pleased to announce that the Board of Directors has approved an increase in our quarterly cash dividend to $0.26 per share, an increase of 18%. In addition, our board has increased our share repurchase authorization by $2 billion, bringing the total to $5 billion. These announcements reflect the continued confidence we have in our business, as well as our earnings growth and cash flow generation opportunities. Ed will speak more on this topic later in the call. I'll now turn it over to Ed Fitzpatrick to discuss our financial results in more detail. I'll then return to discuss operational highlights and provide additional commentary and perspective on our overall business performance.

Thanks, Greg. Q2 was another strong quarter of earnings growth and cash flow generation for MSI. Along with revenue growth of 8%, our focus on operating leverage yielded an increase in operating earnings of 15% compared to last year, despite an $11 million increase in U.S. regular pension expense and $20 million of unfavorable FX impact to operating margins. The unfavorable FX impact was driven primarily by the weakening euro. We saw broad-based revenue growth in our Government business with record second quarter sales of $1.5 billion, an increase of nearly 14% from the prior year. Operating margins in the Government business improved 330 basis points from 13.1% to 16.4%. This leverage was driven by strong sales growth and our continued focus on cost management. Enterprise sales declined 2% to $689 million. Operating margin in the Enterprise business declined 340 basis points. The margin decline was primarily attributable to changes in sales mix along with foreign currency headwinds. Turning to earnings. Earnings from continuing operations were $0.70 per share compared to $0.54 per share a year ago, a 30% increase. Operating expenses were $721 million or 33.6% of revenue, which represents a 210-basis-point improvement from the year-ago quarter. Our operating earnings for the second quarter were $350 million, or 16.3% of sales, compared to $304 million, or 15.3%, in Q2 of 2011. Total other income expense was a net expense of $38 million in the quarter compared to a net expense of $17 million in Q2 2011. The largest driver of the year-over-year increase in this line was a result of significant devaluation of a number of currencies versus the dollar, most notably the euro. This negatively impacted the quarter by $21 million compared to Q2 of last year. In addition, we incurred a $6 million loss associated with the…

Ed, thanks. In our Government business, sales for the quarter were $1.5 billion, an increase of 14% over Q2 2011. We saw strong growth in all regions. Profitability also improved with operating earnings growing to 16.4% of sales this quarter compared to 13.1% in Q2 of last year. We've talked previously about some of the growth drivers for public safety that include interoperability, spectrum efficiency and compelling return on investment. Customers are seeking to overcome spectrum constraints by selecting our latest version of ASTRO 25 with P25 Phase 2, which is nearly twice as efficient as required by the current FCC narrow band mandate in the United States. For example, Apopka, Florida recently celebrated the world's first deployment and acceptance of a dual-mode ASTRO 25 system with Phase 2 P25 TDMA. They doubled their channel capacity for secure, encrypted communications without the need for adding frequency bands, antenna sites or stations. And our APEX radios provide multiband functionality in one device, allowing first responders the freedom to seamlessly connect between multiple frequencies for interoperability between agencies, improved mobility and response time. Another example of a Phase 2 TDMA system that's being deployed is Maryland's First Responder Interoperable Radio System Team, or Maryland FiRST, as it's known, a statewide 700 megahertz radio communication system designed for state and local public safety officials to communicate with each other on a common system. And this quarter, the city of Toronto selected our ASTRO technology with Phase 2 TDMA for a 700 megahertz shared police, fire and EMS system implementation. Other significant ASTRO wins from this quarter include the state of Ohio for $80 million, Lakeland, Florida for $12 million, state of Pennsylvania police for $10 million and Centre County Pennsylvania for $13 million. In Latin America, our ASTRO solution was selected by the…

Thanks, Greg. [Operator Instructions] Operator, could you please remind our callers how to place a question?

[Operator Instructions] And our first question comes from Peter Misek with from Jefferies. Peter Misek - Jefferies & Company, Inc., Research Division: Just a question on R&D. Obviously, as we have LTE ramping, we've had R&D investments. You've invested well in front of that, as you have with previous major network changes. Can you walk us through how we should think about R&D for the next few quarters? Can we see R&D level off and maybe even come down as a percentage of sales? And are there any sort of more temporal-type expenses there that we could see managed as we see the shift happening?

I just think that you'll see us continue to focus on cost management overall as we look forward for the second half of the year. In terms of R&D, we've talked in the past that we would expect R&D and G&A and other major functions on an annual basis to typically trend and improve from a leverage standpoint as a lower percentage against revenue. So when we look at below gross margin costs against overall revenues, we would expect to be able to continue to get improvement year-over-year. Peter Misek - Jefferies & Company, Inc., Research Division: And if I can just sneak a follow-up on the capital structure comments you made about going net debt position by 2014. Can you help us understand the process that you and the board are going through to think about what the appropriate capital structure is? What are you benchmarking? How should we look at that evolution? Are we going to look at a reverse auction for buybacks?

So Peter, I think the strategy is really just a continuation of what we outlined last year with the capital allocation model, a piece described, the dividend, 30%; 25% to CapEx; and that 45% to share repurchase and/or acquisitions. So I think that hasn't changed. The other key tenet is that the capital structure, really, will be driven off of an adjusted debt to adjusted EBITDA metric of around 2 such that the debt levels will be calculated based upon our ability to bear and our improvements in EBITDA. So I think that's really the way we're looking at it and the way we're modeling it going forward.

Next, we will go to the site of Jeff Kvaal with Barclays.

Could you go into a little bit more into the change in the revenue picture a little bit? I think as we cycle back a couple of quarters, certainly the Enterprise outlook was a little bit brighter. Could you help us understand that a little bit better? I think, secondly, 3% year-over-year growth is sort of not what’s been in the range of the target model over the past couple of years. Could you help us understand what is happening in that quarter in particular and then why the December quarter would be better?

So just a couple of things, Jeff. As we look to the remainder of the year, we now expect the Government segment to grow in the upper single digits and Enterprise to be relatively flat, of course, including iDEN for the year. I think the moderation in the update in Enterprise is a reflection of the macroeconomic conditions, particularly in Europe, as well as the foreign currency headwinds. Enterprise actually grew in all other regions. If you look at Q3 and you look at our revenue guidance of 3%, I remind you that a year ago, our Q3 comp of last year was an exceptionally strong quarter overall at 10%, so that's one factor to consider. We expect continued decline in the iDEN business in Q3 of approximately $20 million. And we expect the headwinds around foreign currency in Q3 to be about approximately $30 million of top line. So when you think through the previous year comps, you incorporate the continued decline of iDEN and then the incremental headwinds of foreign currency led by the euro. Those are the ingredients that factor in. Now having said that, we're still raising full year revenue guidance from about 5% to 5% to 6%. And we'll continue to manage our costs closely and look to get continued improvement in leverage over the next few quarters.

Jeff, you also asked, I think, a question about linearity or seasonality in the quarter. I heard you say something about Q4. So as we’ve talked about before, as our quarters progress, Q1 is typically always the lowest quarter. We step function up to Q2. Q3 is usually typically in line with Q2, sometimes up, sometimes down. And then we typically do step function up in Q4 from a seasonality perspective.

Okay. And that $20 million to $30 million impact that you referenced, Greg, that is year-over-year impact or sequentially?

Yes. I think Greg talked about the top line about $30 million -- $30 million top line impact for Q3. But I'd say it's $30 million to $35 million, and that contemplates us in and around the current euro exchange rate of $1.21 today.

But it's year-over-year.

Year-over-year, yes, that's right.

Next, we will go to the site of Tavis McCourt with Raymond James. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: I was wondering if you guys could talk about some of the backlog statistics that you talked about on the last call for Enterprise and Government. And then a quick one for you, Ed, on -- I think there was a writer on the highway bill that had some impact to pension fund accounting. And wondering if you can run us through the impact, if you know yet, on your pension fund issues.

So if we look, Tavis, at our Q2 backlog, it's roughly $5.9 billion, which is down about $100 million from what we discussed last quarter. Government, relatively flat. And Enterprise was down. When we normalize for FX, really, the backlog was basically flat. So as we look at it, I think we're not surprised by the decline in Enterprise as we've seen pressure there, but we still feel fairly confident about our visibility and as we look at our guidance going in the quarter. So relatively speaking, backlog has remained consistent to slightly down.

And on the pension piece, Tavis, as you know, and I saw your note on it, I think you had it right. The change in the calculation of the discount rate should lead to a higher discount rate, which would lead to a lowering of the required annual cash funding. So that's something that we would look at and contemplate if that makes sense strategically going forward to close the funding deficit. Also included in the bill are some PBGC fees that are scheduled to go up starting in 2014. So we're going to assess all that in line with the overall strategies on pension as we go forward here, and we'll come back to you later in the year with our plans to address. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Great. And did you talk about an Enterprise number x iDEN?

No. What I was just commenting earlier that Enterprise was up outside of Europe and the regions. Without iDEN, it was up slightly.

Our next question comes from the site of Jasmeet Chadha with Bernstein.

I had a question on Enterprise. So it dropped about 20% in 2009, which was clearly an exceptional year. What sort of downside could we expect this time in a worst-case scenario? And if you are worried today on what you're seeing into the second half and what kind of measures would you take if there was a pronounced weakness? And then a follow-up on Government. So where does the strength today in the Government revenues come from? And is there reason that we should worry that it could snap back in 2013?

So I'll take the last part of that 3-parter first on Government. Obviously, we're very pleased with the record Q2 of 14%. If we look at the growth of that and what makes it up, I would say 11% of the 14% are coming more or less from half of our core market growth, which includes continued expansion in both North America and international and the other half from a continued investment in R&D that has allowed for the expansion of new products and innovation. And probably 3% as best our estimate of the 14% is driven by narrow banding here in the U.S. Now that said, we typically usually have structural drivers that continue to require our customers to upgrade and invest, whether it's in the prior periods. Years ago, it was Nextel re-banding. It continues to be analog to digital, not only here under the narrow banding mandate in the U.S., but the drive for analog to digital internationally. There'll be some number of customers that won't meet the narrow banding mandate by the end of the year, so they'll continue to invest in more spectrum-efficient radios and mobiles and infrastructure. And then also, as you know, there's a number of aged customer installations that are there throughout North America and in other geographies that we will look to migrate and upgrade accordingly. So if you look at the 14%, our best estimate is that 3% of the 14% is narrow banding in the U.S., but 11% is still very strong, driven by core market growth and the expansion of our new products. In terms of Enterprise, I'll let Mark say a few words.

Yes. So if you think about Enterprise, clearly, I think Ed highlighted before, as we think about the year, and we have guided now to relatively flat, it is down from what we've traditionally seen and what we have said as expectations. Now with that said, I would say it's primarily macroeconomic driven because we have held ASPs and we believe we've held market share in all of our categories, at least all of our major categories with the possible exception of wireless LAN. The other piece that I would say around Enterprise again, as Greg mentioned, was the growth in every region still gives us somewhat confidence when you say without iDEN. And even in Europe that was only slightly down, I would remind you that the previous year, the growth in Europe for Enterprise was 39%. So again, I think given the headwinds that we've got there, the Enterprise business has held. So as we go forward, we'll continue to monitor it, continue to give you guidance. But all in all, I feel pretty pleased with the way we've held and the way we performed and continue to monitor it as we go forward.

Sure. Just one follow-up on that. So when you say that regionally Enterprise was strong or up year-on-year outside of Europe, is that x iDEN? Or is that including iDEN?

That's correct. What we've mentioned here was x IDEN.

Without iDEN. I mean, I think the one big region there is Latin America. So I think his comment is correct. I mean, I think that Mark may have mentioned it, but I think in Europe, we talked last quarter that it was -- that Enterprise was down, primarily driven by FX. Otherwise, it was relatively flat. This quarter, it was down due to FX. We actually were up net of the FX, right? So it was -- I think we're holding our own in EMEA.

We will next go to the site of Craig Hettenbach with Goldman Sachs.

Greg, just following up on the revised revenue guidance, 5% to 6%, anything else you can touch on in backlog or just visibility this quarter versus a quarter ago? I know you mentioned narrow banding, but any other things that gives you confidence to nudge the growth rate up a little bit?

Well, I would say just generally our visibility levels remain unchanged, Craig, which I think is good news. We're just trying to have the guidance reflective of the macro conditions under which we're competing. But as Mark referenced, backlog normalized for foreign exchange was relatively flat. And we're focused to execute on Q3 and knowing that 3%, while it doesn't sound fantastic when you look at the subcomponents and the ingredients and compare it to a very strong comp previous, I think we'll continue to perform as we expect. And we'll manage all the levers available to us, and we're not confused in terms of what needs to be done.

Got it. And then, Ed, just a follow-up on the buyback. In the press release, it said no expiration date. Anything to read into there versus the prior programs where you had it out kind of 18 months or so?

No, I think it's -- Greg can add. I think our coming out of the gate as the separate public entity MSI, we thought it was appropriate to have an end date there to ensure that everyone knew, investors and also like -- that we had a sense of urgency on return of capital to shareholders. We think we've demonstrated that. We will continue with the program and be deliberate over a timeline here but also be opportunistic as we were in prior periods. So I think we're going to get at it, as you guys have seen us do in the past, and we'll continue to execute.

Our next question comes from the site of Ehud Gelblum with Morgan Stanley.

A couple of questions. First of all, Greg, if we look at the Government side, the guidance for the full year of upper single digits for Government, you did 11.5% growth in Q1 and 13.6% in Q2. So to get to upper single digits for the year, that would imply a huge deceleration in Q3 and Q4, somewhere in the order of 3% or 4% year-over-year for those 2 quarters. Why would you think that is kind of factoring into your guidance? Putting aside the Enterprise side of the business, I just think Government -- why is this falling down so much? Does this have to do with narrow banding? Does it have to do with macro? And kind of just understanding that a little better. And then, Ed, just I want to understand a little bit more about the FX. And I heard but I may have misunderstood, the $25 million below-the-line expense that shows up in the P&L, is that hedging? Is that where the FX impact is? Or is that kind of sprinkled throughout the earnings statement? And how do we account for FX kind of going forward?

Ehud, on the first part, look, I just think that we've had fantastic growth, obviously, records in Q1 and Q2. We're just being a little bit more tempered. We know that Q3 as a comp was higher, as I mentioned. We have some incremental headwinds, as do many other companies, around foreign currency. I just think we're being cautious. And in this environment, while we're confident of the business and confident as ever in the product portfolio and the underlying drivers, it just -- I think we think it makes sense to be a little bit more cautious now.

Does FX impact the revenue? Or does it impact this below-the-line kind of...

It's a combination of both. So if I talk about Q2, we talked about, about $20 million of impact to operating margins as a result of the decline, largely driven by the euro. The top line growth impact there was about $30 million, and the margin impact was about 20, right? So if you look into Q3, there was also a bottom -- there was also below operating earnings related charges. You mentioned about $20 million. That was driven by balance sheet -- the fluctuation in the foreign currency and the net unhedged positions caused about a $20 million impact as we moved for the quarter. If we move into Q3, I'd say you should expect relatively similar impact, and our guidance contemplates that, for the operating margin piece. I'd say the piece below operating earnings, the other income expense, should be significantly less than that in the third quarter.

So if I got that right, there was a $30 million impact to revenue from FX this quarter, $20 million to OpEx? Or to operating margin?

That's right. Operating margin.

So that means there was a $10 million gain from OpEx that offset the $30 million, part of the $30 million revenue?

I'm not sure where you’re going -- we could take it offline in the reconciliation with you.

Okay. So the net impact was $20 million to operating income and $20 million below the line?

That's right.

And you’re saying, next quarter, assume another $20 million to operating income, most of which comes in the revenue line, which is where Greg's conservatism comes from the Government side, and then less below the line?

That's right. That's right, Ehud.

Okay. A couple other things. Why are taxes going up? And did you guide 34% to 35% for the back half of the year? Or did you guide that for the full year? And then did you -- I'm not sure if you said how big iDEN was this quarter and what it is in your guidance for Q3.

What was the second part of that question, Ehud?

Taxes. They were 33% this quarter. You're guiding 34% to 35%. And I wasn't sure if that was, again, for the full year or for next quarter. And then how big iDEN was.

So the guidance was really, for the full year, still around 34% to 35%. So that hasn't changed. And what we're figuring there, too, is the R&D tax credit, right? So if that does come through, it will be at the lower end. If it doesn't, it will likely be at the higher end.

But you had a low -- you had a 33.3% this quarter. So 34% to 35% for the year, we're talking about 35% to 36% for Q3 and Q4?

I think there were discrete items and there's timing-related items that are driving that. So I think that’s -- as you forecasted, you should forecast something at 34% to 35% for the full year. So a bit higher in the second half.

And Ehud, in terms of iDEN, it's in line pretty much with our expectations in terms of the continued decline for the year 2012. We're now tracking for iDEN to be about $270 million in revenue for the year.

The next question comes from the site of Jim Suva with Citi.

My first question is a clarification, and I'll just ask my follow-on immediately after that. But for the clarification, for the outlook, am I correct it does not include acquisition revenues of Psion in your outlook? And then my follow-up question is can you just help investors and us bridge the gap between your strong outlook and results compared to the budgetary constraints that we're seeing and the workforce reductions? We know that the First Responders is a priority, but definitely we're seeing when the police and firemen retire, the various teams are replacing them with less people rather than more. Can you just kind of help us understand that? And then on the outside, is it just basically it's more sticky business? And if so, when we come into a more favorable economy, does that just mean Motorola Solutions may not see quite the upside? Or how can we think about -- can’t be heads you win, tails you win also. Also, help us understand and connect those.

So in order of your questions. You're right. Psion is not included in our second half guidance. The transaction is not closed yet. We're anticipating that to be, Jim, in Q4. Second, we continue to operate under the constraints of austerity, if you will, with governments across the world. But interestingly, and you've seen the Government post 14% in Q2, our segment, our state and local business in particular, is really strong. And I think that's a reflection on, we've talked about it before, the prioritization of mission-critical public safety, the deployment of additional technologies beyond just radios, whether it's video surveillance or integrated command-and-control or dispatch software or other kinds of technology deployments that make First Responders more productive. It's a continued reflection on the high return on investment of what we sell. Remember, with all of this, there's no usage associated on a private network as these devices and subscriber units get deployed, unlike a cellular system that has per-minute charges. There is no usage cost at all. And of course, the durability and reliability and long installed base of 10, 15, sometimes north of 20 years, all lend themselves positively as drivers for First Responders to prioritize this. I think your last comment is also correct that what we have found with our business overall is that it's stable. It is sticky and, we believe, largely sustainable. And oftentimes, our installed base and our incumbency allow us to continue the relationships with clients and allow us the dialogue to add equipment and upgrade and refresh and sell new solutions on top of the relationships and systems we have, and we think that's a good position to be in.

The next question comes from the site of Keith Housum with Northcoast Research.

Gentlemen, can you just shed a little bit of light on what you're seeing in Asia? I see 5% growth year-over-year. It’s probably a little bit lower, I guess, than I anticipated, and I know it's an area of focus for you guys. But what are you seeing in Asia perhaps as driving a little bit slower growth than what you guys have shed in the past few quarters?

Keith, I do agree with your comment that our growth in Asia, while we talked about kind of mid-single digits for both Enterprise and Government, is less than, number one, what we've been producing in the past and also what we've said was expectations for Asia. With that being said, I also think though the primary drivers, as we look at the business, was really around the systems and the timing of the systems and project business there as we think about what's going forward. So China did slow to mid-single digits. Again, we had not seen that kind of growth in China. We traditionally have expected China to be stronger. But for the full year, we still anticipate that Asia Pac will be double-digit growth, and we expect China to be strong double-digit growth for the year. So we're still very opportunistic and very -- I guess we view Asia still as a strong growth area for us as we look to go forward.

Okay. Great. And then finally, as you guys exited the quarter, were there any changes in the business that you saw in, I guess, the previous 2 months that give you pause or give you some consideration to your activity going into 3Q?

That gives us -- what was the last part? Anything you want to...

That gives you pause going into the third quarter.

Not really, no. As I mentioned earlier, I think our visibility has remained reasonably consistent. We've moderated to adjust for the segment, Government being a little bit stronger than we thought, anticipating and managing the Enterprise headwinds mainly out of Europe and macroeconomic and with foreign currency. I mean, obviously, foreign currency was the one in the last 30 to 45 days where the euro dropped pretty sharply from $1.32 or $1.31 to $1.22. So we certainly didn't anticipate that. But that's, as Ed talked about, the guidance for the second half, for Q3 and Q4, assumes the euro at about $1.21. So we think we've incorporated that in accordingly.

Next, we will go to the site of Tim Long with Bank of Montréal.

Two questions, if I could. First, on the Enterprise side particularly. Can you talk a little bit about Windows and the transition to Windows 8 and what do you think that will mean for the Enterprise customer base? Is there a risk that on top of the macro risks there's some potential product transition as Windows develops? And then secondly, Greg, if you could just -- you mentioned visibility the same, but I'm just curious if you could scale for us how with the bigger ramp in Q4 that you're looking for, how would you compare your Q3 and your Q4 visibility right now? Does it drop off where you have a much lower confidence in it? Or if you can just scale for us the difference between looking out that extra quarter.

What was the first part of your question, Tim?

Windows 8 and just impact on Enterprise business.

Yes, so we -- our mobile computing portfolio in all products is supported by Microsoft with the exception of our rugged tablet, the ET1, which came out with Android. We did that because the operating system that was required was a touch-based OS, and Microsoft is in the middle of transition. The majority of our Microsoft product is Windows 6.5.3 or Windows Embedded Handheld. And we’re anxiously enthusiastic about Windows Phone 8. That's got to get into the market in October and then needs to be incorporated with the appropriate enterprise features, enterprise class features that would make it attractive for us. So we've always been Microsoft. We've diversified in Android because of the requirements of our clients and the feature set that they need. I would expect us to continue to engage in both going forward. But I am cautiously optimistic that we can work more closely with Microsoft than Win Phone 8, and we'll see when it ships and what feature sets in there. And we'd like to work collaboratively with them on a joint roadmap for clients, especially on the deployment of that OS, the developer ecosystem and the individual feature sets that required for a durable Enterprise grade set of devices.

Okay. I guess my question, Greg, is, is there a risk that customers pause spending because they want Windows 8 instead of 6.5?

I don't think so. I don't think so because our customers are different than the consumer. So they have customized software apps on 6.5 or Windows Embedded. And I don't think there's a risk of that, that we see at this point. On visibility, I've talked about, Tim, that in any given quarter, we have about roughly 80% visibility into that quarter going in. I would say that remains the same for Q3 and is incorporated into the guidance we've given you here at 3% revenue growth all in and $0.69 to $0.74 per share on EPS.

Okay. I guess the question -- if it's $0.80 for this quarter, what is it for another quarter out?

We don't really get into that. So we're not that [indiscernible] into that.

It drops off a bit, right.

Next we will go to the site of Kulbinder Garcha with Crédit Suisse. Kulbinder Garcha - Crédit Suisse AG, Research Division: Greg, I just want to go back to the narrow banding issue. You say if you take that out, you're still growing 11% in Government. And I was always kind of under the impression that with the sale cycles you have in this business, you have just very good visibility. Is this a business now that given either your R&D investments or otherwise, outside of an -- even taking into account, let's say, the macro concerns, you might be able to grow double digits long term? Or is it still kind of mid-single digit growth most of the industry folks have called for? Has anything changed? Or I'm thinking not just about the next quarter, 2 or 3 years out, whether the revenue opportunity for you guys is changing. And then on the question just on the buyback, given the stocks roughly where you bought back almost $3 billion worth of it, is there any reason why you won't continue to be this aggressive? Or is there something on the acquisitions front beyond Psion that you’re maybe thinking about?

Yes. On the Government growth, as we said, for the remainder -- for the full year, we're now expecting Government on an annualized basis in 2012 to be high single digits. Kulbinder, I wouldn't forecast anything beyond that. I'd like to see things develop, and we would watch the developments as a team between now and the remainder of the year and then update you on 2013 at that point in time. And in terms of buybacks, Ed said it well. Obviously, we were aggressive buying back $2.9 billion in the last 12 months. That reflected 2 things, the value of which we thought we would -- that's there in buying back the shares and the sub-optimal excess cash on our balance sheet, which required that sense of urgency. We're pleased that the board's authorized the additional $2 billion. We'll be opportunistic. And that will be a key tool in helping us move towards net debt. We wouldn't get into specific levels of buying at what levels or price points beyond that, but we feel well positioned for us to move forward.

Our final question comes from the site of Matthew Hoffman with Cowen and Company.

You called out weakness in Europe, and iDEN is affecting results. But I was hoping you could add color around 2 things. First, can you comment on the overall pace of the wireless LAN spending, especially your expectation for the second half spending on the category? And second, can you comment on whether you're seeing IT managers shifting resources away from the Plymouth [ph] wireless LAN over concrete floors and now really focusing more on the BYOD and the carpeted spaces within the Enterprise, too?

So Mark and I will tag-team this. I don't think we see a big shift to BYOD per se. We do see continued demand for WLAN. Q2 was down in WLAN for us due to a substantially higher Q2 comp a year ago. We do very well in the targeted verticals, particularly retail and transportation and logistics, where we're aligned with great channel reach. But overall, I think that share’s modestly down in WLAN. I don't think that we've seen any chilling of demand. We still expect for the full year for it to have solid full year growth and be generally in line with what we expected. So I don't think anything beyond that.

But kind of drilling down on that, I think there's a wider expectation, Gartner and some other forecasters, to see kind of double-digit wireless LAN growth overall. Maybe this category’s pulling back right now a little bit below the overall wireless LAN growth but prospects gain from here?

We actually have a pretty good funnel of engagement around WLAN or managed WLAN networks, a lot in retail and in the Enterprise segments. We still think it will grow double digit, but I don't know if it will grow as robustly as it did last year. I think the whole industry was north of 30% or 35%, so it's TBD on that.

I will turn the floor over back to Mr. Shep Dunlap, Vice President of Investor Relations, for any additional or closing remarks.

Thank you. I'd like to remind everyone the details outlining highlighted items for our GAAP to non-GAAP P&L reconciliations and other financial information can be found at motorolasolutions.com/investor. And the audio replay together with a copy of today's slides will also be available on the site shortly after the conclusion of this call. During this call, we made a number of forward-looking statements within the meaning of applicable federal securities law. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola Solutions, and we can give no assurance that any future results or events discussed will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Such forward looking statements include, but are not limited to, our comments and answers relating to the following topics: future sales and earnings growth included by segment and region; earnings per share, future operating margins and leverage improvements; cash flow generation; the amount of other income and expense; future effective tax rates; achievement of net debt position; the timing and ability to repurchase shares under our share repurchase program; ability to pay future dividends; capital allocation framework; expected decline in iDEN; FX impacts; the impact of reallocation of the D Block for public safety use; market share and demand trends for our business and products such as LTE; the timing and impact of acquisition of Psion; new products and solutions introductions. Because forward-looking statements involve risks and uncertainties, Motorola Solutions' actual results could differ materially from those stated in the forward-looking statements. Information about those factors could cause, and in some cases have caused, such differences can found in this morning's press release on Pages 9 through 22 in Item I-A of our 2011 Annual Report and Form 10-K and the Motorola Solutions and other SEC filings. Thanks again. We look forward to speaking with you shortly.

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