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Gauging the Foreign Currency Exchange Impact on Motorola’s 3Q15

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3Q15 sales decline

Motorola Solutions’ (MSI) revenues declined by 1% YoY (year-over-year) primarily due to the $54 million impact of unfavorable foreign currency exchanges. The company’s sales, however, increased by 3% on a constant currency basis, and its North America business region witnessed a 5% YoY growth due to improvements in product and service sales.

In the press release following its 3Q15 earnings results, Motorola’s management stated that “overall company product sales were flat due to currency headwinds and weakness in the Latin America region,” specifying that “the Services business declined 3 percent primarily due to currency headwinds, lower iDEN revenue and a decline in systems integration revenues in Norway.”

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Operating margin

Motorola’s GAAP (generally accepted accounting principles) operating margin was 16.2% of sales in 3Q15, compared to 14.4% in 3Q14, whereas its non-GAAP operating margin stood at 20.5% in 3Q15, compared to 18% in 3Q14. This increase in operating margin was driven by $39 million in lower operating expenses compared to 3Q14, due to cost reduction and simplification initiatives across all categories as well as to lower pension expenses and a stronger dollar.

By comparison, the operating margins for peer companies like Cisco Systems (CSCO) and Harris Corporation (HRS) stood at 22.43% and 5.99%, respectively, in their last reported quarters as of the end of October 2015.

Cash flow and cash equivalents

Motorola generated $300 million in operating cash flows in 3Q15, compared to -$252 million in 3Q14. This cash flow increase was driven by $397 million in improved earnings and lower pension contributions.

Meanwhile, Motorola repurchased $2.1 billion of common stock in 3Q15 and paid $70 million in cash dividends during the same quarter. The company ended 3Q15 with cash and cash equivalents of $2.2 billion and with a net debt position of approximately $2.2 billion.

You can gain exposure to Motorola Solutions by investing in the iShares Russell Midcap Growth ETF (IWP) and the iShares S&P Global Technology Sector ETF (IXN). Motorola accounts for 0.40% of IWP and 0.30% of IXN.

Continue to the next part of the series for a discussion of why Motorola expects its YoY revenues to decline in 4Q15.

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