Motorola Solutions, Inc. (MSI) Q3 2012 Earnings Report, Transcript and Summary

Good morning, and thank you for holding. Welcome to the Motorola Solutions Third Quarter 2012 Earnings 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.

Thank you, and good morning. Welcome to our call to discuss third quarter results. 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 third quarter results along with commentary, and Mark will join us for Q&A. We have posted our earnings presentation and press release at motorolasolutions.com/investor. These materials do include a GAAP to non-GAAP reconciliation for your reference. It's important that you review these items. 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 actual results to differ materially from the statements contained in this presentation. And with that, I'd like to turn the call over to Greg.

Thanks, Shep. Good morning, and thank you all for joining us today. Q3 was another excellent quarter for Motorola Solutions as we delivered consistent revenue growth, strong earnings per share growth, expanded operating margins and continued to return capital to shareholders. This morning, we reported third quarter sales of $2.2 billion, a 3% increase over Q3 of last year. On a GAAP basis, net earnings were $0.72 per share from continuing operations, compared to $0.45 per share in the year ago quarter. Non-GAAP net earnings from continuing operations were $0.84 per share compared to $0.66 per share in the third quarter of last year, which represents a 27% increase. For the remainder of this call, we'll reference non-GAAP financial results unless otherwise noted. Our Government segment revenues increased 12%, a record third quarter. This reflects growth across the segment driven by a combination of factors including core market growth, new product introductions, international expansion and narrowbanding in the U.S. Operating margins in Government improved 390 basis points year-over-year to 20.4% due to the strong top line growth, favorable sales mix and continued operating leverage as we continue to manage costs. In our Enterprise segment, sales declined 13% from the year ago quarter including a $29 million decrease in iDEN. This segment continues to face headwinds, largely driven by the macroeconomic environment, fewer larger deals and anticipated foreign currency pressure. That said, we remain confident in our portfolio and excited about our new product introductions going forward. I'll now turn it over to Ed to discuss our financial results in more detail. I'll then return to discuss operational highlights and provide additional commentary and perspective on our business performance.

Thanks, Greg. Q3 was another strong quarter. Revenue growth was 3%, consistent with our total company outlook with Government stronger, Enterprise weaker than we anticipated. Given the difficult compare from the year ago quarter, we are pleased with our top line performance. This growth came despite anticipated foreign currency headwinds of $42 million or approximately 2 percentage points. We saw another quarter of broad-based revenue growth in our Government segment with record third quarter sales of $1.5 billion, an increase of nearly 12% from the prior year. Operating margins in the Government segment improved 390 basis points from 16.5% to 20.4%. Strong sales, favorable mix and continued cost efficiency drove this improvement. Enterprise sales declined 13% to $632 million. Operating margin in the Enterprise segment declined to 12.2%, driven in part by sales mix and foreign currency headwinds. However, the largest driver was the sales decline as underlying expenses remained relatively flat on a year-over-year basis. Turning to earnings. Earnings from continuing operations were $0.84 per share compared to $0.66 per share a year ago, a 27% increase, driven by improved operating performance and share repurchases. Operating expenses were $709 million or 32.9% of revenue, which represents an 80 basis point improvement from the year ago quarter. Overall, I'm pleased with our operating leverage improvement. Operating earnings for the third quarter were $387 million or 18% of sales compared to $359 million or 17.2% in Q3 of 2011. Going forward, we will continue to reinvest in our business and expect to generate returns well in excess of our cost of capital while also improving R&D and SG&A as a percentage of revenue. Total other income and expense was a net expense of $13 million in the quarter compared to a net expense of $16 million in Q3 2011. This line…

Ed, thanks. In our Government sales -- segment, sales for the quarter were $1.5 billion, a 12% increase of Q3 2011. We saw growth across the entire product portfolio and in North America, Latin America and EMEA. Profitability also improved significantly with operating earnings growing to 20.4% of sales compared to 16.5% in Q3 last year. We saw double-digit growth in both systems and radio devices. Safety and security remains a priority among governments and funding for mission-critical systems continues to reflect this priority. This marks the 11th consecutive quarter of year-over-year growth in our Government segment, which demonstrates the priority that mission-critical communications receives in various budget conditions. State and local governments continue to face budget choices, but according to a recent National League of City survey, a majority of financial officers believe their cities are better able to meet fiscal needs and nearly half reported increased expenditures on public safety. Many of the existing public safety systems have been in use for decades and will need to be replaced with next-generation digital systems. However, these transitions will take place over years and on the time lines our individual customers want rather than forced migrations. This underscores the importance of our solutions, which are backwards-compatible and forward-migratable. Customers choosing to invest in new digital systems get enhanced features such as voice clarity, text messaging and GPS. And with digital's more efficient use of spectrum, additional channels means new users can be added to a system. New technology also helps first responder do their jobs better and more efficiently. For example, our tactical incident command feature replaces traditional voice roll calls with accountability functions embedded in the radio system. Using this feature, commanders can automatically keep track of first responders on-scene. The APX roll-call function provides an update on each…

Thanks, Greg. [Operator Instructions] Operator, please remind our callers how they may ask a question.

[Operator Instructions] Our first question will come from the site of Pierre Ferragu with Bernstein. Pierre Ferragu - Sanford C. Bernstein & Co., LLC., Research Division: I have a question on the evolution of your operating expenses. They were down $20 million sequentially and like $2 million year-on-year. I was wondering, first, if currency played a significant role in there. And then if you can give us as much visibility as you can on what other parts moved and how much of that is sustainable or more of a one-off? And then when we look into next year, as you integrate Psion, I would assume that there would be a high level of operational synergies there, and so I'm wondering how it's going to impact directionally your OpEx. And then more broadly, if you could give us some color on how you're managing OpEx at the moment on a day-to-day basis, if you have ongoing cost optimization program then and how you're thinking about operating costs reallocation as the time goes?

Okay, so there was -- you snuck in a bunch of questions in there, Pierre. I think we got most of them, and if not, we'll come back to you. On the costs in the quarter, FX had a slight impact, as we talked about. Top line was $42 million of FX impact. At the spending line, it was a few million dollars, probably $4 million or $5 million that offset that as a benefit. So the bottom line when we guided at the beginning of the quarter, really the net impact on earnings was effectively in line with what we expected. The top line was a bit higher than we expected. Remember, we talked about $35 million of impact on the top line. So costs from FX relatively minor in the quarter and they were relatively stable, which is very much in line with the way we've talked to you about our spending, that we're going to -- the spending may remain relatively stable, but we've done a lot of work to ensure that we're spending it in the right place. In other words, taking down certain areas that are not as critical and ramping up where we think we need to and from an innovation perspective and from a go-to-market perspective, so savings really on the G&A side. So we'll continue to go after that.

Pierre, in relates -- as it relates to Psion, as we mentioned, we expect $60 million -- approximately $60 million of revenue in Q4. The guidance we're giving you of $0.98 to $1.03 EPS in Q4 also obviously incorporates Psion, which is probably a negative $0.02 in Q4, which includes the transaction fees and purchase accounting adjustments. Going forward, we're excited about the ability to integrate Psion into the enterprise mobile computing product group. There will be synergies, but nothing we're going to share at this point. I think we'll incorporate that and give you a little bit more color in the January earnings call. And as it relates to operating expense management, we, as a team, we're pleased with what we got done in Q3. We felt we did a pretty effective job around disciplined cost management. Now that said, we will continue to invest where we need to in R&D and maybe sales coverage and other areas where we think warrant the investment. But having said that, we will watch operating expenses carefully and prudently going into next year, and we will philosophically look for R&D and SG&A as a percentage of revenue to continue to improve over time.

Did that get everything that you asked, Pierre? Pierre Ferragu - Sanford C. Bernstein & Co., LLC., Research Division: I think you got absolutely everything.

We'll go next to the site of Kulbinder Garcha with Crédit Suisse. Kulbinder Garcha - Crédit Suisse AG, Research Division: Just a question, Greg, on the narrowbanding effect. I think, last quarter you said it was 2 to 3 points of growth. I missed whether you mentioned what the impact has been year to date. And I guess, just on a wider comment, what confidence can you give us as we're getting closer to '13 that you're not borrowing sales from next year on the Government side given you are just so much above the normalized revenue growth rate in that business?

Yes, and Kulbinder, so -- again, first of all, when we give you what we think around growth for the quarter, it's an estimate. But this quarter, for Q3, we think of the 12% Government growth, approximately 3% of that was narrowbanding driven. Remember, as I mentioned earlier, narrowbanding for UHF, VHF is 30% of the installed base in terms of kind of proportionately sizing it. As I mentioned, there's 50 -- currently 50-plus waivers that are filed with the SEC where customers will go beyond the January 2013 deadline. My view is that number will go up and many of these waivers will be granted, which my view means it won't necessarily be a cliff as we go from 2012 to 2013. I think kind of moving back, Kulbinder, there's no question narrowbanding helps. However, more broadly, the overall demand drivers for the business, new features, better efficiency, the aging of the installed base and quite frankly our Government growth outside of the U.S., which has been pretty robust, we think that'll continue. That's obviously incorporated in the 6% to 7% growth for Q4, but we expect Government to perform -- continue to expect strong, almost double-digit performance in Q4. Kulbinder Garcha - Crédit Suisse AG, Research Division: Great, and just one other question on the margins in Government. As you hit these record highs, I guess, is there anything temporary in that just mix-wise that's driving it, or is this just maybe the effect of the portfolio introduction that you guys have been introducing over the last year coming through?

I think it's a combination, Kulbinder. I think part of it is the portfolio where we have deepened and broadened both the APX and TETRA product portfolio, which expands the addressable market available to us and makes us more competitive at different price points. I also think that -- it's my sense that state and local governments and -- while not in great shape, of course, are incrementally improving. And as I mentioned earlier, we're getting just a little bit more positive indications from our customers that they're willing to spend a little bit more on public safety. And we've always said, quarter in and quarter out, that we think it remains a very high priority within these budgets and that not all government spending is equal and I think our results reflect that.

And we'll go next to the site of Keith Housum with Northcoast Research.

Question for you on LTE and as you look at it onto the future, you guys have previously said that you expect the revenue not to be material until 2014. Has anything changed in the U.S. or abroad that will perhaps impact your thoughts there, or if you can provide any color on your thoughts on LTE as we look out now and into the future?

So I think that FirstNet obviously has been formed. They had their first board meeting in the end -- at the end of September. I think that process has to unfold and there's a lot of work to be determined there by FirstNet. That said, we feel very well positioned in LTE broadly, given the investments we made in previous periods from a product portfolio standpoint. I'd also remind you that I -- this is clearly not just a U.S. opportunity, it's a global opportunity. We've mentioned previously that we think LTE, as we kind of look out, is probably no more than $100 million of revenue in the second half of 2013. I think the large dimension of that $100 million will be more globally derived than U.S. derived, the Middle East being a particular attractive area for discussion. But just going back to FirstNet, I think they're going to work hard. And I also think, I'm confident that they will engage the public safety users in the states and put a high prioritization around the users, feature set for public safety, but that'll take several months and into 2013 to play out. But in the meantime, we continue to invest and I think we're well positioned, and of course, we're also well positioned with our strategic partner, Ericsson.

And we'll go next to the site of Tavis McCourt with Raymond James. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Greg, I wondered if you can give us the backlog numbers for the quarter. And Ed, when you referenced the $1 billion of operating cash flow this year, was that a GAAP number or was that excluding the pension contribution?

Backlog, Tavis, was relatively flat sequentially, essentially flat for both Government and Enterprise, excluding iDEN. Pretty pleased with it. Can we give the figure?

Yes.

It's about $5.9 billion.

So effectively flat. And on the operating cash flow, Tavis, it's $1 billion operating cash flow, that's all in. So it includes the pension contributions. And the only commentary that we made really during the call was to kind of people are looking at $1 billion of cash flow, you divide by 4, you might expect on a straight-line basis by quarter it'd be about $250 million. We're a bit lower than that, $182 million as we mentioned, really driven by -- primarily by the acceleration of that one pension payment of $72 million into Q3 a few weeks early to save some PBGC fees in '13. AR was elevated a bit as was inventory. But really, as we mentioned, it's really a timing-related item and we expect to close that gap, and again remain confident at $1 billion for the full year. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: And so just to make sure my numbers are correct, that would presume somewhere very close to $500 million for the fourth quarter?

That's right. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Okay. And then final question, within your Government segment, remind me how big a percentage the private commercial radio is. And is that growing faster than the Government segment as a whole right now?

I don't know that we've talked to the sizing of that. I think we've shown pie charts in the past, but I would say it's growing, I'd say, at relatively comparable rates with the rest.

That's correct.

Yes.

And we'll go next to the site of Craig Hettenbach with Goldman Sachs.

Greg, despite some of the weakness in Enterprise, you did mention you're encouraged by the backlog. So any commentary on that in terms of spending expectations for Q4?

Well, so -- I mean, obviously Enterprise was weaker than we thought. But that said, if you normalize for foreign exchange, which was headwinds of about 3%, and iDEN, which declined 4% of the 13%, we're at about a 6% or 6.5% decline for Enterprise. Still not what we'd like it to be, but normalized for foreign exchange and iDEN. I think that there's fewer larger deals in terms of the year-over-year compare at the moment, but the discussions, the engagement, especially in the core verticals that we have, give us reasonable confidence and comfort into the guidance that we're giving you for Q4. I think that as we think about the full year, Craig, we think that Government segment on an annual basis will be double digit, and Enterprise, all in for the full year, will be mid-single digit decline, but that also obviously includes the planned-for decline in iDEN. And I like the fact that [indiscernible] and other people have some significantly new products coming out this quarter and next quarter. So while we're not pleased with it, clearly, we should be able to do better, I think we're managing it okay and we'll keep a close eye on it. But obviously, macroeconomic headwinds impact more the Enterprise segment than our Government public safety segment. We'll keep an eye on it.

Okay, if I could have a follow-up for Ed. The company continues to be aggressive in returning cash through buybacks as well as the dividend. But on the dividend front, you do have a lower payout than the overall market. I'm just curious to get your thoughts in terms of how you view that longer term. Is that an opportunity to kind of true up? And where do you stand in the dividend on a go-forward basis?

That's something that we look at perpetually, Craig. And as I've talked about in the past, that's something we -- as we look at that, we look at that more on an annual basis, but as all part of the capital allocation strategy. We outlined a 25% to capital expenditures, 30% to dividend and 45% to that flexible combination of share repurchase or acquisitions. So that's where our current thinking is, but we'll continue to look at that over time to make sure that, that fits with our strategies, with acquisitions and the other elements of that allocation.

And we'll go next to the site of Jim Suva with Citi.

When we look at strategically long-term your big picture, I believe, earlier this year, you laid out some goals, which I think was kind of sales growth of, long term, about 5% to 8%. And I believe that was for more than just this year. It's for multiple years. And maybe I've misspoken on that, but I think that was the case. And if so, given the macro and climate plus the LTE, D Block changes and all these waivers going on, should that be reassessed or are other areas picking up to make it still in that confidence range?

I think the short answer, Jim, is -- well, first of all, we're always going to look at it and continually reassess it periodically. But at this point, I don't see a need for that -- those kind of goalposts, long-term targets to change at this point. The dimensions may change, obviously. I think just picking up on LTE, I think LTE, for us more near term, will be more of an international contributor than a domestic U.S. contributor, which is different perhaps than what we thought several quarters ago. But in the main, I think we should be able to with the portfolio and the segments to be able to drive reasonable consistent top line growth. And whatever that growth rate is, then commensurately keep the P&L in shape where there's good operating leverage, which was -- which came through really well in Q3 with operating earnings growing 8% and revenue growing 3% and then earnings per share, of course, given the significant repurchase, growing at 27%. So it's all about growing the business but it's also, for us, all about operating leverage and investing capital with high return on invested capital to ensure a strong and superior return for shareholders.

Okay. And then my follow-up would be on the M&A front, Psion seems like a great natural fit there and a lot of synergies. Are there a lot more companies out there on the M&A front? How robust is your pipeline, and any changes in that given the recent economic uncertainty? Are more companies entering the pipeline or are valuations adjusting quick enough or kind of slower? How can we think about the acquisition, M&A pipeline?

Thanks, Jim. I don't think -- I think the funnel around acquisitions for us and things to evaluate remains pretty constant. To your point, some valuations are getting a little bit more attractive. But at the end of the day, I think we're pretty disciplined around this and we're certainly not going to buy things just because we have money in our wallet. It's got to be a high strategic fit, a strong return on invested capital. We have to have the ability to execute and integrate the acquisition. Psion's ideal because it's in a space of mobile computing that we play and lead. And at the end of the day, whatever we acquire has to have a very, very high cultural compatibility quotient. Symbol had it, Psion has it. But we -- I would say it's a pretty steady view and stream of evaluations, but I don't think our thinking around acquisitions have changed in the last few quarters just because of the macroeconomics. It remains pretty consistent.

And we'll go next to the site of Jeff Kvaal with Barclays.

Yes. Greg, could you spend a little bit more time talking about what is happening in the Enterprise side of the business. I mean, the x-iDEN revenue number last year was plus -- last quarter was plus 5%. Now you're talking normalized down mid-single digits. Obviously, the macro isn't great, but has it deteriorated that much? What are some of the drivers across the different regions that are hurting growth there?

Yes, Jeff. So again, 13% year-over-year decline, normalized for FX, that takes it to about a 10% decline. You back out the $29 million iDEN decline -- and forgive me, I'm just doing the formula here, it takes us to about a negative 6% to 6.5% growth for the quarter. Remember, the previous compare was robust in Enterprise, it was up 13%. And I think, at the end of the day, it is really just fewer deals -- we also -- by the way, one other thing, we are no longer pursuing as aggressively as we were what I would call low-end WLAN sales in certain parts of Asia where we were ringing the bell on top line revenue, but the commensurate margin or profitability was more challenging. We've chosen to walk away from that and not compete. So we're not going to pursue revenue for revenue's sake. That was a contributor in the decline of our WLAN business. So those are kind of the ingredients. Mobile computing is down. At the end of the day we believe we're, for the most part, holding share, which is really important in these times. And as I mentioned, given the refresh in a number of new products in the Enterprise portfolio, we'll watch it closely, but we think we will be able to come back a bit and start to grow again.

Jeff, just a little clarity. When Greg mentioned earlier that he felt optimistic about the funnel, when you think about regional clarity, Latin America, I would remind you, is up in Enterprise x iDEN. North America, there was 2 very large deals in the previous year. Absent those 2 large deals, it's mid- to high-single digit growth. EMEA is primarily due to FX, so given a comparable of approximately 20% in the prior year, we're very pleased with the performance in EMEA. And then in Asia Pacific, as Greg just mentioned, absent or normalized for the business or the product area that we decided not to pursue in China, Asia-Pac is also a high-single digit growth in Enterprise. And as we look forward to the fourth quarter and the guidance that we gave you, Enterprise growth in fourth quarter is mid-single digit growth. So I think that, while we're not proud of 13% decline, I think that's why we're speaking that we're also reasonably optimistic about where we are today.

Okay, great. And then, Ed, on a follow-up, could you remind us how much of your buyback you have left?

I think we've done 3-point -- I think we have $1.8 billion left of the last authorization, so about $1.8 billion.

We're going to go on to Ehud Gelblum with Morgan Stanley.

So I know we did a lot of math on this iDEN and that seems to be a lot of the decline on a sequential basis as well, I mean, maybe -- I apologize if you mentioned this before, but it looks like iDEN was down over 50% sequentially. So it seems like it's almost pretty much out of the run rate and not going to impact Enterprise going forward anywhere near the extent that it did in the past. So we should actually see a softening effect in Enterprise going into next year. I just want to make sure that, that math is right, I got a number somewhere in the mid-30s for where iDEN is down to.

So on iDEN, Hudie, it declined $29 million in Q3.

That's a year-over-year example though, right?

It is. We also talked on an annual basis that we thought it would be approximately $270 million for the full year of 2012. I think it's within the range of still being that, so -- and I think for the quarter in Q4, it's...

Something a little bit less than the $29 million is what we're thinking. Something in the lower 20s.

$20 million for Q3?

For Q4.

For Q4.

Okay, so I'm right. So basically, it becomes smaller.

It becomes a smaller piece, but the trajectory of it, Hudie, as we talked about it, it's somewhat of a similar trajectory is what we're thinking into 2013. But we'll give you more specifics on that in the next quarter's release.

Okay, great. That's actually very helpful. There was a story out, and I don't know if you can comment on that but it was interesting, a day or 2 ago about the NS -- the deal in Scandinavia perhaps being reopened and someone looking into it or someone checked into it. I wondered if you could comment on that and is there any validity to that? Clearly, there isn't. But I mean how should we look at that story and if you've seen it?

Yes, Hudie, this is Mark. I think, as you said, there was a story out where a competitor or a potential competitor in Norway had complained about the procurement process of the contract transfer from NSN that you're aware of to Motorola. That request is directed at DNK who is the customer in Norway. The customer feels very compelled with the process that they followed and the legal aspects that they looked at. We're obviously -- we're a piece of the contract before, now we've taken on a prime contract responsibility. So we feel confident that we'll continue to execute on the contract and moving forward and we'll let the process run its course in Norway with the customer.

Okay, that's helpful. And then back to the Enterprise, and I don't mean to beat a dead horse on this, but clearly macro has a lot to do with the decline going on right now. How do you tell the difference between a cyclical and a secular issue with Enterprise? Home Depot is a huge account for you now and it was a big win and when you walk in there they all have Motorola handsets, and it's a great innovative system. But then you walk across the street to Lowe's and they're using iPhones now. How did -- did you compete for that Lowe's business or were you not allowed to compete because you were so big with Home Depot? And should we -- how should we be kind of viewing what Lowe's did with respect to how this business proceeds going forward?

So I think, Hudie, and Mark and I will probably tag team this, but a couple of indications of the difference between cyclical and structural are: one, backlog; and two, the forward-looking funnel and the degree of discussion and engagement prospectively that we have with customers. Now I won't get into the detail per se. You're right, Home Depot is a great account, Microsoft orientation. We worked with them on several -- for several years. Lowe's chose a different path. I think that my view is oftentimes, whether it's Pepsi and Coke or McDonald's and Burger King or Home Depot and Lowe's, perhaps part of that decision was incorporated that if one company is going with one vendor, maybe somebody should consider going with another. That said, we watch closely folks like Apple and how visible they are or what degree of engagement they have with customers in the Enterprise. Remember, for us -- I know you know this, Hudie, our sweet spot is the industrial, rugged mobile computing. So we're doing the heavy lifting, the blue collar, the warehouse, the back office. Yes, we go into the store, of course, like a Home Depot. But we're going into a store with a rugged application, with a Microsoft orientation, with ubiquitous push-to-talk and customized applications and a durability factor with the device that's enterprise grade versus consumer. We will continue to watch more anecdotally. I mean, Apple continues to -- we see anecdotal evidence of those conversations with certain Enterprise customers, but it's more TBD. We feel, overall, pretty solid about our position. We'll continue to invest in it and we'll watch to ensure that we're not just breathing our own fumes here on cyclical versus structural.

Just a quick add, too, is that we did compete for the business. Obviously, we don't want to lose any piece of the business. But I would just add that Lowe's is still a very strong customer for us. While Apple did go throughout the store associates with the units that you just mentioned that you see when you go in the store, we still do the wireless LAN network for them, we still do other aspects and we continue to work very closely with Lowe's just as we did with all of our customers.

Great. Can you just give a quick update on the Android units and your conversion to Android? Is that just a part of the portfolio, or will you be keeping both Windows and Android going?

I think you'll see us do both. I mean, obviously the installed base is overwhelmingly Microsoft. Windows 8 -- by the way, I should have mentioned Windows 8 too. I think that, that is part of the pause in Enterprise spending in part. I can't give you a quantifiable number, but as Windows 8 comes closer, I think some customers wait to see what it's about and its affordability and how we incorporate it in our portfolio. Hudie, we'll continue to do both Android and Microsoft. We're in very good strategic discussions with Microsoft at the highest levels. And we will look to incorporate in the future some devices around Windows 8 that'll support the customized apps and do comprehensive security and VPN support and integrate and optimize voice over WiFi and enterprise WLAN, so we'll do both.

And we'll go next to the site of Matthew Hoffman with Cowen.

Another narrowbanding question. If I'm reading your comments correctly, compared to the 3 points of growth you estimate you got in the Government business this quarter, next year in 2013, we should expect the effect of narrowbanding to be lower because of the wind down of the mandate's effect. But there are 50 municipalities out there looking for extensions, so it should be greater than 0. Is that the right way to frame that argument out? And then I'll have a follow-up.

Basically, yes, Matthew. It'll be greater than 0 given the 50-plus and there very well be more waivers between now and the end of the year. So yes, that's probably the right way to frame it.

Right. Then can you help us think about the 50 relative to the overall addressable opportunity within the mandate, so we can -- help us size that?

I can't because I don't -- I can't dimensionalize or quantify the 50 or size it and the mix between rural and major metro. Maybe on the next earnings call as we exit 2012 and look forward in '13 we'll have a better appreciation of framing it and quantifying it.

Matthew, just a couple of -- just to give you a little bit more color on that to maybe make you feel you a little more comfortable. Remind that Greg made in his comments that the narrowbanding mandate is just 30% of the user base. So even when you're talking about the residual, you still got the rest of the population of users in North America. I would also remind you that the narrowbanding mandate is not an international phenomenon. And when you look at our Government growth internationally year-to-date, we're 20-plus percent in Latin America, and mid- to high-single digits in Europe and in Asia. So that's why we say if you think about the falloff from narrowbanding, certainly it's going to impact the growth in North America, but we still are seeing very strong growth internationally and in North America as a result of new product introductions, all of our offerings and the benefits that we provide to our customers.

I appreciate the color. One last one, a housekeeper. Wireless LAN, I didn't hear you call it out on the Enterprise side. Can you just fill us in on the trends there in the wireless LAN business?

Wireless LAN declined for us year-over-year. I think, I mentioned earlier, in part because we chose not to pursue some lower-priced, lower-margin, low access point opportunities primarily in Asia, actually mainly in China. But it did decline for us year-over-year and we would look for that to improve going forward.

And we'll go next to the site of Ben Bollin with Cleveland Research.

When you look at your platform investments, you talked about Windows and Android, but could you talk a little bit about how you're thinking about investments into app developments themselves, potential software to be more vertically integrated with your customers?

So 2 things in that regard, Ben. We do work closely with our independent software vendors to ensure that vertically specific apps are customized, whether it's retail or transportation logistics. In some very large accounts, we have some of those software app people doing that customization with the Motorola badge. The other things around app development is the acquisition we made of Rhomobile or RhoElements. And the notion is that we, over time, provide an HTML5 tool kit, an SDK, if you will, where app developers write to that, that's agnostic. It's indifferent to whether it's Windows 8, Android 4.0 or iOS. So we have a common tool kit that's written at the browser level that's then supported irrespective of the underlying operating system. So we're really doing it on 2 levels: working customized apps organically internally and with ISV partners today, Microsoft and Android; and investing in a software element that can simplify the portability of applications and lower the costs and make it more ubiquitous over multiple operating systems. That's the twofold strategy we're pursuing.

Okay. And then as a quick follow-up, you look at Psion, you gave us the 4Q run rate. Could you give us an idea on the annual run rate kind of the margin profile of that business and the headcount? And then, where's the onshore, offshore cash stand at the end of 3Q?

So a couple of things. First of all, on the onshore, offshore, I think the cash balance was somewhere in the mid-30s, so kind of consistent with where you'd expect, $3.5 billion in total. On the Psion business, I think I'd keep it very high level. I did talk about the impact for the fourth quarter being a negative $0.02 per share. Really, coming in, the business is roughly breakeven x those purchase accounting and transaction-related fees that are out there related to that transaction. Going forward, you would expect that we will drive to improve that -- the earnings of that business such that, as we've talked about previously, it will be accretive on a non-GAAP basis in 2013. And on a non -- on a GAAP basis, it should be accretive in 2014. So the plan is definitely to improve the profitability of that business such that the return on invested capital that we assumed on that business when we acquired it comes to fruition.

And the headcount, Ben, is approximately 800 people.

And we'll take our last question from the site of Blaine Carroll with Avian Securities.

A couple of questions. First of all, on the narrowbanding, is there any incentive for the 70% that don't need to move to that 12.5 kilohertz? Is there any benefit for them to move to it, I mean, could that extend the narrowbanding process as well?

Certainly. I think when we talked about the growth that's occurring, certainly we talked about the contributor of narrowbanding. But we also talked a lot -- when you think about double-digit growth and we said narrowbanding and double-digit in the U.S. and narrowbanding contributing to 3% of our overall growth, we talked a lot about the aspect of moving from analog to digital and the new features, the better efficiency that's there, the ability to add more users because you're spectrum efficient when you do that. The fact that a number of the 70%, if you will, which was your question, are aging infrastructures, they need to upgrade anyway, so they're attracted to the digital aspects of the system. So that, again, is a big explanation of why we're getting growth way beyond just narrowbanding.

Okay. And then there's a new product out that's predominantly or prominently displayed on your website, the HC1 headset computer. I'm wondering if you could talk about that device and what your sort of prospects are for that.

Yes, I think that's really much more of a niche device. It's got a high ASP price point. And I think you're looking -- you're referring to the helmet computer device. I think it's -- I love the fact that we have it. It's a small addressable market and I would look to it to be more niche application than broad based.

Any thoughts on -- this to me looks like that Google glass application. Any thoughts of moving it over into that space, or is this just a...

No, I think this is more of a demonstration of the innovation capabilities and where we have a very unique set of requirements for clients, we'll sell it in kind, but I don't think it's -- it's more representative of the art of the possible and for very unique circumstances to fill that need, but I wouldn't look at that product as expecting any broad-based deployment.

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

Thanks. I'd like to remind everyone that details outlined and the highlighted items, our GAAP to non-GAAP P&L reconciliations and other financial information can be found on our Investor Relations site. An audio replay, together with a copy of today's slides, will also be available on the site. During this call, we've made a number of forward-looking statements within the meaning of applicable federal securities law. 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 outlook; cash flow generation; the amount of other income and expense; future effective tax rates and cash tax rates; future pension funding requirements and PBGC fees; the impact of the acquisition of Psion, including revenues and EPS; the financial impact of reinvesting in our business; new products and solutions introductions; future operating margins and leverage improvements; our future dividends; capital allocation framework; expected decline in iDEN; market share and demand trends for our businesses and products, such as LTE; and the impact of narrowbanding. Because forward-looking statements involve risks and uncertainties, Motorola Solutions' actual results could differ materially from those stated in these forward-looking statements. Information about these factors that could cause, and in some cases have caused such differences, can be found in this morning's press release on Pages 9 through 22 in Item 1-A of our 2011 Annual Report and Form 10-K in Motorola Solutions' and other SEC filings. Thanks. We look forward to speaking with all of you soon.

Ladies and gentlemen, this does conclude today's teleconference. A replay of this call will be available over the Internet in approximately 3 hours. The website address is www.motorolasolutions.com/investor. We thank you for your participation, and ask that you please disconnect your lines at this time. Have a wonderful day.