UPDATE 4-Motorola Solutions forecasts drop in quarterly revenue

Tue Aug 5, 2014 2:57pm EDT

* 2nd-qtr rev drops 7 pct to $1.39 bln

* Sees 3rd-qtr revenue down 7-9 pct

* Sees 3rd-qtr earnings/share $0.35-$0.41

* Shares fall as much as 5.5 pct (Adds analyst comment, updates shares)

By Sagarika Jaisinghani

Aug 5 (Reuters) - Motorola Solutions Inc, a maker of walkie-talkies and radio systems, forecast a drop in sales for the current quarter and reported a 7 percent fall in second-quarter revenue as sales declined in North America.

The company's shares fell as much as 5.5 percent to a three-month low on the New York Stock Exchange on Tuesday.

Government spending has hardly picked up after a "fiscal cliff" scare led to budget cuts in the United States last year.

Accelerated purchases by state and local governments in 2012 has also been hurting demand, Chief Executive Greg Brown told Reuters on Tuesday.

He forecast demand to pick up in the second half. "Our Federal business will be more stable, backlog is up and the order visibility is higher than it was a quarter ago."

Revenue will, however, reflect the increase in orders only from the fourth quarter, Brown said.

Motorola Solutions will become more dependant on government spending after completing the sale of its enterprise business, which makes rugged mobile computers, tablets and barcode scanners, to Zebra Technologies Corp.

Government and public safety systems, constituting most of the company's remaining businesses, brought in two-thirds of Motorola Solutions' total revenue before the sale.

The company forecast sales to drop 7-9 percent in the third quarter ending September, implying sales of about $1.94 billion at the midpoint of that range.

"Even if Motorola Solutions delivers a historically strong fourth quarter, weaker results from the first three quarters suggest our 2014 earnings forecast is unlikely to be met," Mizuho Securities USA analyst Matthew Hoffman wrote in a note.

MORE SAVINGS

Motorola Solutions, which has been cutting costs to boost profitability, said it expects to save $300 million by the end of 2015 - more than its targeted $200 million.

About half of the cost savings will likely come from general and administrative cost controls, Brown said.

Operating margins shrank to 9.9 percent in the second quarter ended June 28 from 13.6 percent a year earlier.

Total sales fell 7 percent to $1.39 billion. Sales in North America dropped 14 percent to $841 million.

"Overall market demand in North America was down in the first half," Brown said on a call with analysts.

The company earned 47 cents per share, excluding items.

Motorola Solutions forecast earnings of 35-41 cents per share from continuing operations this quarter.

Chief Financial Officer Gino Bonanotte said the profit forecast was below second-quarter levels due to a higher tax rate.

Schaumburg, Illinois-based Motorola Solutions' shares were down 4.9 percent at $60.91 on the New York Stock Exchange after falling to $60.56. (Reporting by Sagarika Jaisinghani in Bangalore; Editing by Joyjeet Das)

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