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Q2 2006 Motorola Inc. Earnings Conference Call Presentation

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  • 1. Motorola Q2 2006 Earnings Release Conference Call July 19, 2006 Q2 2006 Earnings Release- July 19, 2006 Slide - 1 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 2. Ed Gams Corporate Vice President of Investor Relations Q2 2006 Earnings Release- July 19, 2006 Slide - 2 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 3. Safe Harbor Statement A number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, Motorola’s actual results could differ materially from these statements. Information about factors that could cause, and in some cases have caused, such differences can be found on pages 19 through 27 in item 1A of Motorola’s 2005 Annual Report on Form 10-K and in Motorola’s other SEC filings. This presentation is being made on the afternoon of July 19, 2006. The content of this presentation contains time-sensitive information that is accurate only as of the time hereof. If any portion of this presentation is rebroadcast, retransmitted or redistributed at a later date, Motorola will not be reviewing or updating the material that is contained herein. MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. All other product or service names are the property of their respective owners. © Motorola, Inc. 2006 Q2 2006 Earnings Release- July 19, 2006 Slide -- 3 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 4. Ed Zander Chief Executive Officer Q2 2006 Earnings Release- July 19, 2006 Slide - 4 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 5. Motorola Highlights Q2 2006 • Record Sales of $10.9B, 29% Increase YoY • Gross Margin Percent Up QoQ • Net Earnings Up 48% • EPS of $.55, Up 49 % • Mobile Device – Record Units, Sales and Operating Earnings, QoQ Increase in Market Share, Operating Margin Up QoQ to 11.2% • Networks & Enterprise –Increased Sales, Operating Earnings and Operating Margin QoQ • Connected Home – Increased Sales, Operating Earnings & Operating Margin, YoY and QoQ Q2 2006 Earnings Release- July 19, 2006 Slide -- 5 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 6. David Devonshire Chief Financial Officer Q2 2006 Earnings Release- July 19, 2006 Slide - 6 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 7. Motorola Inc. Financial Results Q2 2006 YoY Sales $M $ 10,876 Up 29% Operating Earnings $M $ 1,522 Up 59% Operating Margin 14.0% Up 2.6 pts Earnings Per Share- Continuing Operations $ 0.54 Up 46% Earnings Per Share $ 0.55 Up 49% Excluding Significant Items Operating Earnings $M $ 1,209 Up 25% Operating Margin 11.1% Down 0.4 pts Up .8 pts QoQ Q2 2006 Earnings Release- July 19, 2006 Slide -- 7 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 8. Significant Items Discussed in the Earnings Press Release EPS Impact Q2 2006 * Includes: Stock Compensation Expense $ (0.02) Reorganization of Business Charges (0.01) Tax Benefits 0.11 Telsim Settlement 0.10 Gain on Investments, Including Derivative Gain 0.03 $ 0.21 Q2 2005 * Includes: Reorganization of Business Charges $ (0.01) Tax Benefits 0.02 Gain on Investments, Including Derivative Gain 0.10 Repayment of Loan Previously Reserved 0.01 $ 0.12 * See appendix for reconciliation Q2 2006 Earnings Release- July 19, 2006 Slide -- 8 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 9. Cash Flow and Debt Cash Flow Cash & Debt Q2 Year End ($ in Billions) First Half 2006 ($ in Billions) 2006 2005 Operating Cash Flow $ 1.2 Cash/Equiv/Mkt Sec $ 14.4 $ 14.8 CapEx $ (0.2) Short Term/ Current Debt $ (0.5) $ (0.5) Free Cash Flow $ 1.0 Long Term Debt $ (3.8) $ (3.8) Total Debt $ (4.3) $ (4.3) Net Cash/ (Net Debt) $ 10.1 $ 10.5 Q2 2006 Earnings Release- July 19, 2006 Slide -- 9 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 10. Stock Repurchase Update • May 19, 2005 Authorized to Purchase $4B of Stock over 3 Years • In Q2: Purchased ~38.9M Shares, Average Price of $21.49, Cash Used $838M • Inception to End of Q2: Purchased 118M Shares, Cash Used ~ $2.5B Q2 2006 Earnings Release- July 19, 2006 Slide -- 10 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 11. Q3 2006 Outlook Sales $10.9-$11.1B Stock Compensation Expense $.02 Per Share Gain From Sale of Automotive Electronics Business Reorganization Expenses Expected In Q3 From Cost Reduction Activities In Networks & Enterprise Segment Q2 2006 Earnings Release- July 19, 2006 Slide -- 11 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 12. Mobile Device Q2 Highlights All-time Motorola Record For Units! All-time Record For Mobile Devices Sales! All-time Record For Mobile Devices Operating Earnings! 10th Consecutive Quarter Of Y/Y OE% Improvement!* 7th Consecutive Quarter Of Q/Q Market-share Growth! … And We Increased Global Market Share To 22% * Excluding Reorganization Charges Q2 2006 Earnings Release- July 19, 2006 Slide -- 12 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 13. Mobile Device Q2 Highlights Demand For RAZR Is Stronger Than Ever! SLVR Is Joining Project Red And Bono In Fight Against AIDS Q Is Hot And It’s Re-defining QWERTY! MOTOmusic Is In A Groove … Nearly 10 Million Units! 3G Units Up 55% Vs. Q1 iDEN Is Strong! … Record Q2 Units Performance! Mass Market Is Winning In High-growth Markets … And 11 New Launches: 5 GSM, 4 CDMA & 2 iDEN Q2 2006 Earnings Release- July 19, 2006 Slide -- 13 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 14. Mobile Device Q2 Highlights 22% Global Share: The Clear #2 And Gaining! #1 In North America #1 In Latin America #2 In North Asia #2 In High-growth Markets #2 In Europe Q2 2006 Earnings Release- July 19, 2006 Slide -- 14 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 15. Mobile Devices – Q2 Q2 2006 YoY Sales $M $ 7,140 Up 46% Operating Earnings $M $ 799 Up 62% Operating Margin 11.2% Up 1.1 pts year over Excluding Significant Items Operating Earnings $M $ 799 Up 59% year Operating Margin 11.2% Up 1.0 pts Units (M) 51.9 Up 53% Market Share Est-Q2 22% Up 4.3 pts Up 1.3 pts QoQ Q2 2006 Earnings Release- July 19, 2006 Slide -- 15 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 16. grow market share profitably with … wickedly compelling products … and rich experiences … with quality and efficiency. Q2 2006 Earnings Release- July 19, 2006 Slide -- 26 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 17. Expect Market To Grow By > 15% For FY2006 Expect H2’06 To Have Normal Seasonality Compared To H1’06 … And Expect That Mobile Devices Will Continue To Grow Sequential Share And Expand YoY OE% Q2 2006 Earnings Release- July 19, 2006 Slide -- 27 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 18. Networks & Enterprise Segment Leverage Public, Private, Enterprise Markets and Uniquely positioned Technologies High-growth areas: 4G wireless broadband, Building early leadership Interoperability, Enterprise Mobility and Services $11 billion-plus business Solid, Double Digit Operating Margin Right investments Next-generation technology leaders: Right time Clearwire Wireless Valley, MeshWireless, Orthogon Corporation, NextNet Systems, Networks Q2 2006 Earnings Release- July 19, 2006 Slide -- 28 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 19. Networks & Enterprise- Q2 Q2 2006 YoY QoQ Sales $M $ 2,903 Up 3% Up 15% Operating Earnings $M $ 386 Down 22% Up 29% Operating Margin 13.3% Down 4.2 pts Up 1.4 pts Excluding Significant Items Operating Earnings $M $ 423 Down 15% Up 32% Operating Margin 14.6% Down 3.0 pts Up 1.9 pts Q2 2006 Earnings Release- July 19, 2006 Slide -- 29 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 20. Motorola - Leading in 4G Strong Leader In 4G Wireless Broadband Uniquely Positioned To Capture Large Share Complete Solution Suite: Backhaul, Fixed Access, Mesh, Broadband-over-powerline, WiMAX Added Strength: NextNet Wireless & Clearwire Positions MOT As Global Supplier Of WiMAX Expands Wireless Broadband Portfolio Helps Accelerate Deployment Of 802.16e Pakistan: Nationwide Network Deployment World’s Largest 802.16e Network Projected 1 Million Subscribers Residential, Corporate Voice, Internet Access, Public Hotspots Q2 2006 Earnings Release- July 19, 2006 Slide -- 30 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 21. Government Networks - #1 Worldwide # 1 Position Worldwide Leadership Position In Public Safety Voice Extending Leadership To Public Safety Data Portugal: Nationwide Public Safety System Voice And Data Communications 53,000 Users - Police, Fire, Ambulance Shanghai: Government Radio Network Single, Unified Platform 50,000 Users/Four Government Agencies Q2 2006 Earnings Release- July 19, 2006 Slide -- 31 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 22. Enterprise – Continued Momentum Growing core enterprise system business Multimillion $ New York State Electric & Gas win Strong double digit YTD growth in Enterprise systems orders Launching new products MOTO Q HC700 Q HC700 shipping MOTOPRO™ Mobility Suite Building out ecosystem Microsoft unified communications partnership Q2 2006 Earnings Release- July 19, 2006 Slide -- 32 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 23. Connected Home *- Q2 Q2 2006 YoY Sales $M $ 803 Up 8% Operating Earnings $M $ 56 Up 70% Operating Margin 7.0% Up 2.6 pts * Now Includes The Wireline Business Q2 2006 Earnings Release- July 19, 2006 Slide -- 34 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 24. Connected Home- Q2 Highlights • Quarterly Record Of ~2.4 Million Digital Entertainment Devices, Including ~680k With Digital Video Recorders • Quarterly Record Of ~900k Voice-enabled Modems; ~2.6 Million Modems Overall • Introduced Motorola Follow Me TV Solution, Enabling Seamless Movement Of Multimedia Content Within The Home And To Mobile Devices • Introduced New DSL Wireless Gateway - Integrates Voice, Data, And Home Networking Functionality Into A Single Device • Announced World’s First Commercial Implementation Of Packetcable Multimedia™ In End-to-end Solution With Starhub Of Singapore Q2 2006 Earnings Release- July 19, 2006 Slide -- 35 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 25. 2006 Broadband Connected Home Market • Mid/High Single Digit Growth Motorola Connected Home Solutions • Maintain/Grow Share and Improve Operating Margin Q3 Broadband Connected Home Market • Service Provider Capex Likely to Experience Normal Seasonal Decline QoQ Motorola Connected Home Solutions • Sales Down Slightly QoQ In Line With Market Seasonality • Sales and Operating Margin Up YoY Q2 2006 Earnings Release- July 19, 2006 Slide -- 36 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 26. Motorola Q&A Participants David Devonshire Ed Zander Chief Financial Officer Chief Executive Officer Greg Brown Ron Garriques President, Networks and Enterprise President, Mobile Devices Business Business Dan Moloney Ed Gams Vice President, Investor Relations President, Connected Home Business Q2 2006 Earnings Release- July 19, 2006 Slide -- 37 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 27. Use of Non-GAAP Measurements In addition to the GAAP results provided during this conference call, Motorola has presented certain non-GAAP measurements. Motorola has provided these non-GAAP measurements as a measure to help investors better understand its core operating performance, enhance comparisons of Motorola’s core operating performance from period to period and to allow better comparisons of Motorola’s operating performance to that of its competitors. Among other things, the Company’s management uses these operating results, excluding the identified items, to evaluate the performance of its businesses and to evaluate results relative to incentive compensation targets. Management uses operating results excluding these items because they believe this measure enables them to make better period-to-period evaluations of the financial performance of its core business operations. There are inherent limitations in the use of operating results excluding these items because the company's GAAP results do include the impact of these items. The non-GAAP measures are intended only as a supplement to the comparable GAAP measures and the company compensates for the limitations inherent in the use of non-GAAP measures by using GAAP measures in conjunction with the non- GAAP measures. As a result, investors should consider these non-GAAP measures in addition to, and not in substitution for, or as superior to, measures of financial performance prepared in accordance with GAAP. Details of the these items and reconciliations of the non-GAAP measurements provided during this call to GAAP measurements can be found: (i) in the Form 8-K filed by Motorola on July 19, 2006 (which had this afternoon’s earnings press release attached), (ii) within the text of the slides that accompany this webcast, or (iii) on the company’s website. Each of these items can be found on Motorola’s website at www.motorola.com/investor. Q2 2006 Earnings Release- July 19, 2006 Slide -- 38 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 28. OE Reconciliation By Segment of Significant Items From Continuing Q2 2006 Operations- Quarter TOTAL Mobile Devices N&E Conn.Home Other/Elims Net Sales $ 10,876 $ 7,140 $ 2,903 $ 803 $ 30 Operating earnings 1,522 799 386 56 281 Operating earnings as a percentage of net sales 14.0% 11.2% 13.3% 7.0% 936.7% Operating earnings 1,522 799 386 56 281 Less: Significant items discussed (313) 0 37 0 (350) Operating earnings excluding significant items discussed $ 1,209 $ 799 $ 423 $ 56 $ (69) Operating earnings as a percentage of net sales 11.1% 11.2% 14.6% 7.0% -230.0% Q2 2005 TOTAL Mobile Devices N&E Conn.Home Other/Elims Net Sales $ 8,408 $ 4,902 $ 2,825 $ 743 $ (62) Operating earnings 958 493 494 33 (62) Operating earnings as a percentage of net sales 11.4% 10.1% 17.5% 4.4% 100.0% Operating earnings 958 493 494 33 (62) Less: Significant items discussed 13 9 2 0 2 Operating earnings excluding significant items discussed $ 971 $ 502 $ 496 $ 33 $ (60) Operating earnings as a percentage of net sales 11.5% 10.2% 17.6% 4.4% 96.8% Q2 2006 Earnings Release- July 19, 2006 Slide -- 39 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 29. Significant Items Discussed- Quarter Q2 2006 Q2 2006 PBT Q2 2006 Tax Q2 2006 PAT Significant Item Statement Line (Inc)/Exp Inc/(Exp) (Inc)/Exp EPS impact Stock compensation expense Cost of sales, R&D and SG&A 60 18 42 $ (0.02) Reorganization of businesses charges Other charges (income) 37 14 23 $ (0.01) Net repatriation tax benefit Income tax expense - 68 (68) $ 0.03 Profits permanently reinvested Income tax expense - 67 (67) $ 0.03 Foreign entity valuation reserve adjustment Income tax expense - 73 (73) $ 0.03 China tax settlement Income tax expense - 44 (44) $ 0.02 Telsim Settlement Other charges (income) (410) (147) (263) $ 0.10 Other income (expense) - Other and Gains on sales Gain on investments, including derivative gain of investments and businesses (110) (42) (68) $ 0.03 Total Continuing Operations Impact $ (423) $ 95 $ (518) $ 0.21 Q2 2005 Q2 2005 PBT Q2 2005 Tax Q2 2005 PAT Significant Item Statement Line (Inc)/Exp Inc/(Exp) (Inc)/Exp EPS impact Reorganization of businesses charges Cost of sales and Other charges (income) $ 13 $ 5 $ 9 $ (0.01) Gains on sales of investments Gains on sales of investments and businesses (376) (132) (244) 0.10 Repayment of previously-reserved loan (Iridium) Other income (expense) - Other (30) (11) (19) 0.01 Tax adjustments Income tax expense - 42 (42) 0.02 Total Continuing Operations Impact $ (393) $ (96) $ (296) $ 0.12 Q2 2006 Earnings Release- July 19, 2006 Slide -- 40 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 30. OE Reconciliation By Segment of Significant Items From Continuing Operations- Q1 2006 Q1 2006 TOTAL Mobile Devices N&E Conn.Home Other/Elims Net Sales $ 9,608 $ 6,403 $ 2,520 $ 732 $ (47) Operating earnings 849 699 299 (11) (138) Operating earnings as a percentage of net sales 8.8% 10.9% 11.9% -1.5% 293.6% Operating earnings 849 699 299 (11) (138) Less: Significant items discussed 141 (1) 21 51 70 Operating earnings excluding significant items discussed $ 990 $ 698 $ 320 $ 40 $ (68) Operating earnings as a percentage of net sales 10.3% 10.9% 12.7% 5.5% 144.7% Q2 2006 Earnings Release- July 19, 2006 Slide -- 41 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 31. Safe Harbor Statement A number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, Motorola’s actual results could differ materially from these statements. Information about factors that could cause, and in some cases have caused, such differences can be found on pages 19 through 27 in item 1A of Motorola’s 2005 Annual Report on Form 10-K and in Motorola’s other SEC filings. This presentation is being made on the afternoon of July 19, 2006. The content of this presentation contains time-sensitive information that is accurate only as of the time hereof. If any portion of this presentation is rebroadcast, retransmitted or redistributed at a later date, Motorola will not be reviewing or updating the material that is contained herein. MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. All other product or service names are the property of their respective owners. © Motorola, Inc. 2006 Q2 2006 Earnings Release- July 19, 2006 Slide -- 42 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.