S&P to Upgrade Motorola - Analyst Blog

Recently, Standard & Poor's Ratings Services (S&P) announced that it may upgrade the credit rating of Motorola Inc. (MOT) once it completes the proposed separation. Earlier this month, Motorola declared that its much awaited split-up into two separate entities will happen on January 4, 2011 before the opening bell.

New companies will be called as (1) Motorola Mobility holdings Inc, which will comprise Mobile Devices and Home Businesses (2) Motorola Solutions, which will comprise Enterprise Mobility Solutions and Networks Businesses. In a nutshell, Motorola Mobility will be more retail consumer centric whereas Motorola Solutions will be more enterprise centric.

S&P said that it is positive about the future growth prospects of Motorola Solutions. S&P has currently assigned a speculative “BB+” rating for the unified Motorola. This is the highest rank in junk status in the rating agency's structure. However, after separation, Motorola Solutions is likely to get an investment grade “BBB” rating from S&P. This will be a two notch upgrade from its existing status. S&P will also provide an overall Stable outlook for the company.

According to S&P, the primary reasons for this possible rating upgrade are the stability of the market, the high priority of public safety solutions, and an industry structure which is characterized as high barriers to entry. All these positives transform Motorola Solutions' business risk profile to satisfactory.

Motorola's existing Enterprise Mobility Solutions division develops police radio and barcode scanners.  It also provides customized, fully integrated communication and information systems for mission-critical customers including government and public safety agencies. Several industry researches estimate that public safety and professional services market is $6 billion globally. Motorola is a formidable player in this segment.

Motorola has decided to sell most of its network businesses to Nokia Siemens Networks, a 50-50 joint venture between Nokia Corp. (NOK) and Siemens AG (SI), for $1.35 billion. This deal is expected to be completed by end 2010 and will boost Motorola Solutions' cash position. We believe the Enterprise Mobility Solutions and Networks Businesses will leverage the overall state-of-the art wireless broadband mobility solutions architecture of Motorola.

We maintain our long-term Neutral recommendation for Motorola. Currently it is a Zacks #3 (Hold) Rank stock.

 
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