Ladies and gentlemen, please take your seats. Our program will now begin. Ladies and gentlemen, Motorola Solutions Vice President of Investor Relations, Shep Dunlap.
Thanks. Thanks for joining us today in balmy Chicago. I'm just going to read the safe harbor briefly and then take you through the agenda and a couple logistical items, and then we can get started. A number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical fact. These statements are based on the current expectations of Motorola Solutions, and we can give no assurances 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. These 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. We've got a good agenda today.
You're going to hear from all the business leaders. Greg will give you a high-level strategic overview and talk about some of the things that have changed since the last time we got together. Bruce Brda will talk about the systems and products organization. We'll move then to Bob Schassler to talk about solutions and services, a nd then Mark Moon will talk about go-to-market. We'll have a Q&A session dedicated specifically to the three of them, to really focus on operations in the business. T hen Gino will come up and talk about the financial overview, and then we'll have a final Q&A with everyone. H opefully there's plenty of time for Q&A, so have your questions ready. That'll conclude the formal piece. We'll break, we'll have lunch ready. We also have a few demos in the back.
I n the very back, we'll have our solutions and services, and we'll have some things around network monitoring, intelligence, intelligence-led public safety. Then we'll have, by the car, some systems and product demonstrations, some of our latest purpose-built devices. And then over to the left here, we'll kind of have our innovation or innovating the future things. T hings around MSI development in terms of internal, kind of, future-looking R&D, as well as some MSI ventures items. I'd encourage you to spend some time. We've got some pretty senior experts back there who are very deep in that subject, and they can answer any questions that you might have. And with that, we can get started.
Today, because this didn't happen, crowds can rise. Because this didn't happen, hearts can race. Because this didn't happen, electricity can flow. The future of safety is more than better equipment. It's equipping those who keep us safe differently with technology that responds even before the first response. A network of devices and applications that extracts critical intelligence from immediate raw data, and design that delivers that intelligence, specifically in environments of extreme stress. Giving those who stand between order and chaos, the power to change the trajectory of a single moment while still in that moment. To keep cities out of the dark, to guide those on the ground, to prevent a natural disaster from becoming a human, so that people can build their lives, never thinking twice on an unquestioned foundation of safety. Free to create, to innovate, to sell. Because when nothing happens, everything else can.
Ladies and gentlemen, Motorola Solutions Chairman and Chief Executive Officer, Greg Brown.
Good morning, everybody. Thanks for joining us today, and as Shep said, coming from the West Coast or the East Coast, or other parts of the Midwest, on obviously a little bit of a difficult travel day with weather. It's been 22 months since we last had a financial analyst meeting, so there's a lot to cover, and we look forward to getting into the detail by segment, as Shep articulated, but also and more importantly, answering your questions and getting into the detail around how and why we believe this business is poised and well positioned for growth. I think it's an opportunity to gain further perspective on our end from you. We've had a number of conversations with virtually all of you leading up to today, and hopefully, we've incorporated that into our thinking.
As Shep mentioned, we will have Bruce Brda talk about systems and products, Bob Schassler on solutions and services, which is a growing and more important area for us, moving forward around differentiation and what I would call lifecycle annuity revenue, and stickiness with our customers. Mark Moon will review the changes made in go-to-market, and then Gino, of course, will summarize with the financials, and we'll get into some Q&A. I wanted to start with this. S ince we were last together, it's been quite the journey. The last time I was in front of you in this setting, we talked about two core businesses, one great one, this one, and one good one, the enterprise one. Obviously, you know we took steps to monetize the enterprise business.
We believe we got a fair and full price for that deal, and commensurately, it allows us to take that cash, invest in the business, return it to shareholders, in a timely way, but also we get the benefits of being a pure play. T here's, I don't think there's any question that as a result of being a pure play, we have gotten after the cost reductions in a way that's been more specific, and more accelerated, that perhaps with two businesses, might have taken us longer. There's no doubt that, when you're the only business and you move from a division to being a public company, a standalone public company, the accountability, as well as the visibility, is helpful in driving the growth of the business.
The thing we're excited about, and I like about this business and always have, is this is the strongest leadership position. It allows us—it's got a very healthy backlog, and the opportunity to sustainably differentiate is the most significant in the new Motorola Solutions. I think that differentiation stems from an end-to-end orientation, infrastructure, software or applications, and devices. You know our position in LMR, or Land Mobile Radio, and the investment we've been making in public safety LTE, is to replicate that end-to-end systems orientation. That gives us greater strength. It gives us, I think, superior interoperability between the component parts, and as Bruce Brda will mention, since public safety LTE is additive to LMR, over time, as those broadband networks get built out, the voice push-to-talk interoperability between LMR and public safety LTE, we think, is a distinct advantage.
I think the three things you'll see throughout the day is growth, operating leverage, and cash flow generation. Growth, operating leverage, cash flow generation, which we think creates a bit of a flywheel for total shareholder return. I think that the business is well positioned to capitalize on. A lot's changed. A s RemainCo, and you know the journey to get here, we've spun off mobility, we sold off the automotive business, we exited enterprise, we sold the networks infrastructure business to Nokia. We did that because we were not well positioned in those other businesses, and we did that because reinvesting in this core business with this kind of shareholder return, with the ability to return this cash base and contract the shares as this business returns to growth, we think is the best opportunity for sustainable differentiation and value creation for the business.
I think that when you're RemainCo only, and you strip away all of those other segments, we are always burdened with stranded costs of RemainCo. We've gotten after that. But when you have a white light on only this standalone business now, redundancies, duplications, inefficiencies, inefficient processes, are easier to get after, and I think we're doing just that. We've also made quite a number of changes on the new talent side, that may or may not be as evident to some of you. A s we've gone from two years ago to two businesses, to the pure play mission-critical communications with market leadership, both in narrowband LMR, end-to-end, and the proactive investment on public safety LTE, and the emphasis we're making on services, we have new talent leading us. We have three.
We're gonna talk about the business, by the way, in five regions under Mark Moon. Three of those leaders, North America, Jack Molloy, Latin America, Mike deVente, and Asia Pac, Iain Clarke, are all new to their positions in the last year. If you drill down even further within North America, Jack Molloy runs five regions in the States, and four of the five leaders there are new. In the West, Mark Schmidl, in the Central, John Zidar, in Commercial Markets, Scott Schoepel, and in Federal Markets, Mark McNulty. A n upgrade and a revamp of talent. We have two new finance leads in the Gino organization, Jason Winkler, tag-teaming with Molloy in North America, and Akash in Asia Pac with Iain Clarke, who's an outside hire that came to us from General Motors and was very instrumental, by the way, in restructuring the pension work.
We had Rob O'Keefe join us from Treasury, maybe 18 months ago. Rob O'Keefe and Akash have been fantastic in the U.S. and U.K. pension restructuring that has allowed us to de-risk this business from a liability standpoint and also have a P&L where there's no cash funding required for U.S. pension for the next five or six years. We brought in a woman, Natalie Bassi, from AT&T to run customer care and quality, who works for Mike Kost. Mike Kost joined us from a distributorship in Latin America. Mike is also new, and Bob Schassler has brought in a couple of services people from Intel and Nortel. 21 of our 70 vice presidents are new to their position in approximately the last 18-24 months, or such, since the time we've been here.
On the cultural transformation side, we continue to drive a better detail and better management of the business. We have a better handle around the drivers of growth. We have a better linkage around what Gino's implemented in what we call a six-quarter rolling forecast of the business, and interconnecting it to both the operations and financial of the business around orders, aged backlog, quick turn, the disaggregation of aged backlog between product and services, and that visibility has improved. We launched that implementation, Gino did, 12 months ago. It began February of last year. W e've also completely revamped our approach to research and development, not just in reducing cost, but as Bruce will talk to you about, the way we're structured, platforming the business, eliminating redundancy, and a 40% SKU reduction in products by the end of this year.
One other example is taking seven audio labs and consolidating it to one. All of these inefficiencies that, as a singularly focused company with new talent. B y the way, Schassler and Brda swapped jobs about a year and a half ago. Bruce takes a new view, and while he is a longer-term Motorolan, he's not a long-term person to this business. He came out of mobile devices, quick cycle, intensely competitive, consumer-driven, margin sensitive, and he also spent extensive time in the networks infrastructure business, where we had to take cost out on an accelerated basis because we were number five in the business with subscale market share, and it was a harvest, not invest, and we had to thoughtfully but aggressively take cost out.
Bruce brings an orientation of a little bit of experience in our business, the network infrastructure business, the device business, with an eye toward cost and efficiency in a way that I think is advantaging us, and a new set of eyes and ears that are driving improvements that might, perhaps, we might not have made on our own. K ind of taking stock, here's where I think we've made progress, and here's where I think we missed. A gain, we're very pleased, and I remain very pleased, about divesting the enterprise business. It's a good business. It's not as good as ours, and quite frankly, it had limited synergies, and as time went on, I thought the businesses were diverging.
The competitors to the enterprise business are more along enterprise competitors that you would think, the traditional competitors of Intermec or Honeywell or HHP, but over time, IBM, IBM's relationship with Apple, as they do enterprise applications on Apple product, and it's a completely different competitor base than what we do, which is traditional land mobile radio competitors and occasionally some systems integrators. But competitors are different. Synergies were about 10% at best, and things that we thought, and quite frankly, I thought we would gain on go-to-market by combining the businesses, didn't materialize. I t made sense to sell that business. It's in good hands with Zebra. Zebra has, benefits of having, mobile computing as well as mobile printing, a lot of shared distributorships, and a management team that focuses only on that. We continue to be very aggressive on capital return.
I think we've been good stewards of capital. I'll dimensionalize that more specifically in a minute, as will, Gino, but we've been very aggressive returning capital. I think we have been significant in the transformation of the balance sheet, not just in the work done on the pension, both U.S. and more recently, U.K., but we expect to be in a net debt position. We were, right before, as we committed to, right before the, sale to Zebra. We expect to be returning to net debt either Q2 or Q3 of this year and would look to remain, in that position. O n cost, we continue to get after it. $205 million last year, approximately $150 million more this year, despite accruing for incentives, back up to 100%.
O ur focus is to lower the cost structure, lower the fixed cost base. By the way, not impairing growth, but getting it as low as possible, so as growth returns, the leverage kicks in, there's margin expansion, there's free cash flow generation, we contract the share base, and we're very mindful of free cash flow per share, and we think that creates significant growth. What we missed: we miscalled U.S. Narrowbanding. We thought that some of the business was attributed to that, but quite frankly, we didn't fully appreciate or understand how much accelerated purchases took place in 2011 and 2012. We should have, but we didn't. But we also believe we're coming out of that, and as I've said more recently, I think Narrowbanding is largely behind us and will be, by probably the middle of this year. But we missed it.
We missed the timing of public safety LTE. This one was a little harder. We had a contract for BayRICS. It was canceled. We had a contract for Mississippi, State of Mississippi. It was stopped. There were approximately $380 million of BTOP grants before the formation of FirstNet. A significant amount of that money ended up not being spent. Then with the formation of FirstNet, and then the change of leadership in FirstNet, things have been elongated. I'm not sure we could have done anything differently on this one, because I think the events there were harder to see. But in retrospect, we thought United States public safety LTE would be sooner. It's not. We've recalibrated and adjusted both for 2015, and I think in the multi-year planning period, to incorporate that, in our growth projections.
L astly, we missed Asia Pac. For a combination of reasons, but we missed it. Number one, we didn't execute well, as well as we could have. A s Mark will talk about, more specifically in Asia Pac, it was more an issue around Australia and China, more specifically. We've had a change of management in the channel organization. We have a brand-new leader in Iain Clarke. We think those issues are being mitigated, and you'll see, you'll see in our projections going forward on Asia Pac. By the way, the good news is, backlog was built nicely in Asia Pac, and we're also working on a couple of larger orders here that Mark Moon will reference. I think that, I think things are on the mend.
We've also had-- Given the size of Asia Pac, there's some lumpiness as well in the business, specifically in Australia. That but nonetheless, when we look in the mirror and said, "What progress have we made? What could we have done better?" In particular, the U.S. Narrowbanding impact call and Asia Pac, specifically, are those learnings for us. We wanted to gear today, not to what we think, but to what is most important on your mind. We've coalesced these points around five key points of input from all of you. What is the growth profile of this business? How should I think about growth? Where does it come from? Is it sustainable? Do you think there's anything secular or cyclical or structural? What's the impact of public safety LTE? Do you think you've appropriately allowed for it now, both domestically and internationally?
Remind us of your revenue visibility and forecasting, given the challenge to the issue in Narrowbanding and what we had last year. What is, what do you, management, think the appropriate cost structure is? Do you think it could go lower? How do you think about the cost structure? T hen lastly, at capital allocation. In terms of, return, what's the framework for return, finishing up the, the proceeds from the Zebra sale? These are the top five things we, and I've heard you say, and it's our intention to go through, these items to your satisfaction with the entire team presenting. A s a result of that, we will emphasize our competitive strength and differentiation on this business. What is its historical growth rate? Why do we think it can grow? Why do we think we can sustainably differentiate over time?
What are the differentiation points? Again, reinforcing the end-to-end systems orientation of LMR, the end-to-end systems orientation of public safety LTE. Some of the newer things that we're going to get into, extending from the core into smart public safety around command center transformation, Next Generation 9-1-1. I think about Narrowband LMR and end-to-end, as the end-to-end system that carries mission-critical voice, and w e lead in every part of the world to do that. What we're building in public safety LTE is the end-to-end ecosystem. Sorry, the end-to-end systems orientation for fatter pipe, fatter pipes to do data and video. Interoperable Narrowband voice, interoperable broadband data and video, and we have that infrastructure. The smart public safety component talks about the content or applications or hosting around Next Generation 9-1-1.
P ublic safety LTE kind of has three dimensions to it: the equipment and end-to-end system, the content in smart public safety, and the complementary services that encompass that new delivery of public safety LTE that we think is additive. We'll talk about market trends, things we're hearing from our customers, and why we think it's favorable. We'll dimensionalize the size of the addressable market and why we believe these markets are attractive. Again, reemphasize how we'll grow and speak more around, cost reduction, operational efficiency, leverage, but again, accenting the point of cash flow generation and capital return. T his is 2014. You know we do the segment reporting, product and services. Bruce Brda will talk about products, $3.8 billion, and he will get into the individual components around systems, accessories, software.
Y ou know we sell three primary hardware systems o n the radio products area, ASTRO end-to-end, TETRA end-to-end, and PCR, both infrastructure and devices. H e will talk about also public safety LTE, and what he is doing, and what Bob Schassler is doing to provide a level of differentiation and why we're ready as that materializes. On the services side, you're going to see a new level of detail of services disaggregated. Integration services, or what I would call installation, life cycle support services, that's hardware maintenance and software maintenance.
When you'll see the attach rates, both for hardware, and you see the attach rates, which are very low for software, it's a reasonable opportunity for us to pursue that would accrue to the growth rates in the core, that we think we're better positioned as systems get upgraded and as compensation has been realigned with the go-to-market organization, and that we can spend more time on a higher attach rates for both hardware and monetizing software features and annuity software maintenance and upgrades. Managed services, that could be build, own, and operate, it could be own and operate, or could it be it could be us running a network for a customer. I think the last time we were together, we showed you about eight or nine of these. Bob Schassler is going to show you 22 of them now.
Both that cross b oth public safety customers as well as commercial customers in oil, gas, petrochem, we're managing networks on behalf of customers, and we see that interest growing over time. T hen lastly, public safety LTE services, Smart Public Safety, which I include Next Generation 9-1-1, command center transformation, CAD software, which is a business we're in today, and then iDEN. Although admittedly, you won't hear us talk a lot about iDEN, given that it's kind of off to the side. We've talked about it declining approximately $25 million-$50 million this year in the Q1 earnings call. I think it was $105 million in total last year. I t's a standalone, as you know, proprietary segment, and while it's incorporated and feeds our total growth, it goes down over time.
We're going to focus on the other areas of the business that we think are much more attractive. $9 billion is the size of the addressable market that we would characterize for the core, LMR and core services business. $10 billion is an expanded services definition of an addressable market that we think is right for us to pursue, that Bob will, will get into detail on, and $6 billion would be the smart public safety, public safety, LTE, intelligent data services in the third bucket. It's also important to note that despite this journey of spin from 2011 and some painful moments along the way on our miscalling the business, we have held or gained market share in the major product areas going back from spin to now. Aggregate LMR, ASTRO, TETRA, PCR.
We still believe, and I still believe, when if someone were to say: What do you think the biggest growth opportunities for the company are? From a dollar standpoint, I still think it's the core, and then I would characterize public safety LTE as the next biggest opportunity. T hat includes the hardware, Smart Public Safety that goes with that, and services. A gain, the way we're thinking about this business is growth, operating leverage, cash flow generation. Growth, operating leverage, cash flow generation. From a trend standpoint, here's what we see and hear. Now, the mounting security threats, both the issues in Ferguson and New York and other places in the United States, and it's the first time I've ever seen the emotion so high in the U.S. around policing for a variety of different reasons.
But that, I think, reinforces the criticality of modernized technology and mission-critical communications, and ensures and reinforces the fact that interoperable voice and over time, interoperable data, is top of mind and front and center. If you go internationally and geopolitically, whether it's Paris or Australia, or the most recent terrorist attack, or what appears to be, or what might be a terrorist attack in Copenhagen, these things we see in engagement and in funnel and in dialogue with customers, mission-critical public safety stays at the top.
In terms of this shift to services, and I was thinking about how best to communicate this, I think that over time, given the technology complexity of these networks, of the networks that we build, LMR going to digital, going to IP-based, and over time, public safety LTE, as well as the acknowledgment of the capabilities of the end user customer, I think the complexity of technology and these systems being more IT-like, and the limited capabilities in certain cases of our customers, is driving a services discussion more toward us in a variety of dimensions.
Maybe it's managed services, maybe it's software maintenance agreements, but we're having more and more services discussions, and you'll see, as Bob points out, too, backlog is at very high levels in services, and the annuity revenue from services remains pretty high. We're also seeing the proliferation of data sources, and by that I mean, not just situational awareness at the crime scene, but the amalgamation, consolidation, and dissemination of information in the command center. C alls come in to a 9-1-1 command center, and they've been historically voice. But now 9-1-1 centers have to accommodate text. They have to accommodate data. They may have to accommodate pictures. They may have to accommodate social media or streaming video.
Part of the reason we bought Emergency Call Works just a few days ago is whether it's cloud-based or server-based, we think they bring us a nice extension into the command center that helps us capture this growing need around the proliferation of more and more data sources. The next one is digitization fueling software growth, and by that I mean simply as systems go from analog to digital, and those digital systems are upgraded, the opportunity for us to monetize software features in them, and then provide long-term software user agreements around them, is an opportunity that is front and center, and we're in a better position for it today than we were two years ago. Then lastly, is the emerging markets, and they're prioritizing mission-critical communications.
A s some of these theaters go from emerging up the stack to developing, an emphasis on modernizing infrastructure and having more current state-of-the-art technology and mission-critical communications is critical. Sources of growth. T oday, we'll be blowing out these four sections. Brda will talk about the core products and systems, Schassler will talk about the services and smart public safety, and both of them will actually talk about public safety LTE. I get a lot of questions on growth. What do you mean by growth? How do you think about growth? W e still believe that this is a low to mid single-digit growth business. I'll dimensionalize it a little bit further. As the business, as this business returns to its growth rate, its growth rate profile of the last 10 or 12 years is 3%-4%.
I think that's a useful anchor point for you. From management's perspective, currently from a planning perspective, we're planning more around 2%-4%. Could it be more than that? It could be, but the reason we're doing that is we want to size the organization to the low end of growth, or what we perceive to be the low end, size it accordingly, and as growth returns to historical growth rates, whether it be three or four, or as some of these newer services on the bottom get traction beyond, we want the flywheel of leverage and operating and margin expansion and free cash flow per share to kick in. That's the way we're thinking about that, and I'm sure we'll have a lot more conversation about it. On cost structure, this is the journey over the last three years.
We took out $145 million in 2013. A bigger number in 2014 as we were preparing for the segregation of Zebra, and we had overhang costs, and we had to wait to take out certain costs until there was this extraction of 4,500+ people. We still have IT and other system TSA agreements between us and Zebra that run between 12-24 months. T hen, as Gino and I articulated on the earnings call just a week or two ago, our intention to go after another approximately $150 million. W e're getting after the cost, cost structure of this business. Could there be more? There could be. Do I view it as a cap or a ceiling on this is about it? We don't, but this is primarily the heavy lifting behind us.
But we always, and my management team knows, that we'll always look for continued inefficiencies and those things that avail themselves for us to lower the break-even, to increase the operating leverage, operating margin expansion, and cash flow per share, generation as well. On capital, I think you know these well. We've returned $8.7 billion between share repurchase and dividends since the spin. As importantly or maybe more importantly, we're very mindful of the share count, and we've contracted it 36%. We would expect it to contract further this year and beyond as well. And we've had a healthy dividend increase of 54% over the last three years plus. B efore I turn it over to Bruce, I think you're going to see presentations and narrative through the whole thread of this morning that reinforces this.
This is the way we're thinking about the business. Growth, get it back to low to mid single digits, historical growth rates, 2-4, whatever you're most comfortable dimensionalizing, whatever it is, and then get the operating leverage flow through with $500 million of reductions out by the end of this year. That allows for margin expansion, and then the cash flow generation or free cash flow per share, which then makes this even more interesting from a total shareholder return standpoint. We think there's a lot of value to be created, by the way. We're very mindful and not confused that it's dependent on execution and pragmatic planning and delivery. I think we've incorporated both those into our thinking and to our intentions. Again, I really thank you for coming this morning.
We'll have a Q&A with Mark Moon, and Bruce Brda, and Bob Schassler. After the middle piece, Gino will come up, and then I'll return for Q&A more broadly at the end. Thanks for listening, and I'm gonna introduce Bruce Brda.
Good morning. I will cover systems and products segment, and just to kind of frame that a little bit, that is our ASTRO, TETRA, and PCR businesses, which includes devices, infrastructure, and applications, as well as the investments we're making in public safety LTE. What I'll really cover is three ways that we're trying to achieve sustainable growth. Number one is leverage the scale that we have in the market. We compete primarily with players who are much smaller than we are. Number two, leverage the install base that we have. We have over 12,000 land mobile radio systems deployed around the world, that gives us a great platform to build off of. Number three, leverage innovation, both in LMR and beyond LMR, specifically solutions enablement and LTE to ensure long-term growth.
A gain, along the themes of scale, we are the scale leader. We lead in each of the technologies in LMR, in every region of the world, we're number one in share, period. We ship over 5 million devices across the technologies, and the scale we get from that, again, competing with smaller competitors, gives us an advantage. We have the ability to implement once and leverage that investment across technologies. Our competitors, who compete in a very small segment of the market, don't have the ability to gain that leverage. What that allows us to do is not only execute against the standards faster than our competitors, but it also affords us the ability to invest in what I would refer to as beyond standards capabilities, which really are what differentiate our offers in the market, and I'll talk about those in a minute.
From an install base perspective, again, the 12,000 systems we have installed, you should really look at those as a platform that we can monetize. We spend a significant amount of time and energy ensuring that we can easily upgrade those systems from analog to digital, and beyond, in the easiest, least disruptive way for our customers. Again, what that ensures is that whether you're upgrading your device fleet or your infrastructure, we always ensure forward and backward compatibility and make the Motorola-to-Motorola upgrade path the easiest, and most cost-effective, and least disruptive for our customers. And then finally, from an innovation perspective, this year, we'll invest $635 million in R&D.
That's across an R&D footprint that's global in nature, with 5,000 design and engineers who have a level of domain expertise in our public safety and commercial markets that can't be touched in the industry. The investment that we make ensures not only ongoing LMR leadership, but, as our customers transition beyond voice-centric operations to voice, data, and intelligence, we've made the investments in LTE, as well as public safety, Smart Public Safety Solutions, to ensure that we capitalize on the transition our customers make going forward. A quick breakdown of the business. About half of our business, half of the $3.8 billion in 2014, came from ASTRO or the P25 standard. P25, although it's a North American standard, we've deployed ASTRO technology in about 60 countries around the world. North America-centric, but it does have a very large global footprint.
TETRA, the smallest of our businesses, is about 9% of our total revenue. Again, TETRA is a European standard, but that technology as well has found its way around the globe. We've got TETRA equipment deployed in 120 countries around the globe, and we have 30 nationwide deployments of TETRA infrastructure. PCR, unlike ASTRO and TETRA, PCR or Professional and Commercial Radio, isn't a standard, it's a collection of standards. DMR or Digital Mobile Radio is the most predominant, but it's actually a collection of standards from around the globe, and we sell PCR products into literally every country we do business in, 180 countries. The other category is made up predominantly of our out-of-box accessories business. In ASTRO, TETRA, and PCR, you'll find a significant complement of accessories that we put in- box.
We also have a significant out-of-box business, which is about 10% of the total revenue in the accessories category. From a regional breakdown, the only real shift since the last fam is a slight shift out of North America. 1% or 2% has shifted from North America into the non-North American regions. I want to stress that what we do is unique. The products we make could not be further from consumer-grade products in any way, shape, or form. They're purpose-built for our customers and the applications that they—the jobs that they do. Obviously, incredibly rugged, ability to withstand high impact, temperature extremes, both high and low.. incredibly rough environments with dust, dirt, water. Our products also operate in extremely noisy environments. If you think of LMR radio, audio is the killer app.
Voice is the killer app, and there's nothing more important than high-quality audio. W e've invested significantly in microphone technology, noise cancellation technologies, speaker and amplifier technology, again, to ensure no matter where the speaker or the listener is, the audio comes through loud and clear. The final thing on devices that I want to mention is usability. If you think about the way our customers use our devices, they're often in high-stress environments, and the use of our devices can't be difficult. It must become second nature. H ow we position the emergency button, for example, allows an officer to never look at their radio. They know where it is.
The positioning of knobs, the APX 7000, the green radio in the center of the screen with the angled knobs, allows for a firefighter wearing heavy gloves to be able to manipulate the radio without looking. U sability and how our products are built for this specific use case becomes a key factor that differentiates us in the market. As we migrate into broadband and public safety LTE, and much more data is brought forth to the user, how we present that data, what data is presented at what time to what user becomes key, and I'll talk about that in just a moment. The other point I want to make before I leave this slide is on the networks themselves. Land mobile radio networks are incredibly resilient.
If you think of a P25 network that would be used here in North America, if the core or the equivalent of the switch were to fail, the network site by site basis. If the sites all failed, for whatever reason, officers will continue to communicate device to device. That level of redundancy or resiliency simply doesn't exist in commercial networks. That's what our users expect, that's what our products deliver. We spend a lot of time working with our customers to really understand their businesses. And again, the deep relationships we have with our customers, many of them date back decades, gives us access that our competitors don't have. W e do the job with our customers. We have a team of researchers under Paul Steinberg, CTO organization, that literally goes to work with firefighters.
They gear up, suit up, and understand how our products work in their real environment. They observe those, customers in, day-to-day operation as they do their jobs, to identify not only what they can tell us, but what they can't tell us, but can show us on how our products could better serve their needs. We do joint exploration with our customers, rapid prototypes, and then test the heck out of our products as we roll them out. This innovation, that you see on the screen here, has led to literally hundreds of what I would characterize as beyond standards capabilities that we've built into our products.
Each one of those features, which is used by one or many of our customers, becomes an integral part of how they do their job day to day, and it becomes a significant differentiator for us and a barrier to entry for our competitors. Our ASTRO market, P25 standard, what we call TETRA, is the TETRA standard. What we call PCR is the DMR standard. All of our products fully comply with the standards, and they'll interoperate with any competitive product that conforms to the standards as well. But the beyond standards capabilities that I mentioned are really what differentiate us. And when a Motorola device works with a Motorola infrastructure, you're often gonna get better performance because of the beyond standards investments we've made. Just a couple examples. In the upper left, you see ASTRO Enhanced Data.
The P25 standard allows for relatively low-speed packet data to pass through the devices and network. We've implemented some technology that allows that throughput to increase significantly when it's Motorola device and Motorola infrastructure. F or many of our commercial users who leverage our infrastructure from machine to machine, this becomes a big differentiator. Down in the lower left, LTE push-to-talk interoperability. Again, the LMR standards don't call out a method for LMR to talk to broadband devices, but we have implemented a method to do just that with both across the portfolio, PCR, ASTRO, and TETRA. The heart of that investment is the Twisted Pair acquisition we made a little over a year ago. I n the lower right, you see Dynamic Control Channel Management.
Because we've designed, built, and operate the most complicated, most sophisticated TETRA networks in the world, we've also stressed TETRA beyond the point anybody else in the industry has. We know where the limitations are in the standard, and we've had to do some things to tune up the capacity of that network to meet the needs of our customers. That's what Dynamic Control Channel Management is. When our customers begin to rely on these beyond standard features, again, it creates a barrier of entry for our competitors and a significant differentiator for us from a device and infrastructure perspective. We're very confident in the position that we have in LMR, and we're confident that that's a sustainable leadership position. But we're not stopping there.
We've got really a four-point plan on growth to grow beyond our core business, and I'll hit on each of these, but it really is ongoing innovation in LMR to drive network and device upgrades more rapidly. Accelerating software revenues that we can pull from our installed base. Again, think of the 12,000 systems as a platform we can monetize. System and software enablement. This is really the ability for our customers to go beyond voice-centric and into data plus intelligence, and we can enable that both on land mobile radio networks as well as LTE. T hen finally, the responsibility that I have for LTE is the purpose-built products, so devices, applications, and infrastructure. Those four points are really where we're investing heavily to ensure sustainable growth in our systems and products business. 12,000 systems installed.
45% of those systems are on analog. M uch like cellular evolved from 1G, 2G, 3G, and 4G, so did or does LMR, and you can think of 45% of our systems, 45% of our install base, still operate in a 1G mode or an analog mode. That's an opportunity to upgrade. Secondly, whether it's analog or digital, over half of our networks, roughly half, are older than 5 years old, so again, an opportunity to refresh. We need to provide customers enough value in our new systems and new devices to incent them to go through that journey. Again, ensuring that a Motorola upgrade from analog to digital is the smoothest, the easiest, is key to our strategy here. We continue to innovate, as I said, to incent customers to make that journey to the next technology.
You'll see a number of products that we have rolled out and will continue to roll out that include multiband capabilities. Multiband is, allows radios to work on multiple frequencies. It's, operational efficiency for our customers, but from a Motorola perspective, this provides significant manufacturing efficiencies. Whether we sell in a multiband mode or single band, we can manufacture a single device. Next generation battery technology. We have the, industry's leading battery technology today for land mobile radio, and we'll be rolling out in the next several months, a capability which extends the life of our batteries by roughly 60%, will continue to push us further and further into the lead. TETRA interoperability, so the ability for TETRA systems by Motorola to talk to any other TETRA system in the industry.
This is a key deliverable we have for our Norway largest TETRA deployment or largest TETRA project we have. Key deliverable that we're rolling out as we speak. T hen finally, as more and more of our customers want to leverage their investment in LMR for data, primarily commercial users, we've built some M2M products that allow for cost-effective machine-to-machine communications. Key technology leadership. Again, things that we're doing from a scale perspective, design once, build once, and deploy across the whole portfolio. Bluetooth in a secure, low power, and high power modes being implemented across our device portfolio. Wi-Fi, very cost-effective way to bring broadband capabilities into our land mobile radio portfolio. You can think of simplifying the upgrade process of radios or the ability to move large pieces of data on and off of a device, such as images or video.
What's listed here as Gemstone is really an in-house designed set of chips, chipset, that goes in our LMR portfolio from the bottom end to the top, gives us not only the industry's best RF performance, but also gives us economies of scale that nobody can touch. T he last thing I'll highlight here is, secure and encrypted communications. We've built an encryption framework, complies with all the standards, but is very flexible and allows for, our customers who want to implement their own encryption algorithms into our framework to do just that. It has been a significant differentiator on LMR, and what you'll see in just a moment, it's also been a key selling point for a couple of our, LTE customers as well.
Second step, once we upgrade customers from analog to digital, we can easily attach lifecycle services to keep them current, and Bob Schassler will talk about that in detail next. But more importantly, from my perspective, is we have the opportunity to sell additional software features to our customers. I f you think of the evolution as easy upgrade paths, convert from analog to digital, sell lifecycle services, so customers are always operating on the most current and most capable software, and then we have the ability to attach more software features. When I mentioned the co-development we do with customers, we have hundreds of features we've developed, but the penetration rate is very low. T his is a great opportunity for us on that continuum of upgrade, lifecycle, and then sell additional software features. As you know, our business historically has been very hardware-centric.
We've placed a lot of the value in what we deliver in hardware. W e've launched a program to, I guess, accelerate the transition from a hardware-centric business to one that is much more focused on software and services. This is really a project that Bob Schassler and I jointly own. It enables a transition, whether it is from hardware to software or hardware to services. T hink of CapEx models migrating to more OpEx models. Think of perpetual software licenses to more annual software licenses, or think about customer-owned to hosted cloud or managed environments. This program will enable and accelerate that transition. We call it internally Project Renew, and there's really three pillars. One is to ensure the systems are there to enable the operation in this mode.
D o we have the ability to an engine to license, to monitor software licenses on a customer-by-customer basis, for example? Number two is the offers. Have we structured the hardware, software, and services value split appropriately to maximize our long-term opportunities? The third pillar is to enable our go-to-market teams to effectively sell the software offers to our customers. This, today, is a small business for us. This, in the future, will grow to be a very big business. Again, the R&D has been done. We've developed hundreds and hundreds of features, as I said. We've already acquired the customers. We have a 12,000 system platform that we can monetize. This is about pursuing this in a more rigorous way. The next growth initiative I want to talk about is what I've termed systems and software enablement.
Again, this is our customers migrating from a voice-centric world to one that's more voice, data, and intelligence-centric. Once on digital platforms, the ability to expand the ecosystem becomes very easily, very easy. I want to, take you through a couple of charts, and I'll admit that they're a little tough to follow, so, this is where you have to pay attention in my presentation. If you think of the business that we have today, $3.8 billion of Systems and Products, it really comes from the center of this chart, PCR, TETRA, and ASTRO infrastructure and devices. $3.8 billion, really, in that, very confined space on this chart. Customers are beginning to use LTE, both private systems as well as carrier-based solutions. You see that in the, next couple of blocks up the center.
What we're trying to do is enable our customers to make these transitions easily, number one, but ensure that Motorola remains in a key control point as our customers evolve their networks. T he first goal you see here is, number one, is to create a voice bridge so that we can have push-to-talk interoperability between any LMR technology and LTE technology. The, a gain, I mentioned the Twisted Pair acquisition we made at the tail end of 2013, that's the heart of this enablement. This is commercially available today, bridging LMR to broadband devices in a push-to-talk mode. Second is to expand the reach of our networks beyond our infrastructure and our devices. On the left-hand side of this chart, you see an interface to a number of smart peripherals.
Again, you can think of these as smart data sensors, or the public safety internet of things. They need a mechanism to connect back to the internet. Through secure Bluetooth, they can connect to our devices, and I'll come back to that in a moment. Number two, on the right, what's labeled intelligent Middleware, is to give third-party application developers access to the information that comes from our devices, that comes from our systems, as well as the peripherals, the smart peripherals that I just mentioned, and doing that in a manner that it doesn't matter what technology that information's coming from, ASTRO, TETRA, PCR, or LTE. A n application developer can write once for Motorola interface, and that application will work across the whole technology, independent of how our customers evolve what they do.
The third is to build out an ecosystem of smart peripherals and application developers. This is well underway. We have a 450 application developer ecosystem today, primarily focused on PCR, but we're leveraging that to accelerate this. We've also used our Motorola Ventures investments to accelerate some of those smart peripherals you see on the left. And the fourth objective of this is to ensure that Bob Schassler's organization, responsible for Smart Public Safety Solutions, has all the information they need from our systems, as well as the ability to reach back into our system and control certain elements of the users. I want to maybe just paint a picture here to try to better describe this environment. I magine an officer in charge of a fleet of officers in a command center, central location.
If that officer could see the location of all of his police officers, his staff, whether they're in the vehicle or out of the vehicle, whether they're on the move or stationary, whether they're upright or have gone down for some reason, whether their gun is in their holster or drawn, whether their gun's been fired or not, whether their heart rate and respiratory rates are elevated or normal. A ll of that information combined, from a command center perspective, provides incredible situational awareness for our customers. That's what this ecosystem enables, and everything that I just described can be done today with LMR, small data pipe. What you can do with a large data pipe in LTE e xpands.
But if we do this well, it will take the discussion away from the technology, is it LMR or is it LTE, and focus it really on the application. There are hundreds of applications that can be enabled today effectively through LMR, many more when you add a broadband pipe. The fourth growth investment we're making is in purpose-built public safety LTE products. Three areas, devices, applications, and infrastructure. Again, don't think consumer-grade product here. Think of devices that are rugged, have all the attributes I mentioned with LMR, purpose-built for the application, highly rugged, dedicated push-to-talk button, high audio, with the security you would expect in a public safety environment, with an encryption framework, like I mentioned on LMR, that enables us, to harden these devices and secure the communications.
As I mentioned, we have won three very large LTE deals globally, two of them in the Middle East, and this encryption framework was one of the key differentiators or key win factors for us in both of those cases. Converged devices, so LMR and LTE in a single converged package, you get the best of both worlds with the resiliency of LMR voice and then the broadband capabilities that come along with LTE. Finally, on top of these devices, we put what we refer to as Public Safety Experience or PSX. This is a context-aware way for the user to engage with the device.
This cuts across devices and equipment we have in a command center, as well as equipment that we have in officers' hands, whether they be tablets or handheld devices, and it provides just the right information to the person at the right time based on their role and the context of the environment that they're in. It's very tough to explain, but what I'd recommend, we've got a demo to the side here that will take you through our Public Safety Experience in a very effective way. Applications. Push to talk is the most important application on LTE, and our WAVE platform is the engine that enables that. But the solutions architecture that I showed on the last few slides will also enable dozens of applications for LTE. From an infrastructure perspective, I'll switch to the next slide here.
We have chosen Ericsson as our RAN supplier, so Radio Access Network supplier for LTE. We have a 10-year agreement with Ericsson, and we have the ability to prime all public safety deals on a global basis. If you look at the graphic on the right of this chart, what you'll see is Ericsson provides that Radio Access Network in the middle. On top of that, we layer on public safety prioritization or quality assurance to ensure that an officer always gets capacity when they need it in the unique environment that they need it, so that LTE starts to work like LMR in terms of grade of service.
In addition to that, we build out the entire ecosystem, as you can see, purpose-built devices, public safety, LTE services, integration with LMR, as I said, and a set of broadband applications to round out the ecosystem. I f you think of the environment we've created, the company with the most public safety domain expertise, Motorola, combined with the global leader in LTE, gives us huge economies of scale on leveraging Ericsson's R&D, as well as the manufacturing scale that they enjoy. We're confident this is the best way for us to go to market. F rom an execution perspective, how do we get it done? What I have done in the last 12 months is reshape the organization to be much more focused on the efficiency of our R&D spend.
U nlike our competitors, which would line up or stack up by technology, we've consolidated all of our systems investment under one umbrella and all of our devices investment under one umbrella. From a product management perspective, when the product management organizations look at investments, they do it across all technologies in the breadth of the business. W hen engineers execute, they look at it not from a singular technology, but how can they execute once, implement once, and leverage that investment, the R&D, across our entire portfolio. We've done that for both systems and devices, and it's delivered huge savings for us, which I'll show you. Then we've also extracted the applications, as I said, and created the systems and software enablement organization, again, to ensure that if an application developer writes an application once, it will work on any Motorola technology across the board.
This has delivered us significant benefits. Greg mentioned SKU reduction. We will reduce the number of SKUs by about 45% over a 12-month period. We're already in that cycle today. This has also allowed us to consolidate the R&D footprint that we have on a global basis to focus centers on specific areas of expertise, which again, drove efficiencies for us. This has allowed us to shift investment away from LMR and into a number of the growth areas that I spoke about and Bob will speak about in a minute. F rom a high water mark of $752 million of spend in 2012, we've taken out $117 million.
The core investment, which is predominantly LMR, is really more than a $117 million investment because at the same time, we've increased our investment in growth. T he dark blue you should really think of as public safety LTE, Smart Public Safety Solutions, and solutions enablement. The light blue you can think of as our core business, LMR. During this time of reduction, we also refreshed the entire LMR portfolio, and I'm confident we have the world's leading portfolio today, most complete and most innovative. W e've got, at this point, about 28% of our R&D focused on growth and the balance focused on our core LMR business. To wrap up, I'd go back to the points I made.
We're leveraging our scale, we're leveraging our install base, and we're leveraging innovation, both in LMR and outside of LMR, to ensure we've got a long-term sustainable growth profile for the systems and products business. I'm confident in the strategy, and with that, I'd like to introduce Bob Schassler, Executive Vice President of Solutions and Services.
Good morning! I'll be covering our services segment of the business. Just to give you a feel for the relative sizes of the business, historically, our services business has been made up of integration services and hardware maintenance. Hardware maintenance is the largest component of life cycle support. New growth areas for us that we've really started over the past couple of years, software maintenance, which makes up the second component of life cycle support, managed services, and Smart Public Safety Solutions, all new and growth areas for us. iDEN, as Greg mentioned, a headwind for us in services. Majority of the iDEN business right now is more services-related type of business.
From a regional perspective, as you would expect, regional perspective proportional to what Bruce showed on the product side of the business, and we really see good growth across the board in each of the regions as we move forward. We're very, very encouraged, enthusiastic about really just the, the foundation that we're building in the services business. We've got really strong backlog, about $4.6 billion of backlog built up, about 6% of growth, so a really strong, solid foundation. But what we're also seeing, and Greg mentioned this, we're seeing a trend that a lot of our services business is coming from more recurring revenue-type business model, from managed services, from life cycle support, over 50% of the revenue last year coming from more of a recurring revenue type of a business.
W e are clearly seeing, and, and Greg highlighted this a little bit as well, Bruce talked about it, as we're migrating our customers from analog, land mobile radio systems that are relatively lower technology to a much more sophisticated IT digital network. I think that's the way that it'd be helpful to think about our networks now as much more of IT networks, because that's really what we're providing, but a much higher level of sophistication. Our customers are looking for much more features, functionality, data applications, becoming much more critical to overall customer operations, security enhancements, cybersecurity, much more paramount of importance.
Just in general, just to operate, maintain, and run these systems that are much more capable and sophisticated, they're driving much more of an outsourced type of a business model that our customers are asking them to help and support them with. As I mentioned, our core services business historically has driven the majority of the services business, about $1.7 billion last year, and we expect that to continue to grow at the trends that have been historical rates, about 2%-3%. The areas of incremental growth or the new expansion areas for us, a much more meaningful portion in growing at a more rapid pace, as Greg mentioned, about $400 million of our total revenue last year, and we expect that to continue to grow at more rapid paces over a multi-year timeframe.
We've mentioned on several occasions our Nødnett project. I wanted to speak to you a little bit about our Norway project. It's the single largest project that we've had in the history of our company, certainly the largest integration project that we've had. T his is a project that will provide public safety service for all of Norway, the entire, entire country of Norway. About 2,000 sites we're deploying, and it's been a tremendous project for us, a great project, a great customer. Not without some challenges as we've deployed the northern half of Norway. A lot of the sites tend to look like the picture that you see on the right, so getting power and just access to those sites have been challenging, but we've worked through it.
We will go live on the Norway system in this year with all of the users, about 60,000 users on that system. As Gino mentioned on the last earnings call, creating some headwinds, though, for us from a growth perspective, with, as we roll off our integration side of our business, about a $50 million drop in overall integration business, which does not include the FX impact of it. But overall, Norway has been a great success story for us as a company. S ome of the key growth drivers in integration, and Bruce talked a lot about this, and as you would expect, a couple of the areas in the core from just our migration of analog systems, we have over 12,000 systems out there.
J ust as we see that growth on the product side of migrating those analog systems over to digital, we also see that driving integration services for us. A lso, just the ages of those systems as we've refreshed those systems. We'll continue to see that drive more integration services, and that's historically, as, as I said, just growing that, that business at that 2%-3% as we've historically seen. But incremental growth areas in public safety LTE and the consolidation of the command and control centers. We have 5,900, what are called public safety answering points in the U.S. alone, and those, those PSAPs are getting consolidated, which is driving a lot of integration business for us.
I'll talk a little bit more about that when I get into the Smart Public Safety segment of our business, which is heavily focused around the 9-1-1 centers in the U.S. and around the globe. Now, shifting over to life cycle support. Life cycle support is about an $800 million business for us today, again, made up of hardware maintenance and software maintenance. We see this clearly having a lot of growth opportunities and being a business that goes well beyond an $800 million business for us in the future years. If we just disaggregate and talk about the two components that make up life cycle support, hardware maintenance and software maintenance, we've taken a close look at the attachment rates for hardware maintenance and software maintenance.
If we start on the top, just look at the attachment rates. These are the total number of contracts that we have to the systems that we have. If we look at North America, specifically, 89% of the systems that we have out there have some form of hardware maintenance attached to it. You would think, well, North America seems like it's fairly well saturated, but as we've looked, actually just in North America, a lot of the contracts that we have are actually small in scope, small dollar amounts. We actually see still a lot of growth opportunities just within, within North America, within those existing contract vehicles that we have.
Then, obviously, lots of opportunity, as you can see, across all of the other regions as we get more and more focused on overall life cycle, life cycle support and hardware maintenance. Software maintenance is a program that we really just started a couple of years ago. We started it here in North America, launched it in North America, getting a lot of good traction in North America. We're now ready to roll that out across the other regions. We see that as a significant opportunity. Focus teams working on both hardware maintenance support and software maintenance support. If we look at software maintenance individually, we see this as being a $275 million+ type of a business, recurring revenue kind of a business for us. Last year, we did $90 million in software maintenance.
As you would, as you would imagine, very, very strong margins associated with it. We have, just if you just look at our existing install base, about a $360 million SAM of just the systems that we have. That doesn't include any additional public safety LTE networks that we continue to deploy. This is extremely strategic for us as a business. All of the software features, functionality that Bruce talked about, having software maintenance vehicles in place is really the vehicle for us to continue to refresh our systems and continue to have our customers take advantage of those additional features and functionality that, that Bruce talked about.
Just to give you a feel for some of the more recent wins that we've had in life cycle support contracts, as you can see, some pretty large contracts, typically five or 10 years in duration. We really got after this in a very, very significant way. Mark Moon and his sales organization, very, very focused programs to grow life cycle support contracts, growing almost 50% year over year of backlog just in 2014 alone. We signed 63 new software maintenance contracts last year alone. We feel really good about the progress that we're making, the focus that we're putting in life cycle support, both hardware and software, and really just the growth opportunities that it creates for us.
If I shift over and talk about managed services, and the best way I think to think about managed services is it's really the next phase of a support agreement. W hat we do in support agreement, hardware and maintenance contracts, are a subset of managed services, but now our customers are asking us to just operate their entire network for them. They're giving us the keys to the car, if you will. We're creating the network operation center, customer care, subscriber provisioning. W e look to the customer as really a cellular operator, and we see this trend more and more. The Norway project is actually a managed services contract. We'll now enter into the managed service portion of that contract. It extends till 2026, and we see this as clearly a very, very significant opportunity and a trend in the marketplace.
We've got, as Greg mentioned, 22 managed service networks today, $200 million of revenue from—in 2014 alone. Again, these are long-term contracts. We continue to, to see this grow. We've got a very, very healthy pipeline of opportunities for managed services, that on a, on really a global basis with all of the systems that we have out there. Last two segments that I want to talk a little bit about, and it's been mentioned on several occasions, is public safety LTE and Smart Public Safety Solutions. I think it's instructive to think about public safety LTE and Smart Public Safety Solutions as adjacent opportunities for us that are very, very complementary to one another.
Because the reason customers are deploying public safety LTE systems, because they want to take advantage of smart public safety type solutions that are very, very media intensive, heavy, heavy video, requiring really a public safety LTE type of a pipe. I think it's a very powerful value proposition for us that we have both ends of the solution, the LTE systems, and from the infrastructure, devices, applications, and services around it that Bruce talked about, and also the Smart Public Safety Solutions as well. There are three public safety LTE contracts, large contracts in the world today, and the, the three that you see here, and we've been fortunate enough to win all three of them. O ur two Middle East projects will start the implementation phase later on this year. They'll extend for the next two plus years. Our L.A. project is in the implementation mode.
We'll go live on that system in August of this year. I know some of you are looking at the picture trying to figure out where that is, but, but we can't tell you right now, but they're great projects for us. Really, the most important element for the success of our public safety LTE business right now is really making sure that we're successful on these projects, that we execute flawlessly so we can showcase our technology to the world, so our customers can start seeing all of the benefits, all the features and functionality that we've developed. We've been at this for several years now, as you know, and customers will start to realize some of the features, functionality, some of the areas that Bruce spoke about.
Last segment that I'd like to talk about, it's been mentioned on several occasions, Smart Public Safety Solutions. What I'd like to do is just help give you an understanding, when we say Smart Public Safety Solutions, what is it? Why is it so important to us as a business? Why is it so important to the industry? J ust what kind of market size is it for us? I'll start by just talking a little bit about the transformation that's happening in the 9-1-1 centers here in the U.S., as well as on a global basis. Historically, 9-1-1 centers have been very, very voice-centric. Voice call goes in, it's 50-year-old technology that's in most of the 9-1-1 centers around the U.S. and around the world. A big move to transition out to be much more of a multimedia-rich type environment.
There's so much more information. Greg talked a little bit about it. Social media information, video information, sensors, Next Generation 9-1-1, all of this information that is available for public safety to do their jobs better. I think a good way to think about Smart Public Safety Solutions is going from a very reactive type of a public safety environment to a much more sophisticated, proactive, preventive type of a public safety operations. You can imagine all of the IT back office systems, analytics, software integration that goes along with this to make this happen. Greg mentioned our acquisition of Emergency Call Works, a very, very critical component to Smart Public Safety Solutions.
They have a Next Generation 9-1-1 application, and for those who aren't familiar with Next Gen 9-1-1, it's really just getting a multimedia information into a 9-1-1 call. It'll start with just simple text, moving to pictures, moving to video. But you would imagine all of that information now that's going into a 9-1-1 center has to get stored, has to be able to be analyzed. There have to be the back office IT systems to handle all that information, and that's something that the marketplace right now is trying to work through, and we see it as clearly a large opportunity for us as a business. Smart Public Safety solutions is a subset of the overall smarter governments business, which is a much larger component or much larger business around the world.
We're specifically interested in the public safety or smart public safety aspect of it, about a $6 billion SAM for us. Most of the public safety answering points that I talked about, the 5,900 here in the U.S., look like the picture that you see on the left of your screen. Again, relatively low technology, very, very voice centric in smaller cities. What we're starting to see is this consolidation of 9-1-1 centers becoming much more sophisticated multimedia centers, more like the picture that you see on your right. But what's happening is we see these systems becoming much more regionalized, countywide, statewide type systems. It's still a debate here in the U.S. as to how many should there be. Will it go from 59 to 1,000 or 2,000?
No one's really sure right now, but we clearly see it as an opportunity in an area that our customers are really looking for us to help support them and really aggregate that large fragmentation of business. A couple of closing comments that I think are relevant for this group. First off, the items that I talked about and the strategy that I've laid out here in the areas of focus, it's not just a services-oriented strategy. This is a strategy that is really across our entire company. You heard Bruce talk about it. Bruce and I are completely aligned.
It's alignment across all of the senior management in this company, and I think that's really what it takes, and it takes the sponsorship of Greg as our CEO, to transform a company that historically has been very hardware product-oriented, to a company that is now moving into much more of a solutions, services, software-oriented company. Secondly, the areas that I've highlighted in the areas of focus, we have very, very specific teams and people that wake up every day, and this is what they're focused on. Very, very clear lines of accountability, whether it's from managed services, Smart Public Safety Solutions, software maintenance, very, very focused teams. We've changed out the skill set as required, hundreds of employees that have more software-oriented skills or IT skills. Within Bruce's R&D organization alone, 63% of our R&D engineers are now software developers or software engineers.
I feel great about the progress that we're making, great about the alignment that we have, and really just very, very good about the overall, the overall growth opportunities that we have in the services segment. T hank you, guys, for giving me some time and listening to me, and I think we're going to take a break at this point. Thank you.
Ella says, "Mark, I don't just have to do more with less, I've got to be better with less. T o do that, I need your technology to be a force multiplier. I need you to be able to take information and make it actionable, make it so my folks are smarter or better than ever." It's also an issue around the resources that, as Bob said, we're moving to IT networks. It's no longer the old radio shop that can maintain and manage these networks. It's complicated, and they need to move to us to help them do that. As the shift to services that Greg talked about, it moves right into the place where we are to help our customers be more successful. We also have an unrivaled brand.
It's easy for our customers to say, "I trust Motorola," because we've been there for years, and we're also the market leader. Bruce mentioned it, in every market we serve, all around the world, we're the market leader. We have world-class product portfolio, as I said, and not only is it a world-class product portfolio, we've taken the steps while reducing cost to also make sure we're reinvesting and refreshing that portfolio and setting the stage to move from more of a hardware-centric company to a software-centric company. Y ou know, I'm very proud of the fact that our ability to innovate throughout the organization and execute is evident. Certainly, we stump our toes with some of our customers, but they know they can count on us.
The capabilities that Bob Schassler is building, as we get into more complex situations, will allow us to innovate and execute better than ever. Then finally, as I'll talk about, the sales organization has to change, it has to grow, it has to be different, but it's a huge differentiator in this marketplace. Our presence with our customers around the world and our domain expertise is clearly a differentiating factor for what we do.
If you look at the markets we serve, and I think it's easy sometimes to say, "Okay, I think of Motorola Solutions, I think of police and fire." By the way, I find myself sometimes when you're at a place and someone says, "What do you do?" Y ou say, "You work for Motorola Solutions." "W ell, what is that?" "Well, you know, police and fire radios." It's really a terrible descriptor because we do so much more. We just talked to you about unbelievable solutions that just built from that police and fire radio legacy. It's also important to know that 70% of our business today is in commercial markets, non-government markets around the world. By the way, this is a huge opportunity for us to continue to grow.
I'll talk about it a little bit when I talk about each of the regions, but in some of the regions, North America in particular, it's a focus area of growth for us with how we move beyond just government accounts into more commercial accounts. I wanted to also give you a view kind of around the globe, how we're organized. Greg mentioned we have five regions. We manage each of the regions separately. The reason is, while customers are similar in a lot of ways, they're also very different. Having local domain knowledge, understanding the cultures, understanding how to do business with the partner community that's there, understanding the contractual vehicles that it'll take to extend our business for years and years, critically important.
A s I think about the business and we show 14 sales, I also want to give you a little color as we think about what we think this year looks like. We've talked about growth in North America. We returned to growth in fourth quarter. We've talked about Narrowbanding being substantially behind us at this point. But North America, Greg mentioned Jack Molloy, and I'll talk more about him in a second, but very proud of the fact that we knew coming into the year in 2014, we were not in a good position with backlog, and we knew we were gonna be very back-loaded with demand from our pipeline. But we actually executed Q2, and Q3, and Q4 exactly where we wanted and actually in the fashion that we expected.
In fact, probably more orders in Q4 than we even expected, which we were fortunately able to convert to revenue. But a good trend turning around, and they feel good about growth for this year. Latin America, also growing kind of mid-single digits for the year, less the iDEN decline. When you think about iDEN, we've always talked about Nextel International being a drain on that business, and it will be. It'll be down slightly for the full year in total, but less iDEN, the core business, still good growth. Europe and Africa, we said, will be down this year, given the headwinds of FX as well as the Norway implementation roll-off. Europe and Africa has grown for the last three years, and phenomenal growth in Western Europe, despite all the things we've been reading about austerity and other things.
With constant currency, actually, Europe would be flat going into this year. A gain, still good demand for customers. Asia Pacific, as we've talked about for the last couple of years, has been disappointing in the way that we have actually not executed and not been able to return that business to growth. But we are saying it will be flat this year. We do see the business is stabilized, and as I go through a more regional spin, I'll talk a little bit about the reason I believe that to be the case. T hen finally, the Middle East, huge growth area for us. It's a small number today, but it has big potential. In both Asia and the Middle East, we're in our best backlog position we've ever been in, and we've got great opportunities in the pipeline to continue to grow both those regions.
I'm excited about what we're doing, and as we've said, we bifurcated the two regions to get distinct focus on each. I think it's important because they're very, very, very different in the way we'll be successful in each of those regions. The go-to-market team, we've mentioned all the names, but the reason that I would say I wanted to show this slide is we have about a 2,000-person sales organization. Over this past year, in 2014, we actually reduced selling and marketing costs by 5%, but we increased customer-facing selling heads, in other words, those folks are on a sales incentive plan, calling on a customer that gets paid for making a quota by 10%. We reduced costs 5%, increased our faces in front of the customer by 10%.
We've got three new leaders, as I said, in Jack Molloy, who started the first of last year, Mike deVente, the first of last year in Latin America, and Iain Clarke moved from Western Europe, which I just described, has had phenomenal success for the last couple of years. He's moved to Singapore to lead that region, and Mohammad Akhtar now will singularly focus on the Middle East, of which, you know, we're already showing good signs of success. We've announced the big LTE win there. The other important piece of this chart, though, beyond those 2,000 sales heads, are the 7,500 partners. This is an extension of the Motorola sales organization. In fact, it's part of our sales fabric. They really are proud to be part of Motorola, and just like I said, we have to earn our customers' business every day.
We have to earn their business every day, too, because they're key to what creates strong differentiation. We have a renowned PartnerEmpower recognition program that actually rewards and recognizes certification, competencies. We want them to be, as we move up the solution stack, we want these partners to move up the stack with us because we don't just want to serve a small number of focused accounts, so to speak of, we want to serve the marketplace, both government and commercial. A s I move now to look at each of the regions, we talked about North America, we talked about. W hat I've tried to do on these slides to give you a little more transparency with the way we think about each of the regions, is on the side, it's also how we're organized with leadership under that region leader.
F or instance, in North America, we're actually managed across the country in a state and local government sleeve. We manage federal government separately, and just this last year, we created a commercial sleeve. That commercial sleeve actually grew 20% in North America last year. I would just say it was the reason. It was lack of focus before. This speaks to exactly what we're doing differently and lessons learned. We had Motorola salespeople. I had Motorola salespeople calling on commercial accounts, but unfortunately, salespeople sell what they're comfortable selling, and they were calling on them mostly about mobile computers, because that's where they came from, from Symbol, and then into our piece. What we did was we created a go-to-market organization to focus on our portfolio. J ust last week, we had ExxonMobil in our customer design center.
We're actually one of their key suppliers, and we were having an executive scorecard review. That customer said, "You know," at one moment in time, he said, "You know, what we want to do is avoid a CNN moment." I said, "Wow, that could be just like talking to one of our police chiefs or fire chiefs." You think about what they do. They have mission-critical demands every bit as much as any government entity. Security concerns are everywhere, and their ability to need to integrate solutions are getting compounded, but they may not always think of Motorola. That's why I say we believe that market space is a big growth area for us. Federal business also, I'll say, fortunately, stabilized, actually slightly grew last year, and we believe it will grow again this year.
We're not looking for a huge bounce back, but we believe, you know, low single-digit growth is very approachable, and it seems like that environment is coming back around. Latin America. Latin America has been a very steady growth business for us for a number of years. It's smaller in size and sometimes lumpy with large projects here and there, but in. Oh, I'm sorry, and I'm on Europe and Africa. Let me, let me go to that first. Europe and Africa, great business. I talked about it declining. I talked about the reasons declining being over FX. Y ou know, when we think about the business, Western Europe, it's been phenomenal the last couple of years. Good growth. We've now, even as we are today, have good opportunities with some large country system refreshes, several of them.
Those of you, all, many of you know about the Airbus announcement, and by the way, several customers in Western Europe are Airbus infrastructure accounts that need to be refreshed. We see that as a big opportunity for us. You'll hear me say it again when I talk a little bit about Latin America. Eastern Europe, kind of a mixed bag. Russia, clearly, economically, has been down, but our business in Ukraine and some of the others has increased, and we really have a lots of infrastructure interest in the stands. A gain, there's resources, and there's a need. W e see that area, that can be a real growth area. And overall, Israel and Africa, Israel continues to over-index for us. It's been a great customer for many, many years. But Africa also has good investments, and it's a place where we've actually moved more go-to-market resources.
We're working hard to develop more channel capabilities. I think as you look at those regions, we also have the ability, we have a big services footprint, as Bob talked about, managed service opportunities throughout Europe. We have the chance to further that as we go forward. Now, in Latin America, as I've said, Latin America, for us, will really come down. We think about it as Brazil, Mexico, and the rest of Latin America. Brazil, I believe, has an opportunity for us to really grow. There's a lot of things going on in Brazil, despite the political environment. As we think about the Olympics next year, it's generating a lot of infrastructure pieces. There's, again, this need for safety and security.
We've actually had some really good success, success with a public safety LTE deployment there with the Brazilian Army, that we think we can further expand our relationship with the federal government there as well as we go forward. Mexico is an area where if you just look at the size and economy of Mexico, we haven't performed as well as we should. The reason for that, primarily, there's certainly always some execution reasons, but primarily, it's because they have a competitive proprietary Tetrapol system from EADS or now Airbus. That system's been in place 15-20 years. It's currently up for a refresh. It gives us a great opportunity to go take over the public safety infrastructure in Mexico, and we'll work that very hard.
There's also a lot of political reform going on around telecom and a lot of talk there about public safety LTE, which we're continuing to be actively engaged in. A ll in all, you know, I think our, again, ability to grow services in Latin America, good opportunity, the ability to expand into other verticals and continue to push that. In Latin America, it's roughly 50/50, if you will, government and commercial. I think we can continue to grow that because there's a lot of dependence on how we can go serve them. W e look for Latin America's core business to continue to grow as the iDEN business continues to decline. And then Asia Pacific.
Asia Pacific, as we've talked about, and I'll say right up front, I've said it as I've talked to many of you, I've been disappointed in the fact we hadn't returned to growth quicker in Asia Pacific. When we think about Asia Pacific, there's lots of things that have happened. We created some new leadership over there, expanded. We brought it together with Asia Pacific and the Middle East a couple of years ago. We knew we had a backlog position there, but we felt like we could turn it around. It was really factored in two things in my mind. China continues to be tough as they push for indigenous competitors. They've also created a new radio standard called PDT, of which we weren't initially allowed into the alliance. We have since been allowed, but clearly gave indigenous competitors a head start.
What it did, even though there hasn't been very much PDT equipment sold in China, it froze the sales of our TETRA equipment. W e saw a decline in that place, in that space, and always in China, the low-end market is going to be a tough place to compete. Now, with that said, we declined over 20% last year in China, but we see China stabilizing as we go forward. We're not expecting China to have huge growth because of what I just described, but we do see it stabilizing. Australia was a little bit bigger surprise for us the last two years, which led to a big, big piece of our decline. Australia has always been a country that we've over-indexed with and always performed very, very well.
For the last two years, we've declined almost 20% in Australia each year, and that was driven by a couple of things. First, we had some execution issues in our channel, and we lost some share, quite honestly, in our low end. We lost some people and some share in our low-end radio products in Australia. Greg mentioned we have a new leader in the region. We have a new leader within Australia. We believe we've turned that tide, but at the same time, they were also experiencing a number of economic issues as mining and minerals and energy market kind of went down, and we saw that whole market go down. As that was happening, several large projects, fortunately for us, we didn't lose, they slipped.
We expected to get two or three large projects at the beginning of last year, which was why we thought we would grow last year. Fortunately for us, we got a huge project in Victoria in December. We're within 30-60 days of another over $100 million award in Australia that will happen. We're currently the only awardee and in the final negotiations, and another larger project in Queensland later in the year. I see that business has returned, and Australia will return to growth because of that. Then our final focus in Asia, and I really believe Ian will bring the energy, because we've got to move some resources into the emerging areas. When I think about Indonesia, Sri Lanka, Myanmar, there's places where, for us, that's really growth that we're not getting today, and nobody is. It's not gonna just happen.
We need to go drive the market. W e're reshifting resources to make sure we can capitalize on those emerging markets. T hen finally, the Middle East. As I said, I've asked Mohammad Akhtar to go back and just focus on the Middle East. He's from the region. He knows the customers well. The Middle East is a place where, clearly, we need the right relationship, but it's also a place where a U.S. company should have strength. W e also, in addition to Mohammad, asked Paul Mueller, who ran our U.S. federal government business for the last three or four years, to move to Dubai and also lead the day-to-day operations there, because we need to link back. When you think about everything that's going on in that region, all the safety and security issues, there's clearly gonna be a U.S. presence there.
How do we leverage that as a U.S. company for us to do business there? There's also, as we've said, we've announced two big public safety LTE awards within that region. That will fuel other growth. The good thing about the Middle East is they have spectrum, and they have funding. Those are two very critical factors for us to be able to grow. W hile the number's there, we see it growing strong, strong double digits for the next several years, and we've actually got the backlog in place with this recent order. As I said, coming into the year, we had the highest backlog we had had. We've announced a $200 million-plus order since then that will go into backlog. W e're in a very good position to grow that region as we go forward.
Finally, as I think about the sales team, and I think about where I started this conversation, about the journey, about lessons learned, about do differently, so to speak of, four things kind of jumped to my mind, and the first was: how do we increase our sales capability? W e've been working hard on that. Part of that is new talent. Part of that is talent in places where we weren't before. You know, what we did, what we found was we had lots of resources in places like North America, Western Europe, UK particularly, sitting in Singapore instead of other places, where we had our offices and where we had generally, in Australia, where we've done business, we had a lot of resources.
We needed to bring, and we've been working on our sales coverage model to get our partners up to speed in a lot of those places, and we got to go develop new partners in new areas and also put some resources there. Again, we're taking costs down because we're taking non-selling heads costs down, getting more efficient and effective with tools, and adding more selling heads into places where we need to be. We also worked on better alignment of resources. Again, I think this is a credit, partially to what Greg said about pushing single purpose, pushing culture. But Bruce, Bob, and myself have worked together for a long time. In fact, we've worked on the same team for a long time.
When we stepped back, we said, as we think about simplify and grow, we think about all the things we're doing, people are working hard, but are they working on the right things? Let's be very clear about role clarity and who's responsible for what. What does the sales team do? What does the product team do, and what does the services team do? For instance, there's no reason for each of us to have competitive intelligence on each of our teams. There's no reason to have presale people on each of those teams because we have a sales team that sells. We're gonna actually, and we did. W e moved several hundreds of people from one organization back to get focused, and actually, that allowed us to reduce some non-selling heads to be more efficient because we said, we're gonna put the responsibility where it belongs.
We're gonna tell our organizations we believe in it, and we're gonna make sure that we stand by it as we go forward. The other thing, aligning incentives for growth. For a sales team, you know, I learned very early in my sales career that salespeople are motivated by what you pay them to sell. Y ou need to make sure you're asking them to do the right thing, so you don't end up with unintended consequences. We've been focused for a long time on orders, revenue, and profits, and we've always moved profits down as low as we could within the leadership organization of the sales team. But one of the things we saw, similar to what I told the story on the enterprise salespeople selling what they know around selling mobile computers, is they'll also sell what they know, what's easiest to sell.
We've been on this journey about solutions and growth for a couple of years, but we weren't getting the traction we felt like we needed. B eyond the training and the investment, some new talent, we also changed the incentive plan this year for our salespeople to have a piece of that on focused growth initiatives, the things that Bob and Bruce just talked about, and we actually made them different for each region, because smart policing may be much more prevalent today in North America, but expanding on service attachment rates in some of these other places, big opportunities you saw in some of the other regions. W e're paying them differently to focus on these growth initiatives. T hen finally, at the same time, where we've been reducing costs, and we'll continue to do that, we're investing back in the sales teams and better tools.
That's better tools like we have a Motorola Sales Way, that's about sales methodology, doing things more predictably, how we go. We leverage Salesforce.com better. We've created some new forecasting tools. All of that, really, to create more time for salespeople to be more effective in front of customers. But the other piece is about we need to be better in understanding our business and how we call it, one of the things that Greg mentioned earlier that we missed over those times. W e have a much better understanding of our pipeline, where it is, the velocity that's moving through the pipeline, and what our sales teams truly view as something that I need to work as an upside and something that's very confidently that I can commit for commitment for revenue.
We've worked all these things to say, at the end of the day, we needed to be different, we need to be better, and I think we're doing those right steps to do that. It's still a journey, and we're going to wake up every day putting pressure on ourselves to earn the business and to get better. But at the end of the day, I believe we're positioned for growth because we clearly have domain expertise and a presence with our customers. They count on us to be successful. We're trusted partners with our customers, and it's, it's an enviable position if you're trying to compete with us.
The market trends that Greg spoke about earlier point to now is the time for us to leverage trends that are going on in the industry that will help our customers deal with those trends and be more successful. T hen finally, we're making the organizational changes that I described and creating new talent to make sure that we don't just do things the way we always did it. We do things the way it needs to be done for the future. T ogether with these trusted relationships, with our wonderful partner community, with our customers, and with each other, I see a really great chance for us to continue to build on this good business and create sustained revenue growth. W ith that, I'll wrap. I would invite Bob Schassler and Bruce Brda to join me up on stage so that we can take some questions.
Also, I would say that, you know, Greg and Gino will come back after Gino's piece for another question. Yes?
Hi, it's Tim Long at BMO Capital Markets. You mentioned three of the large public service LTE contracts that the company has won. I'm just curious if you can give us a sense, what do you think the pipeline will look like for those mega deals maybe over the next year or two? Do you think those will be case studies, or is there a lot in the works now for other governments to be looking at larger-scale deals? D o you think we'll start to see, you know, kind of a quicker flow to deployment as we build some critical mass off these initial deals? Thank you.
I'll start, and if Bob and Bruce want to add, I mean, certainly, execution of the deals we've got is our top priority because as we think about the deal in LA-RICS and the two deals that we have in the Middle East, the quicker we can execute, and other customers, as well as those three customers, can see the benefits of this technology, I think that's the best sales tool we'll have for further, if you will, engagement from other customers. With that said, the funnel around the world has been fairly healthy. FirstNet, as we've talked about, has, has been delayed further than we expected. We always said we felt like the U.S. would lead and international would follow. That's kind of changed. Really, we see international kind of leading.
I think FirstNet will continue to follow their process, but beyond FirstNet, in each of the regions, we've got some key customers that are doing, as you said, not in the big effort like the three we described, but certainly trialing this technology, leveraging it, putting in spots to augment their existing radio network. I n fact, that's the important point with all three of these, and even with these folks that are trialing, they don't see this as anything that replaces LMR. In fact, they see it completely complementary.
They see the mission-critical voice as something they have to have, but they see this data and situational awareness and what you could do with this much larger pipe is something that would allow them a whole different level of capabilities and information, the ability to be much smarter in a situational awareness and thing—do things differently. A ll in all, I think we have been. We've said for next year, we think the business will at least double. We clearly, given our position that we just described, most of that business is already in backlog, and I think as we go forward with executing on those, we believe other customers around the world will continue to express their interest in that technology.
I would just add two, two points. If you look at those three deals that we have, that's about a $500 million base. It's important to understand that that really is only infrastructure in the integration of both systems. M ore applications, devices, and, and really continuing to build out that infrastructure, I think just starting with that base will continue just to, just to see good growth just within those three, three projects that we have. S econdly, Mark touched on this a little bit, but it will be so critical to this particular business once our customers actually start using the networks and, and the rest of the public safety community starts seeing the benefits that come out of it.
We have the opportunity to travel around the world and meet with a lot of customers, and I can't tell you how many customers around the world ask me about what's going on in L.A., what's happening wherever I go, when are you launching the product? E verybody is laser focused on that initial deployment, and that's just only gonna help drive this business at a more rapid pace.
Thank you. Hey, it's Ehud Gelblum at Citigroup. Couple questions. One, I love the pie charts that you broke out and showed the where you are in terms of, especially on the services side, breaking out how large life cycle support is versus integration, smart public safety at 9-1-1 types of things and managed services. Where do you expect those pie charts to go five years from now? As managed services, I'd assume, is gonna be larger than 10%, smart 9-1-1 call centers, probably larger than 3%. Can you give us a sense as to what the trajectory on those, what does that pie chart look like, let's just say, five years from now?
T hen the same thing on the product side, if you can give us a sense as to kind of what your breakout looks like in five years. What, so we get a sense of the moving pieces and how large they get to. Related to that, in some of those areas, is there a new competitive environment, specifically I'm thinking about the command and control and the smart 9-1-1 call centers. Are there different guys in addition to EADS and Sepura, who you will now see in that environment that you don't see right now in devices?
Then finally, on the LTE side, this is more of a Mark question. Can you just kinda overview us what is really happening in terms of as they build out LTE, are governments around the world really going to overlay brand new LTE networks on top of the commercial networks that are out there right now? The $7 billion in the U.S. probably is not gonna do it. H ow much LTE network around the world is going to be leaning on the commercial, Verizon, AT&Ts, O2s, et cetera, versus rebuilt from scratch? Just give us a sense as to how to, isn't it?
I'll take the first part of the pie charts and the life cycle. If we first start with just hardware in the pie charts for hardware, as I said, we see a lot of growth just within North America, just on the existing contract vehicles that we have. T hat's very powerful to us that we have 89% with contract vehicles already in place. A s I mentioned, we see good growth within there. The other regions that are down more 30%-40%, we see that not really getting to that 89% of North America, but reaching more like a 60%-70%.
The reason is, in the other regions, we as a business are a little bit more dependent on channel partners that provide service that are going direct, but we clearly see more and more opportunity. Frankly, it's more and more challenging for even our service providers to provide some of that service direct. On the software component itself, that has to go to us, and more and more, as we migrate our customers from analog to these digital systems, and more of the CIO types start to be in those decision making roles, we see that getting to be 70%-80% of the eligible systems that are digital systems that are going to want some kind or some form of a software maintenance contract.
Our systems that we build right now are extremely software intensive. A s I said, we see that being a $275 million plus. That's an ongoing annuity, kind of a business stream for us. On the Smart Public Safety element of it, I think you should think about us in that space as a more specialized system integrator with some really good content. I think we will compete more with the system integrators in that space because it's a space that is very, very fragmented. There are lots of application providers. Our strategy is we will have some really good content, such as Emergency Call Works. We'll have some analytics engines.
We have voice consoles, so we'll have some content, maybe 30%-40% of the content that goes into a command and control center, but then forming some other very, very strong partnerships and alliances. But customers are really looking for somebody like a Motorola to come in and really pull together all of that fragmentation in the marketplace. I t won't be our traditional competitors, but again, more of the large-scale system integrators in that space.
From, from the product perspective, there's a component of software as well. Today, I said we're very, very hardware centric, meaning we embed a lot of the software value in the hardware price. We will, in the future, start to break those out so that we have a greater opportunity from a, from an annuity perspective on the software. But that really isn't incremental dollars, that's, more repartitioning value. On optional software features, the ability to upsell software features, today, we're in the tens of millions per year of revenue from that.
When you look at the number of features and the reasonable penetration rate, we think that that rate can roughly triple over the next couple of years when we really get the engine going, selling optional software features to our customers who are on life cycle and upgraded to current software releases.
I'm sorry, Udi, I didn't answer your other inquiry on managed services. On managed services, it's about a $200 million kind of a business for us right now, and we really see that growing on a long-term perspective at a double-digit type of a growth rate. W e're getting a significant amount of demand, and we see the overall opportunity there very, very high.
T he final piece, Udi , you asked about, you know, is it truly incremental? And the three customers that we referenced, those three large ones, clearly, it is incremental with them. They're all three in the midst of a very large procurement, you know, about L.A. that also purchased the LMR system. The award we just announced in the Middle East for over $200 million actually is actively putting out an RFP for a TETRA network as well. And the earlier one we announced, he just recently put in. I t really, in most of those large areas, it is gonna be incremental.
But to your point, the carrier networks will still have a play in this piece because they'll put in critical infrastructure where they need it, but there'll certainly be coverage requirements beyond where it makes financial sense to put in all of these sites. T here'll be an ability to roam to a carrier network, which is part of why, and at several of these places, we've formed relationships with the, with the preferred carrier in those particular regions to be able to do that. The other piece you mentioned was the $7 billion for FirstNet, which I think, you know, everyone would acknowledge that, you know, it's not enough to build out a nationwide public safety network, so there'll be some combination of both unless that $7 billion gets up-funded. Obviously, the, the recent auction certainly funded the $7 billion, provided some funds that could go beyond that.
But, you know, I think there'll be a combination, but in each of these pieces, mission-critical communications is here to stay for a while. I think the LMR build-outs will continue. You see that everywhere, and most of our largest customers have talked about they see it for the next 10, 15 plus years, still needing to have that. At the same time, though, many say, "Let's get the capabilities going for LTE, and let's let that technology evolve over time.
One just one more comment as well. Having spent a couple of decades working with carriers, a typical carrier site has a 2-hour battery backup. If you think of a typical land mobile radio site, you've got a generator with days' worth of fuel. I t's more than just, is the equipment capable? If you truly need mission-critical operation, you've got to build the network very differently than the way carriers build their networks today. I f this is nice to have data and not built into a mission-critical workflow for our customers, carrier is acceptable. But the second you start to build it into mission-critical operations, those networks no longer really have the resiliency. The business model is not there for them to be built with the resiliency that public safety or our users require.
Keith Housum with North Coast Research. You guys have spent a lot of time talking about software and the future possibilities with that. Can you provide, I guess, some more examples, some concrete examples of some of the software offerings that you guys are envisioning that the public safety agencies will purchase? T hen in days where, I mean, let's face it, I think budgets have been tight for public safety agencies forever, but how, how do you go about proving the value add? I n addition to the hardware, you know, what's the enticement for them to sign up for some of the software offerings that you guys, you know, have thought about now and are planning for the future? Again, some, I guess, starting off with concrete examples would be great. Thank you.
M aybe the best example is for TDMA. That's an option on P25 on both the infrastructure and the devices. P25 adds capacity to the network. Capacity allows the customer to put more users on the network without building sites. That's a very concrete example that you can do a value trade-off. That's one of the areas. B y the way, we've got a disconnect on the penetration of that feature with devices and with infrastructure. W hen I talked about as we look at the opportunity and try to quantify it, leveling that disconnect between infrastructure and device penetration of TDMA would clearly be one of the areas of low-hanging fruit for us from a revenue perspective. But that would be a very easy example.
You know, a couple other examples I think are getting a lot of traction in the marketplace as well. Tied to TDMA, we have a feature called, i t's called Dynamic Dual Mode. It's the ability for one of our devices to roam seamlessly from an FDMA technology to a TDMA, and that's a specific software feature. We have a specific software feature for cryptology or software-based encryption that our customers are taking advantage of. We have software features to actually program radios over the air, so what we call over-the-air programming or OTAP, and also over-the-air rekeying for changing the encryption algorithm. W e really have dozens and dozens, if not hundreds, of these features and functionality.
W e've been developing these, quite honestly, for probably 5-10 years now, but we never really productized them, and we really never monetized them. We just bundled them in the system, and the customers just got what they got. This has been a program that we really started about five years ago, and we really had to step back and look at the way we developed these features. Because in the past, we never had the capability even to turn the features off or on, and we really didn't have a good mechanism to license these features, and it's something that we- it's been in the works for about four years now, and we're really just getting to the point where we're launching that program.
A s I said, that's why the overall software maintenance programs that we're rolling out, it's - while it's good for us from a revenue, of just getting that software maintenance revenue, it's very, very strategic for us because Bruce develops a new software release on each technology every single year that has additional enhancements and functionality, and that's really the vehicle for us to add on those additional features and functionality.
We'll get down to you.
Thanks. It's Jeffrey Kvaal from Nomura. Two, please. In terms of the analog-to-digital upgrade momentum that you're seeing, could you talk about the pace of that, that you've seen so far, and whether you see that accelerating in terms of the number of installed sites moving to digital? T hen on China, you said you think it might be stabilizing, and I was hoping you could expand on that. If there is such an incentive to try and push the domestic manufacturers, we've seen in mobile and cellular, the international guys have been squeezed significantly year after year. Why would you start to stabilize? Thanks.
Let me take the analog to digital. There's a couple of moving parts, so I'll try to address it. Nearly everything we sell today new is digital, so we've got an ongoing deployment of new systems into the market. But if you look at the deployed systems, we reported 20 months ago at the last FAM, 60% of the base was analog. Today, we're reporting it's 45% of the base. T here's a fairly aggressive conversion. We probably got a bit of a spike in that conversion due to the narrowbanding bubble in 2012, and the first half of 2013. As customers needed the narrowband, they took the opportunity to upgrade their networks as well.
But there's a pretty steady pace, about at the rate that I described, you know, 60% down to 45% over a couple-year period.
The China one.
What's that?
The China question.
Oh, I'm sorry. T he comment around China stabilizing, you know, what I would say, different than what I've said about Australia, which slid for two years, most technology companies, even in China, slid for two years. We actually grew year before last, slightly in China. Last year, as I said, we declined about 20%. A view that we've got for China has been, we don't want to be overly optimistic because I'm very, very familiar with what they're doing with pressing for indigenous competitors and with what they're seeing in other parts of the world. But with that said, we've still got a lot of customers, and even beyond the public safety industry, when you think about commercial customers like rail in China, very heavily adopted our TETRA technology, and we continue to be very successful there. I think that will continue.
We also, and I happen to know that as we're going into this year, we have a couple of good major opportunities that we will win this year, that also will then give you backlog, that shippable backlog in this year, that will stabilize for as we think about this year. So that's really the comments around it. I'm not trying to be overly optimistic about China because I realize there will always be headwinds for a U.S. company in China. But again, we've been there a long time, and a lot of our customers want to continue with the technology. So while new adoption of the newer technology will be slower, our systems that we've been selling in the past will continue, and we've got a couple of really good opportunities that we're poised to win. Yes.
Yeah. Hi, thanks. This is Ashwin from J.P. Morgan. Mark, my first question is on the Airbus refresh opportunity you talked about. Is that included in the addressable market numbers you gave out this morning? And second is on your sales payment. You said you are paying sales differently.
Now, is that specific to any regions, and how is it different from your existing payment structure to sales? My third question is on R&D. I would have expected, you know, emerging R&D to be, you know, more than 28% of total R&D spend. Can you help us understand some of the differences in terms of development process between LMR and LTE? I know it's a broad question, but any specifics you can give there will be helpful.
I'll take that. L et me take the first piece, and then I'll let Bruce talk about R&D. The comments about the system refreshes, so what I would say is these are aging infrastructures, similar to what we talk about. They happen to be competitive, aging infrastructures in a couple of places, Spain, France, Mexico, that are Tetrapol s, so proprietary, where the customers have already expressed interest in moving to TETRA. Now, we would look at that as an opportunity no matter what. But with the recent announcement of Airbus, we see it as even a better opportunity to go back and, right now, take advantage to embed ourselves into winning those refresh opportunities. We're going to actively compete for any deal wherever they are, but these are accounts that, while we haven't been our accounts, we've been very close to for a number of years.
We continue to work very closely with many of the entities within those countries that are our customers, even though the national system is not. T hose are just things we see as opportunity, and certainly, we expect to win our fair share of them as we look at what we're trying to do going in to this year and beyond. As you would think about it, normally, for a large countrywide deployment like that, there'll be opportunities to win this year. Most of the revenue would probably be beyond this year once you win them, because they'll be big deals, but certainly, we're very actively pursuing all of those opportunities. There was a second piece.
From an R&D perspective, so if you look at the bar chart that I showed, we've taken down total spend by $117 million from 2012 to 2015.
If you look at the LMR portion or the core portion, that's really more like about a $150 million reduction because we bumped up the expansion and growth areas. The expansion and growth areas, the single biggest contributor to that piece is LTE. R emember that we heavily leverage the Ericsson R&D from our relationship. Ericsson is spending, you know, in the several hundred million dollars of R&D a year on the product that we source from them. We don't have to spend that. W e've really built a model where we focus on where we can add value, and we leverage Ericsson, where they have the best-in-class solution. W hat I would expect is you'll continue to see a shift in percentage of R&D spend into more growth.
But the, you know, the LMR, LMR today, as we talked about, really pays all the bills for the company, and we've got to be careful on how we throttle that R&D spend as well.
The other piece of your question was around sales incentives. I'm sorry, I knew I missed one. Traditionally, what we've done is we've paid on new orders, revenue for that customer, and a profit goal for as low as we can get it in the organizational profit. Everybody's based on a new order goal because we want to continue to grow or protect our backlog position, and obviously, we want to turn it into revenue. This year, the sales incentive plan will continue to have those three measures, but we've added what we're calling a focused growth initiative, which will look like an adder that says, if you're
Because some of these deals, when you think about Smart Public Safety or some things we said, they're seeding deals that will be bigger for us in the longer range, but they may initially not be a big dollar volume, just like software sales. W e want to incent them, though, because we know that once you get those behaviors going, this is really new, new business for us. And just like the software features, it's business that we've already spent R&D on, doesn't require any new investment, so you get tremendous leverage if we can get those sales. T hat's really the difference that we've done for this year. Up front here.
Ben Bollin, Cleveland Research. When you look at the install base, the 12,000 systems, you commented 50% of those are more than five years old. What do you think the average age is? What should that be? T hen, within that, what's the software attachment look like based on the age of the system? A s you grow that reoccurring revenue, what are the revenue and margin implications?
You want me to take it or you?
You start off.
Roughly 50%, as I said, less than five years old, roughly 50-ish, older than five. We've got that Paretoed out, and some of those systems are as old as 20 years. The analog systems don't have the ability to get on a life cycle program or to sell optional software features to. A gain, from an R&D perspective, what we focus on is smooth, easy migrations, upgrade to digital. Digital enables life cycle services. Life cycle services keeps software current and enables us to attach software features. A ll of the software-attached dollars or life cycle dollars, for that matter, go along with the digital networks, the 65% of the systems that are digital.
The only thing that I would add is, in the past, we used to have to do a migration. It was really a big forklift change out of a wholesale change out, so it was very difficult. The whole state would have to build a whole system side by side and then turn one off and turn one on. W e've really focused on our overall migration strategy to allow systems to be able to be interoperable, both on the infrastructure and on the device side. W e're now starting to see customers really starting to where they might wait 15 or 20 years, now starting to do those migrations on portions of their network at a much earlier time frame, more like a 10-year time frame.
Then they might take four years to migrate or to five years to migrate it, but it'll happen over an extended period of time. Our, our migration strategy with the forward and backward-compatible devices and, and infrastructure allows them to do that.
What you'd expect is the revenue to be less lumpy, less batched up around these very large deals and be a more steady, steady trickle of revenue, within the period of the life of that system. That's really the life cycle goal.
One last question, then we'll take a break and then come back for more questions at the end.
Paul Silverstein, Cowen. Returning to a question David asked earlier, on the public safety LTE front, your relationship with Ericsson, I understand the advantage, but to the extent service providers lean on the commercial deployments to one extent or another, does that handicap you in non-Ericsson, where Ericsson is not one of the incumbent suppliers, whereas Nokia or ALU, et cetera, network? Or is that a disadvantage for you?
When we deploy a private dedicated spectrum, dedicated network, we'll obviously leverage Ericsson's infrastructure as part of our end-to-end solution. If there is a case where it leverages a carrier solution, we'll add our capabilities on top of whatever the carrier has deployed, and that could be multiple manufacturers. Again, our strong preference and the way we've optimized our system is around the Ericsson Radio Access Network. But there's no reason we can't work on top of others' infrastructure if that's what the environment called for.
If you think about most carrier networks that you're familiar with, they're mostly mixed systems anyway. You know, very few are 100% Ericsson or 100% Huawei or 100% ALU or Nokia. Y ou know, we've anticipated this all the way through. I think, you know, again, the way we optimize public safety features on our offering is much better with the work we've done with Ericsson because we've invested substantial R&D on our side, working hand in hand, because we knew that it wouldn't be as effective trying to do that with everybody. But as you do decide to roam to a carrier, we don't see that as an issue. W e're gonna take a 15-minute break, then we'll turn it over. Is that correct, Shep? And then we'll turn it over to Gino, and then another Q&A. Thank you very much.
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Ladies and gentlemen, our program will begin in five minutes.
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Ladies and gentlemen, Motorola Solutions Executive Vice President and Chief Financial Officer, Gino Bonanotte.
Good morning again, everyone. Thank you, thank you for coming back. I'm going to spend the next few minutes talking about principally three things: growth, OpEx, and leverage associated with the OpEx reductions as growth returns, as well as cash flow generation. Those are the three items that I'll spend most of my time on. Items reflected in what I'll go over. I'll start with a little bit of a financial overview and end with a reaffirmation of capital allocation framework and what the return strategy is. S tarting in the upper left-hand corner, the cumulative revenue through that period is, it comports to what our historic growth rate has been. But clearly, the impact of Narrowbanding shifted when that revenue occurred.
The 2011-2012 growth rate of 12%, as well as the 2012-2013 growth rate of 1%, representing a very strong first quarter, first half, dampened by the federal sequester and government shutdown in the second half of the year, in Q3 and Q4. Shifted revenue within that period to 2012 and 2013. Despite that shift in revenue, from an EBITDA perspective, we've been able to sustain 21% EBITDA margin in 2014, in light of the contraction, the 4.4% contraction of the business, excluding MSI. From an OpEx perspective, Greg touched on it. Actually, Bruce touched on it, Bob touched on it, and Mark touched on it as well.
$500 million reduction from $2,134, which was our, which was, the high point in 2012, exiting 2012, to the, guidance of an incremental $150 million reduction beyond the $205 million reduction, in 2014. From an EPS perspective, and the EPS here excludes the, the benefit of Tax H oldco in 2013, the $1.25, benefit of Tax H oldco, but you see growth in, in EPS and the expectation that we guided for a week ago in the EPS for, for 2015.
Greg mentioned six-quarter rolling forecast that we implemented in February, began implementing in February of last year, and have worked on implementing together with Mark's team, in lockstep with Mark's team from a forecasting perspective, and the buildup is based on funnel, backlog, and opportunities in that funnel. However, I thought it interesting to provide a view of what regionally weighted GDP growth was. T he black line here, the solid black line, is the regionally weighted GDP growth. The dotted black line is forecasted, IMF forecast for growth 2014 through 2017, and the blue line is our historical revenue. Y ou see the, the R squared at 91 is obviously very, very tight, and you can see we hover around that line, and the Narrowbanding impact in 2012 and 2013 is clearly evident, as well as the Nextel Rebanding impact in 2008.
As we build our forecast, we incorporate, we triangulate different perspectives. We triangulate, certainly with this perspective. We have correlative factors that we look at. As an example, in the U.S., we look at state and local IT spend as the correlative factor for P25, and we look at retail sales for PCR. Internationally, we look at GDP for TETRA and retail sales as well for PCR. W e have some factors that we triangulate around a forecast number now. This is a process that began last February, and we're working through it. We continue to work through it right now. From a backlog perspective, our backlog is the highest backlog on record.
Importantly, we've grown product backlog the last three quarters, and we've ended the year, with a backlog, with a higher backlog, as of 2015 by approximately $125 million, as well as higher backlog in product and clearly higher backlog in services, driven by the multi-year service agreements that, Bob Schassler mentioned earlier. Our backlog position, right now equates to about a third of the year of 2015 in backlog right now. Certainly better than last year's position and on par with our historical performance as we enter a year. As we look at, the sources of growth, and I'll just summarize what you've heard through Bob, Bruce, and Mark this morning. C ore products and systems growth driven certainly by normal replacement in the core, as well as software opportunities, to mine the existing install base.
Some of the features that Bruce discussed. Actually, I think there was a question, Keith's question earlier on, what those opportunities are. They're real. We have feature sets that are deployed in many of our customer instances, but they're not deployed universally. We now have the ability to monetize those features and be able to turn them on and off and sell them. We believe that provides an opportunity for growth in the core core and expansion services. Managed Services provides an opportunity, lifecycle support, both in terms of hardware and in terms of software, as well as systems integration. T he Smart Public Safety, as well as public safety LTE growth is layered on top of the core and core product and core services. Excuse me. Moving on to operating expense, and I'll-- There's a few. I'm sure you guys all flipped ahead, and again, thank you for coming back.
We did reduce OpEx $500 million from the $2.1 billion base. We don't view that as a ceiling. We certainly don't view the incremental $150 million opportunity that we talked about on the call as a ceiling. And I think it's important to note, inclusive, the $150 is inclusive of incentive pay set at one, which is approximately a $70 million headwind. It's important to note that the majority of the actions required to achieve that $150 have been executed in the fourth quarter in 2014 and in the fourth quarter. Just a couple of notes on the approach that we've employed.
It's not only a cost reduction, although certainly it is a cost reduction program. We don't view it as a singular event, where we necessarily went through cost reductions based on being a pure play, more of a change, and Greg mentioned this, in culture and the way we approach things. I'll share a couple of examples in a minute on some of the things we've done. Really, a change from a large conglomerate, which is oversight, governance, versus more entrepreneurial at every level of the organization, understanding that everyone's here to drive incremental revenue and drive operating margin. T hat's really the reference to the clean sheet approach.
If we look at now, I'm gonna pivot this 2013 and 2015, the numbers that you see on the bottom are related to the $350 million reduction from 2013 to 2015 that we talked about earlier, and it dimensionalizes where those reductions occurred. We talked about the 45% SKU. Bruce mentioned that 45% reduction in SKUs, as well as a common platforming that he spent several minutes on, but I think it's important to reiterate it. To leverage the scale we have, versus our competitors that participate, perhaps only in TETRA Infrastructure or TETRA subscribers or ASTRO. Leveraging that scale across all technologies by platforming, is an important part of not only reducing costs, but being able to provide products at a faster pace and being able to be more competitive in the marketplace.
From a G&A perspective, it's across the board, real estate footprint, the level, frankly, the level of service that each of the functions thought they needed to provide to the business. It's just starting from scratch, understanding exactly what the value that a particular organization has and how it should be sized according to that value. I'll give you an example, a couple examples in a minute. In selling and marketing, Mark talked about the reduction in non-bag carrying people in the regions and redeployment, rebalancing, and the coverage model between indirect and direct. From a G&A perspective, the pension, I'm sure, is a question that many of you have. What's the impact of pension in that 350? The impact of pension in the 350 is approximately $70 million, offset by a $33 million increase in incentive pay.
N et-net, the net of the two is about a $30 million reduction included in the $350 million. Some examples of some of the things we've done, over 50% reduction in square feet. I think many of you probably saw the cranes coming in in the southeast corner of the campus. That was there was a building there that was a little over 1 million sq ft, 1.2 million sq ft, that was empty. We monetized 30 acres in the corner of the campus for approximately $30 million. Look for more of that. We are down to 4 owned locations, significant reduction from where we were in 2012, so reducing fixed costs as part of the cost reduction initiatives. The 175 reduction in P&L.
We had, in 2014, actually, 178 fully allocated income statements all the way down. Y ou think about that, you know, what's the big deal about that? Well, the big deal about that is the structure around 178 people that.. I'll say general managers, that perhaps were suboptimizing a decision based on this constructed P&L, as to the detriment of the entire organization. Y ou can think about perhaps ops reviews and everything that is structured around those 178 P&Ls, we reduced it to three: total MSI, services, and products. A 50% increase in distribution, outsourcing to approximately 70%, and we've talked about several times, several of us have, the $205 million reduction since, in 2014, ending 2013 versus 2014.
As part of the simplify initiatives and starting with a clean sheet of paper, pension, and I know this is a little bit of old news, but we reduced the liability by $4.1 billion. I just thought it was an interesting view of what would have happened had we not enacted the pension changes last year. The unfunded dollar amount at the end of the year was $1.2 billion, which is approximately the same as it was in at the end of 2013. Had we not enacted the changes to pension, that unfunded amount would have been $2.1 billion. Obviously, cash flow, our ability, visibility of cash flow out, would be compromised.
Through those actions, right now, we don't anticipate any cash funding requirements for the next five or six years related to the U.S. pension. A metric that I think is interesting that we will continue to refer to is free cash flow per shares. In the earnings call, we guided to approximately $1 billion of operating cash and approximately $800 million of free cash flow. And that comports to a free cash flow per share amount of $3.65-$3.85 per share in 2015. Obviously, providing flexibility for continued share repurchase, dividends, acquisitions, to drive growth. L ook, so we talked about growth, how we think about growth, the sources of growth, how we aggregate what we think our growth rate is, and how we triangulate around it based on other data sources.
OpEx and the leverage we will get when we grow again. You know, we talked about growth rates, low to mid-single digits, pick a number, 2%-4%. It's important to note that in the numbers we saw on cash flow and EBITDA percentage for 2015, we guided to flat to down 2% inclusive of FX headwinds, yet we're increasing EBITDA. W hen we think about how we structured the organization and the cost structure of the organization, it's at the lower amount, at the 2%, arguably at flat. And operating leverage when growth returns is substantial, and that's the flywheel that, that Greg mentioned, both in EBITDA and cash flow generation.
If we look at what we've done with that cash, a 54% increase since 2011, $1.30 a share in dividends in 2014, and share repurchases, $7.8 billion in share repurchase since we initiated the program in 2011, and combined share repurchase and dividend, about $8.7 billion returned, which is approximately 50% of our market cap since 2011. Obviously, very importantly, $4.2 billion left on the current authorization and the ability to generate significant cash. A n update to the deployment, the capital deployment framework, it hasn't essentially changed. 50% of operating cash dedicated to share repurchase or acquisitions.
Clearly, if we look at what we've done from a share repurchase perspective, $2.5 billion in 2014, over half of that in the fourth quarter of 2013, of 2014, I'm sorry, is clearly far more than 50% of operating cash flow for the year. But as we return the capital for the enterprise transaction and the excess cash on the balance sheet, that will be oversized. Capital return will be oversized, certainly for 2015. W hat I want to leave you with, in summary, are three things: growth, stable growth profile, the core growing at low single digits, the reasons we've talked about, analog to digital migration, software features, as well as additional growth in services and Smart Public Safety and LTE. A stable growth profile with upside. We've seen our differentiation remains intact.
If we look at growth rate from 2014, from 2004 to 2014, we don't expect a significant difference in that growth profile, because the defensibility of our business, of the core business, hasn't changed. The additional, compounded with the ability or the view of a market for Smart Public Safety, as well as for Public Safety LTE, provides additional upside to that stable growth. Strong profitability. The $500 million in OpEx reductions provide us the ability for significant operating leverage when growth does return. 21% EBITDA in 2014, holding the 2013 EBITDA, despite a 4% reduction in revenue and room to grow from the 21% EBITDA, and significant leverage, as I mentioned, as growth returns.
Robust cash flow, $1 billion in operating cash, $800 million in free cash flow. From a free cash flow per share perspective, as share count continues to be reduced, significant opportunity for growth in free cash flow per share, as well as for dividend growth. Importantly, we got the cash tax rate at 15% through 2019, and effectively prefunded the pension in 2014 for the foreseeable future, 5-6 years. W hat we concentrate on as a management team, growth, continued operating leverage, the OpEx reductions are not complete and robust cash flow. With that, I'd like to invite the rest of the team, Greg, Bruce, Bob, and Mark, up for Q&A. Questions?
Yes, over here.
Thanks. Hi, it's Andrew Spinola from Wells Fargo. I'm trying to put together two of the commentaries that you've been talking about a lot today, and one of those is the 1%-3% growth long-term in the core business, and then the $150 million step down in R&D in the voice business over the last several years. I know that there's been some optimization of that footprint and the SKUs and the common platform, but that's a very substantial step down in that spending. Y ou know, Mark, you made the comment about how your government customers think 10-15 years from now, you know, LMR will last that long.
I'm just getting the sense that maybe LMR, you're starting to treat it as a cash flow business and that it's ultimately in long-term secular decline, whereas I used to think of the voice and data businesses being separate longer term. I'm just wondering how these different signals play out together.
Sure. A couple of things. We do not view the core business in secular decline. Full stop. We do not. We think it's growing and will return to growth. Remember, even in Brda's narrative of taking R&D down, he also said that he, along the way, has refreshed the portfolio, and it's the most comprehensive it's ever been. In addition to that, the spend on the new piece, you got a question about maybe the new piece somebody thought should be higher. But remember the sunk investment we've made of $250 million plus on public safety LTE for the last 4-5 years. B y no means, by no means, do we think the core business is in secular decline. We think it'll return to growth.
If I go back to Udi's question, which is shared by some of you about, "Well, let me, let me make sure this public safety LTE thing, and are you really sure that it's additive to LMR?" And when we showed that slide of the big three on public safety LTE, one of them in the Middle East is continuing to add to its LMR. In Los Angeles, the two separate bids are for brand-new systems, LMR, which I don't think they would do if it was in secular decline, and public safety LTE. And the third one, in the Middle East country we can't mention, Mark Moon referenced the fact accurately, that we will start deployment this year and that there'll be a tender for a new TETRA network, LMR, either later this year or early next year. T hat's a lot to think about.
Remember what we said about, and w e disaggregated the growth. We believe this business is a low- to mid-term single-digit growth business. I'm asked all the time, what do you mean by that? I point you to two areas, the historical growth rates over the last 10 or 12 years of 3-4 as one anchor point, and from a planning perspective, we're planning currently 2-4. We want to size the business to two. Do I-- I'm sure, and I'm reasonably confident it can grow beyond that. Maybe it's threfour, maybe it's 4, maybe it's not bound by that.
But from a planning perspective, currently, we're thinking 2-4, size it to two, build the backlog, convert, have core continue to return to historical growth rates, get the flywheel of growth of the newer areas around software monetization, managed services, monetizing the software features, and public safety LTE, and that's how you comport to the, the full long-term growth rate. Thank you for asking that. What else? There's got to be more. Sorry. Yeah, you right there.
This is Ashwin from JP Morgan. Is there any update to your acquisition or getting acquired strategy?
Well, two things. Number one, I guess at some point it's to be expected, that kind of rumor and speculation of whatever it was, a week or two ago, now that we're a pure play with the attractive attributes we talked about. Having said that, it's a bit frustrating as well because I don't want the people of Motorola Solutions or this team distracted by the rumors and speculation of what may or may not happen. As you could see from this morning, we're all in and committed to growth. And we believe there's a path forward, irrespective of the growth rate at the top, to drive substantial value here on because of the operating leverage and the free cash flow per share. O thers will speculate. The interesting part is we are taking share in North America.
Look at our growth rate in North America. Jack Molloy posted 4%. You can contrast that to the public safety revenues of our primary competitor. I ronically, at the same token, Airbus announced they're selling their assets and exiting the DMR business, which Mark Moon referenced, I think is an opportunity for us to pursue. That's what we're focused on, is executing on our plan and continuing to seize on both those opportunities. Let's turn to the back.
Hi, Tim Long at BMO again. Just wanted to go into the commercial business a little bit. I think from one of the slides, it showed that there's actually a little bit lower percentage of the total in North America than, than it is globally. C ould you talk a little bit more about the specific opportunities in North America for commercial? T hen related to that, is there a different level of investment that will be required for Motorola, where it's a little bit more fragmented, maybe not as high a share position, compared to the government vertical, that would be required for you to be more successful in the, in commercial enterprise? Thank you.
Yes, so your comment is correct. In North America, we highlighted overall 70% government, about 30% commercial worldwide. North America is more 80/20, as you saw. Part of that, really, in my mind, is certainly there's plenty of commercial customers in North America that are headquartered here, both global customers as well as in general. I would characterize it really as a lack of focus. It wasn't our focus before, and I kind of described a little bit of that, where I could rationalize it, that we had an enterprise sales team. But when we came back to being singular-focused, that's one of the first things we did.
Years ago, we used to have what we called a special markets sales team that really focused on petrochemical, utilities, Fortune 200, and we really said, "Let's look at that concept." We had kind of turned that customer base in North America over to our partners, and our partners will still serve many of them, but many of these customers really wanted mission-critical communications, just like we sell to public safety. W hat we saw last year, we had very good traction in oil and gas. We had very good traction in some of the industrials. We had very good traction with several automotives. We talked about Toyota and General Motors, and it really was just getting back focused and then leveraging what we got. As we go forward, in some parts of the world, you see a much higher mix.
One of the things we're focused on is re-shifting some resources, so I don't see it as an expansive investment, but I see it as a redistribution of investment. The other things we've really done is we've taken the marketing organization now and said, "Let's pick two or three verticals, and let's go get good collateral that allows us to take our portfolio and solutions and go deliver what we've got today to these other verticals." I t's really, it'll help our partners be more successful, it'll help our salespeople be more successful.
We're clearly making some investments in that commercial vertical because we see it as a growth area, but I really see it as, again, taking some investment from other places that, quite honestly, we were doing some of the things we've just always done, that we didn't need to do, and now refocusing it back in its space.
I think just one more comment I think is important to add to what Mark said on the investment. On the PCR space and what we do in commercial, Bruce talked a little bit about it, but we are developing a large third-party, independent software vendor ecosystem. We have over 400 signed up now. A lot of the software development and investments for manufacturing or utilities, a lot of that is happening by these ISVs, if you will, and then we'll create their overall solution. T hen I think that the second point that's important to note, and Bruce touched on this a little bit, but tying back to this gentleman's question on the cost of the business, we have spent a lot of time platforming across our portfolio, which allows us to really leverage that investment.
There's two things that we learned on the mobility side. One was it's very, very costly unless you platform your product. They had very well documented 27 different hardware and software platforms. We really got after that five years ago, and so everything that we're doing now on infrastructure and devices, hardware and software, is platform, so we can really monetize that investment. We really just completed that effort. The second thing that we learned from the mobility side is we did not transition. They did not transition, we as a company, of high-cost design centers to lower-cost design centers. We started doing that five years ago, too.
That's another good reason why it might seem like we're kind of going down in R&D at the cost of the LMR business, but in reality, we're just much, much more efficient because of the moves that we started taking three, four, five years ago.
Hi, Paul Silverstein, Cowen. W ithin the context of that greater efficiency that y' all have been articulating, the process improvements, the fact that this is not one time in the OpEx reduction, as you contemplate going back, if you go back to 2%-4% growth, what-- I, I'm sure you've thought about this: What is your peak efficiency in terms of OpEx to revenue ratio? What can you get it down to? It's obviously not going to zero. You've done a phenomenal job already. What-- how much more is there you can wring out of the cost side of the equation if you go back to that 2%-4% growth?
It-- I struggle with quantifying it, because if we knew it, we would quantify it, and we'd get after it right now. We do know that the $150, the incremental $150, is not a ceiling. And really, when you talk about revenue, it's really dependent on where the revenue comes from. A s an example, public safety LTE, as that ramps, many of the investments required, arguably most of them that are required, we've made already. T hat will. We should be able to leverage that incremental revenue far more. Now, if we're talking about geographic expansion, perhaps, where we don't have a footprint, that may cost a little bit more for that incremental revenue.
G iven what we've articulated that's in front of us right now, we believe there's significant leverage based on public safety, LTE, and Smart Public Safety to grow EBITDA with revenue.
If I may, I assume with these past years, progress maybe more challenging to wring that much more concession, that much more efficiency out of the business, especially without--
Certainly. T he question was, going forward, it would be, it's far more difficult to wring that much out. Absolutely. I would not, I would not suggest there's another $500 million to, to wring out right now. But I do know that the way we've approached what we've done this year hasn't been in a one-time, singular event effort around cost reduction. It has been fundamentally changing. I know that sounds trite, but it has been fundamentally changing the way we do business, and it's palpable if you walk the halls. People talk about is that, "That's not the spirit of simplified," or, "That's not making decisions.
I think there will be more opportunity, and the more we dig into it, I think we'll identify more opportunity. Udi.
Hi, Udi. Thanks. You could actually something called Six Sigma, something that you guys probably know nothing about. Nothing to do with Motorola ever. A couple questions. Greg, let's go to the other side. Let's assume that growth does not return. At what point do you either go to new areas, do you acquire other businesses to expand scope or geographic presence, or go into distribution? Or are you happy with saying that this is as long as if it's a flat business, then it's a flat business, it's perfectly fine, you can manage that. You generate, like you said, $800 million in free cash flow a year and call it a day. Or what would happen? What is your plan B in case there isn't growth over the next couple of years? That's one.
Mark, can you walk us through what you've done with the sales force? Because as you said, you need a new sales force. If you're going after software and services, it's a different type of a sales force than you used to have before going after hardware. I f you just kind of was there a replacement of 20% of the sales force? Was it just the leadership? Did you have to cycle through, you know, a larger percentage of your people, something like that? Anything would be helpful. And, you know, just on the total aside, the fact that your pension deficit is $900 million less than it otherwise would have been, nothing to do with Motorola. Does that mean that Prudential basically has a $900 million loss on that? I just don't know how that works.
I wouldn't comment on Pru. You know, I think it's a question for them. I think we're happy with the timing of the transaction and when we did the transaction. It's a reflection of discount rate, certainly, at the end of the year, as well as the mortality changes that we addressed when we announced the program.
On the-- Let's go to your first one on growth. We would not, and I wouldn't be happy if this remained a no-growth business. L et's - we'll stop that. Second, if you look at our M&A activity in the last few years, first of all, two things, Udi, and I know you know this, but we spent an extraordinary amount of calories and time to get to this business. We did that, and I did that because I did believe, and I still believe, that this is the best business to be in. I believe it through the lens of Motorola. Maybe that's the wrong lens, okay, in terms of portfolio of businesses. Forget Motorola, forget Mother Motorola. In terms of differentiation, backlog, stickiness, end-to-end orientation, difficult to disintermediate, this business has a lot of positive characteristics.
Where we've acquired, so we've gone to a pure play. In the meantime, we've tucked in applications, excuse me, tucked in acquisitions. Brda talked about Twisted Pair. Now, Twisted Pair is IPR around push-to-talk, and it was significant, in my view, not in size, but in culture, because push-to-talk, wow, that's what Motorola is all about. That's what we're all about. But this company had some interesting IPR, some talent that I thought would be additive, and we bring them in, and what do we do? Well, A, I want to keep it separate and not destroy the company because we would suffocate it otherwise. And B, take the former CEO and anoint him to lead us through Smart Public Safety and software.
It's a very interesting and not so subtle feature that we talk about these LMR systems and these LTE systems, and the interoperable push-to-talk bridge between those two will be led by him. Outside acquisition, tuck in. Second tuck in, Trident Micro Systems. Small, builds out a hole in, actually, in TETRA R&D. We could have, historically, what we would have done, let's do it ourselves. This is our business, TETRA, let's spend the money. Time to market, existing partner, we tucked them in. I think that's culturally, I'm not sure we would have done that a few years ago.
T hird, tuck in, Udi, is Emergency CallWorks, which we like, and Schassler talked about Next Generation 9-1-1, command center transformation, more data sources coming into the command center, and the advantage position that I think we're afforded through interoperability and growth in that area. Do I think that we would consider other acquisitions in our core or directly adjacent to our core? We may. By the way, regardless of what the growth rate is, if there's some opportunities that present themselves, that may be a little bit more material, we might consider that because we've worked so hard and we continue to believe in this business, and there's multiple levers of growth.
There's LMR, there's analog- going from analog to digital, there's refreshing aged systems, whether it be 10 or 15 years old, there's the upgrade to digital networks that then allow for the software monetization for features, that then allow for the attach rates for software maintenance contracts, where we weren't thinking like that two or three years ago. We were thinking, sell the iron, sell more devices. We still do that, but we're delayering the profitability and profitable growth envelope of this business at a level we didn't do when we were combined with the enterprise business. I think there's managed services opportunities, and we want to do that generally within the capital- CapEx envelope that we're outlining today. We've talked about public safety, LTE. I could tell by your questions just a couple of other points I'd make on that. Number one, we believe it's additive.
Number two, when you look at those big three, our focus on public safety, LTE, is to, overarching focus, is to deploy those, number one. Number two , expand those into some more devices, because as Schassler, I believe, pointed out, those three are largely infrastructure only. Some have devices. Well, there's another incremental set of orders on top of deploying those three that would feed into our growth rate of what we contemplate through the long-range plan. T he other reason for the partnership with Ericsson is we don't wanna spend the R&D, and that's not our business. A s we're building with our customers, these private broadband networks, Ericsson's the right partner. We got out of the network infrastructure, Radio Access Network business, and we put that component in.
I think, Udi, we would not be pleased at all with a flat growth business. We continue to drive cost out of it. We think there's operating leverage to pursue, and that's how we're thinking about both core growth and inorganic growth.
The question on the sales force, I think, is a very good question, Udi. It's something, fortunately, that we didn't just start thinking about. About 2.5 years ago, we launched something I called Sales 1.0, going to 2.0, going to 3.0, kind of from a product sales organization, which is really what we were, to more of a solution sales organization to match the new company, to ultimately more, if you will, consultant, trusted partner. C onceptually, we launched it because I wanted the organization to know we're gonna be different. There's gonna be changes afloat. We're gonna make some investments that I talked about earlier today. We're gonna change the tool sets. You're gonna be expected to use them and leverage. We're gonna create this expense around Sales Way methodology that will allow you to be better salespeople.
But, you know, the relationships we've had for all these years, they're wonderful, but they won't last as some of our customers turn over. The difficulty with that concept, though, is both my sales organization and our customers are at different levels of maturity in different parts of the world. W hen you think about our portfolio, the core portfolio still has a lot of runway in Asia, parts of Latin America, certainly as we think about Africa and some of these expansion areas. I really don't even want them to get so focused on, "How do I get through this?" 'Cause you can go every day and wake up and find a new customer to go sell what we've got. North America, different situation. More of the wallet for the customer we've already got that are trusting us for more.
In North America, for instance, we turned over 20% of the sales population last year, and I think it was good changes. By the way, change is always tough and people going out the door, but we know we need some different types of salespeople, and that's what we've done. We also have restructured in each region, but North America is a great example because the demand is there with sales overlays. A s you think about different kinds of salespeople that wake up every day thinking about, "How do I sell more services?" Or the next guy says, "I wake up every day saying, 'How do I sell software features?
How do I get, if you will, collateral from marketing that helps a sales guy know how to go talk to his customers better and use me as a subject matter expert?" And that's when we did the three things I said from Bob, Bruce, and my team to say, "We have people, they may be calling themselves business development managers," or maybe, "Do w e have people scattered out through the organization?" Let's gather all those people. Let's put them into sales. Let's rationalize who's doing what, so people-- N ow we're gonna give them a sales quota and let them wake up and help these teams do it." Same way with the acquisitions that Greg just discussed. Those folks coming in bring a whole different perspective.
They immediately, instead of killing them and saying, "Let's make you be part of the Motorola team," we let them stand alone and said, "What we'd like you to do is part of this subject matter expertise on the different way of selling," because the way they sold for Emergency CallWorks or Twisted Pair was very different than a big company like us. W e're making that transition at different paces. North America, the quickest, because it's got the most mature market, and we've got the best capabilities right here. A little bit quick in Western Europe, and in some of the others, we will let that customer base grow the maturity before we go there. But we're clearly making very active steps and making reductions and changes in our overall talent.
The only other thing I'd add is the use of overlay people. W e have a public safety LTE group of specialists, that when Mark's team calls them in on opportunities, they have a deep domain expertise. They could speak to a level of detail about Ericsson. They could talk about the content around what people are doing around public safety LTE networks, and the same is true around smart public safety. T hese overlay groups complement the go-to-market in addition to the changes Mark described. Yes, right here.
Thanks. Keith Housum from North Coast Research again. Mark, as we look at the LTE, kind of, I guess, funnel going forward, I mean, you guys have announced the past few months, these 3 large wins for $500 million. Obviously, these are very long negotiation cycle to get into these LTE contracts. As you look at what's on your plate in terms of RFPs for LTE, how would you describe that? Are you looking at potential LTE deals out there in the $ billions in time frames of, you know, two, three years out? I guess, in just a little bit of perspective of the LTE market, not from what you signed, but I guess, the RFPs that you're currently looking at.
Then second, you know, we can all read about voice over LTE and different standards committees talking about that being possible in a few years versus 10-15 years. You guys have given us examples of, you know, at least three LTE engagements that are still looking at LMR, you know, as a next generation still. V oice over LTE for these guys, there's, you know, several years out, at least. But talk a little bit about, like, the regulatory standards about voice over LTE and where that's at now, perhaps the misconception that's happening in the market right now.
Okay. I nterestingly enough, there's not a whole lot of active RFPs on public safety LTE. I think that's really driven by we, as the market leader, and the work we've done with Ericsson over the last 3.5 years, and the investments we've made, calls us to really be driving that demand. The other folks are chasing it with their normal commercial offerings. I f there is a request, you know, the traditional carrier kind of providers, ALU, Nokia, Huawei, they'll try to respond, but they're not really driving the market because they really haven't done what Bruce described earlier of providing a differentiated public safety offering.
Now, with that being said, we've got a lot of activity, as I said, throughout the world, and two of those big deals that I described really weren't, "Let me write a RFP," they were, "Let me really decide what I'm trying to accomplish." R eally, we sat down, and as you said, this has been several years in the making, with other vendors actively trying to compete for the business, but where they evolved, that this is the kind of solution they need. I think as we go forward, again, when you see active execution of our implementations and what that accomplishes, that will spur RFP activity. Certainly, as we discussed at the break, if FirstNet moves forward with their RFP process, depending on how that shakes out, that could spur more, you know, RFP kind of activities, depending on which way it moves.
But in general, we really are driving the market, and that's why our focus really is on executing these big deals. These three deals have lots of add-on potential, as we said, both as devices, applications, services. W e'll continue to work it, and I think you'll see some other early adopters move forward, but you won't see big, if you will, RFP activity for some period of time. From the, the LMR perspective, I think the question was around- well, two things--
I can--
It was, voice over LTE and mission-critical voice over LTE.
Go ahead, if you want to.
Let me just start. Today, I talked about a voice bridge between LMR and LTE. T oday, you can do voice over LTE, but it's a non-mission-critical manner. A lot of the carriers are selling voice over LTE to their consumer base as well. 3GPP recently established a working group to define mission-critical voice on LTE, that the standardization is a ways out, and then the implementation of those standards will be even longer. We're talking in terms of years. That's one aspect. The second aspect is what I mentioned, and it's the integrity of the networks that provide the voice. E ven when the mission-critical voice has been standardized and implemented, today's current carrier networks, which are massive, as you know, just aren't built from a resiliency perspective to handle mission-critical voice.
The example I would give would be a carrier site, which has two hours of battery backup versus a LMR site, which has a generator and a week's worth of fuel. Those are dramatic differences, and it won't be quick, certainly, and it may not be possible to take a carrier network with 50,000 cell sites nationwide in the U.S. and harden it in a way that LTE has been. I'm sorry, LMR has been hardened. Purpose-built, start from scratch in a, you know, a reasonable geographic area, absolutely, you could harden it. When the standards are available, it will deliver high-quality voice, but that's really, it's years out from this point.
Yeah, I think the only other point that's important to understand from an economics perspective is, once that standard is developed, the network manufacturers have to decide, do they want to invest in building it? And to build in the capability for mission-critical voice, they have to decide, is there a good return on investment to develop that functionality when, really, public safety is 1% of the overall market for LTE on a global basis. W e'll wait and see how that plays out as well. I see you in the middle.
Judson Brooks, Harris Associates. The four, the graph on the growth, and you have, like, sort of four little boxes.
Quadrants, yeah.
Yeah. Can you put an actual existing revenue number in each of those boxes? Is it? Does it make sense to do that? Or are, like, the two boxes down at the middle so small that you don't want to do that?
Well, I mean, I think that, Gino, why don't you take a shot, and I'll add.
Sure. C learly, the boxes on the bottom, we have put a revenue number to public safety LTE.
Right.
We've talked about what the 14 number was and our expectation of doubling that in 2015. Smart Public Safety is clearly nascent. We think it's an important business for us. We think as data becomes more and more important, as it moves from a nice-to-have, not mission-critical, to mission-critical, we think that's a significant opportunity, from an ecosystem perspective, from an apps perspective, but at this point, it's a relatively small number.
Right. I t's more enabling the above quadrants.
Then the core products and systems is basically, you would put all of your existing revenue in there right now, as opposed to somehow splitting out core and expansion services.
Yeah, I think of it as the top two quadrants are the bulk of what we do.
Together. Right. Okay. T hen the other question is about share repurchase. How sensitive is the buyback activity to the share price?
You want to take that?
Yeah. Two things. We've talked at the earnings call in terms of directionally pacing at in the $600 million range per quarter. That's what we said whenever it was, two weeks ago. We do all the time a DCF analysis on the intrinsic value of the company, and we follow a grid and look about the price sensitivity of where it makes the most sense. Obviously, the stock has run up a bit in the last, I don't know, several weeks. I'm not gonna give any more granularity around that in terms of where we're a buyer or not, but we're still we still believe it's useful to reference this approximately $600 million a quarter range at this point in time today. Thanks. Okay.
Let me just say a couple of things. I really appreciate you coming in today and doing this. We would never normally wait 22 months between our financial analyst meetings. T hank you for your patience and your understanding with last year. As we were thinking about it, and Anders and I agreed on the enterprise deal, and then we were forecasting a September, October, November type close, it didn't make any sense to bring all of us together, with that kind of extraction of that division, so we waited. T hank you for the patience. I would love your feedback, formally, informally, written or verbally, in terms of the quality of what you didn't like, what you'd like, what you liked, didn't like, and ways to improve.
We're trying to drill down with more granular detail around what we mean by services. W e talk about integration services, life cycle services, both hardware and software maintenance, managed services. We didn't talk a whole lot about nontraditional systems integration. We disaggregated public safety LTE. Mark Moon gave more detailed color on the regions, direct, indirect, directional color in terms of regional breakdown from a revenue standpoint and the trends. We gave you more detail around backlog, not just product and services, but the annuity backlog revenue of $1.1 billion in services. Gino dimensionalized about a third of the backlog is revenue for this year in 2015.
We are trying to provide more transparency to you that will be more useful in informing you in terms of ways to think about this business, its inherent growth profile, the operating leverage that affords, and our thoughts around capital return. I hope you felt it was a very good morning. I encourage you, we have lunch afterwards. We also have demos. I f before running out, it may be worthwhile, I would encourage you to do some of those. Thanks for coming, and thanks for continuing to believe in us, invest in us, and investing the time. Thanks.