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Q3 2004 Motorola Inc. Earnings Conference Call Presentation
 

Q3 2004 Motorola Inc. Earnings Conference Call Presentation

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    Q3 2004 Motorola Inc. Earnings Conference Call Presentation Q3 2004 Motorola Inc. Earnings Conference Call Presentation Presentation Transcript

    • Motorola Q3 2004 Earnings Release Conference Call October 19, 2004 Slide 1 Q3 EARNINGS RELEASE – October 19, 2004
    • Ed Gams Senior Vice President of Investor Relations Motorola Inc. Slide 2 Q3 EARNINGS RELEASE – October 19, 2004
    • Safe Harbor Statement A number of forward-looking statements will be made during this conference call. 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 in this afternoon’s earnings press release, on pages 76 through 85 of Motorola’s 2003 Annual Report on Form 10-K. This presentation is being made on the afternoon of October 19, 2004. 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. 2004 Q3 EARNINGS RELEASE – October 19, 2004 Slide 3
    • Ed Zander Chief Executive Officer Chairman of the Board of Directors Motorola Inc. Slide 4 Q3 EARNINGS RELEASE – October 19, 2004
    • David Devonshire Chief Financial Officer Executive Vice President Motorola Inc. Slide 5 Q3 EARNINGS RELEASE – October 19, 2004
    • Motorola Inc. Financial Results Q3 Q3 Fav (Unfav) 2004 2003 Q3’04/Q3’03 Sales $M $8,624 $6,829 26% Earnings Per Share GAAP $0.20 $ 0.05 313% Another Very Strong Quarter in Sales and Earnings Per Share Growth • • EPS Includes A $30M ($0.01 Per Share) Minority Interest Expense For FSL Q3 EARNINGS RELEASE – October 19, 2004 Slide 6
    • Gross Margin % of Sales 40% 36.2% 34.0% 35% 30% Q3'03 Q3'04 § Gross Margin Performance Was Strong § Improved By 220 Basis Points From Q3 Last Year § Improvement In Each of Our Four Largest Segments Q3 EARNINGS RELEASE – October 19, 2004 Slide 7
    • Research & Development Expenses $ in Millions $1,000 15.0% 13.8% 11.6% $750 10.0% $500 5.0% Q3'03 Q3'04 § R&D for the Quarter Was Up Slightly vs. Q3, 2003 But Improved as a Percent of Sales by 220 Basis Points § Maintenance and Focus on R&D Spending is Resulting in Stronger Sales and Higher Gross Margin Q3 EARNINGS RELEASE – October 19, 2004 Slide 8
    • Selling, General and Administrative Expenses $ in Millions $1,500 20.0% 15.8% $1,000 15.0% 14.8% $500 10.0% Q3'03 Q3'04 § SG&A Decreased as a % of Sales vs. Last Year By 100 Basis Points § Dollar Increase vs. Q3’03 is Largely Attributable to: § An Increase in Sales Commissions Related to the 26% Increase in Sales § An Increase in Our Brand Advertising § An Increase in Incentive Accruals Due to Strength of YTD Performance Q3 EARNINGS RELEASE – October 19, 2004 Slide 9
    • Operating Margin % % of Sales GAAP Excluding Reorg./Goodwill 11% Impairment/ 9.9% 9.8% FSLSeparation Expense 9% 9.7% 7% 8.3% 5% 4.4% 3.9% 3% Q3'03 Q2'04 Q3'04 § This is Our Strongest Q3 Operating Margin in Several Years § Higher Gross Margin and Lower R&D Percent to Sales Contributed to the Operating Margin Improvement Since Last Year. § GAAP Operating Margin Declined Sequentially vs. Q2. Excluding $67M in Expense Related to the Impairment of Goodwill, $55M in Expense for Severance, and $19M of Expense Related to the Separation of FSL, Operating Margin Improved. Q3 EARNINGS RELEASE – October 19, 2004 Slide 10
    • Cash Flow and Debt Cash Flow Debt Q3 Year-End ($ in Billions) ($ in Billions) Q3 Annual 2003 2004 2004 2003 Short Term/Curr ($0.3) ($0.9) Operating Cash Flow $1.3 $2.8 Long Term / TOPrS ($6.3) ($7.2) TOTAL DEBT ($6.6) ($8.1) Capital Expenditures ($0.3) ($0.7) Cash/Equiv/Mkt Sec $11.0 $8.0 Free Cash Flow $1.0 $2.1 Net Cash/(Net Debt) $4.4 ($0.1) § Approx. $1.3B of Positive Operating Cash Flow in the Quarter, Approx. $1.0B of Free Cash Flow in the Quarter § Fifteenth Consecutive Quarter of Positive Operating Cash Flow § $4.4B Net Cash Positive vs. Net Debt at Beginning of 2004 Q3 EARNINGS RELEASE – October 19, 2004 Slide 11
    • Q4 2004 Guidance Guidance Q4 2004 Sales $9.3B-$9.6B Earnings Per Share $0.23-$0.26 Q3 EARNINGS RELEASE – October 19, 2004 Slide 12
    • Mike Zafirovski President and Chief Operating Officer Motorola Inc. Slide 13 Q3 EARNINGS RELEASE – October 19, 2004
    • Motorola in 2004 n Accelerated Earnings Improvement – Narrow Gap to Targeted Business Model – Accelerated Progress on Key Initiatives (DSS) – Further Reductions in Cost Structure – Increase Revenue per Employee n Improve New Product Execution n Take Customer Relationships to Next Level n Grow Share in Most Markets Work in Process …. With Momentum Q3 EARNINGS RELEASE – October 19, 2004 Slide 14
    • Q3 Summary Results By Segment (2004 vs. 2003) Operating Earnings Growth Sales Growth Personal Communications 34% 165% Freescale Semiconductor 17% Profit vs. Loss Global Telecom Solutions 24% 187% Commercial, Gov’t, Industrial 12% 27% Solutions Integrated Electronics Systems 22% (28%) Broadband Communications 31% Profit vs. Loss Motorola 26% 173% Broad Based Improvements Q3 EARNINGS RELEASE – October 19, 2004 Slide 15
    • Personal Communications Segment Q3 Q3 Fav (Unfav) 2004 2003 Q3’04/Q3’03 Sales $M $3,912 $2,924 34% Operating Earnings $M $390 $147 165% Operating Margin 10.0% 5.0% 5.0 ppts § Q3 Shipment of 23.3M Units, Up 15% Over Q3’03 § Q3 Channel Inventory Lowest in Years § ASP Rose by 19% vs. Q3’03 and Were Up 2% Sequentially § Expect Q4 Share Growth Q3 EARNINGS RELEASE – October 19, 2004 Slide 16
    • Q3 2004: Sampling of New Products V872 V400p Motorola V3 / RAZR A860 A780-Edge MPx220 GSM/GPRS/CDMA V180 C115 C155 V220 E680 i630 i833 Q3 EARNINGS RELEASE – October 19, 2004 Slide 17
    • PCS Q3’04 – Other Developments n Appointed a New Sector President n Began Shipping 17 New Handsets In Q3 n Almost 50% of Q3 Unit Shipments Had Integrated Cameras n Surpassed 500,000 Open System, JAVA Linux- Based Handset Shipments YTD n Enhanced CDMA Capabilities By Purchasing Balance of Appeal Telecom in Korea Q3 EARNINGS RELEASE – October 19, 2004 Slide 18
    • Semiconductor Products Segment Freescale Semiconductor, Inc. Q3 Q3 Fav (Unfav) 2004 2003 Q3’04/Q3’03 Sales $M $1,430 $1,225 17% Operating Earnings (Loss) $M $82 ($76) Profit vs. Loss Operating Margin 5.7% (6.2%) 11.9 ppts • Freescale’s Q3 Earnings Conference Call Scheduled For 5:15 CST Today Q3 EARNINGS RELEASE – October 19, 2004 Slide 19
    • Global Telecom Solutions Segment Q3 Q3 Fav (Unfav) 2004 2003 Q3’04/Q3’03 Sales $M $1,308 $1,054 24% Operating Earnings $M $175 $61 187% Operating Margin 13.4% 5.8% 7.6 ppts • Sales Growth Occurred in All Technologies and All Regions, Exceptionally Strong in North America and Asia • Believe We Grew Market Share • Operating Earnings Increase Due to Sales Growth and Improved Gross Margin Q3 EARNINGS RELEASE – October 19, 2004 Slide 20
    • Q3’04 GTSS – Other Developments nBegan Deployment of the World’s Largest Wireless SoftSwitch Contract With Launches in 6 Major Brazilian Cities. n Continued Industry Leading Push-To-Talk Over Cellular Momentum With 18 Contracts To Date in 23 Countries. n Awarded Contract to Deploy KDDI’s First Nationwide 2.1 GHz CDMA2000 1X Network in Japan n New EDGE Contracts Announced Slide 21 Q3 EARNINGS RELEASE – October 19, 2004
    • Commercial Govt. and Industrial Solutions Segment Q3 Q3 Fav (Unfav) 2004 2003 Q3’04/Q3’03 Sales $M $1,164 $1,035 12% Operating Earnings $M $185 $146 27% Operating Margin 15.9% 14.1% 1.8 ppts § Sales Growth Reflects Continued Strength For Homeland Security Communications and Business Critical Communications For Enterprise Customers. § Operating Earnings Improvement Due to Higher Sales, a Favorable Product Mix vs. Last Year, and Supply Chain Efficiencies Q3 EARNINGS RELEASE – October 19, 2004 Slide 22
    • Q3’04 CGISS – Other Developments • Commonwealth of Virginia Awarded Motorola $329M Multi-Year Contract • State of Arkansas Expanded Its Existing Statewide Network Contract • The Netherlands Awarded Motorola a Contract For More Than 20,000 TETRA Radios Slide 23 Q3 EARNINGS RELEASE – October 19, 2004
    • Integrated Electronic Systems Segment Q3 Q3 Fav (Unfav) 2004 2003 Q3’04/Q3’03 Sales $M $683 $559 22% Operating Earnings $M $18 $25 (28%) Operating Margin 2.6% 4.5% (1.9 ppts) • Sales Growth Led By Automotive Electronics • Operating Earnings Lower Due In Part To Expenses Associated With the Force Computer Acquisition • We Expect A Significant Sequential Improvement in Operating Earnings in Q4 Q3 EARNINGS RELEASE – October 19, 2004 Slide 24
    • Q3’04 IESS – Other Developments n Automotive Electronics Awarded $700M In New And Replacement Multi-Year Contracts. n Completed the Acquisition of Force Computers. Q3 EARNINGS RELEASE – October 19, 2004 Slide 25
    • Broadband Communications Segment Q3 Q3 Fav (Unfav) 2004 2003 Q3’04/Q3’03 Sales $M $589 $451 31% Operating Earnings (Loss) $M $34 ($4) Profit vs. Loss Operating Margin 5.8% (0.9%) 6.7 ppts • Fourth Consecutive Quarter of Year Over Year Sales Growth • Earnings Growth Driven By Higher Sales Q3 EARNINGS RELEASE – October 19, 2004 Slide 26
    • Q3’04 BCS – Other Developments n Shipped Approx. 400K HD Set-Tops With Almost 200K Being HD-DVR Devices n Selected By Comcast To Provide VoIP Services in Select Markets n Motorola’s Partner (DVN) Signed a Contract To Provide Broadband Solutions in Western China n Record Quarter For Cable Modem Units Shipped Q3 EARNINGS RELEASE – October 19, 2004 Slide 27
    • Corporate Initiatives – Digital Six Sigma n Proven Methodology to Improve Business Performance – Profitability, Quality, and Customer Satisfaction n Leverage Proven Tools to Achieve Rapid Results n Drives Accountability…Aligns With Customers n Focuses Organization on Vital Few 2003-2005 Results to Date Initial “Vital Few” Opportunity 2003 Act YTD ‘04 Engineering Leverage ~ $1.1B ($ 93M) $ 1,183M Cost of Poor Quality ~ $0.9B $ 513M $ 207M Procurement Effectiveness ~ $1.0B $ 328M $ 582M ~ $3.0B $ 748M $ 1,972M Cumulative Savings of $2.7B * Versus 2002 Baseline Q3 EARNINGS RELEASE – October 19, 2004 Slide 28
    • Q4 Guidance By Segment (2004 vs. 2003) Sales Growth Personal Communications 35%-40% Freescale Semiconductor FSL To Provide Global Telecom Solutions 5%-10% Commercial, Gov’t, Industrial Solutions Flat vs. Strong Q4’03 Integrated Electronics Systems 10%-15% Broadband Communications 20%-25% Motorola ~16%-20% Q3 EARNINGS RELEASE – October 19, 2004 Slide 29
    • Motorola Q&A Participants Mike Zafirovski Ed Zander Chief Executive Officer President Chairman of the Board of Directors Chief Operating Officer Ed Gams David Devonshire Senior Vice President Executive Vice President Director of Investor Relations Chief Financial Officer Q3 EARNINGS RELEASE – October 19, 2004 Slide 30
    • Use of Non-GAAP Measurements In addition to the GAAP results provided during this conference call, non-GAAP measurements, which present operating earnings on a basis excluding charges relating to the separation of Freescale Semiconductor, Inc, goodwill impairment, and severance charges have been provided. 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 October 19, 2004 (which attached this afternoon’s earnings press release, and (ii) within the text of the slides that accompany this webcast. Each of these items can be found on Motorola’s website at www.motorola.com/investor Q3 EARNINGS RELEASE – October 19, 2004 Slide 31
    • Safe Harbor Statement During this call we have made a number of forward-looking statements that are based on current expectations and involve risks and uncertainties. Such forward- looking statements include, but are not limited to, our comments and answers relating to the following topics: (1) expectations for Motorola sales and earnings per share for Q4 2004; (2) expectations for sales, profitability, operating earnings, operating margin and market share for each of Motorola’s segments; (3) the timing, sales impact and pricing of new products; (4) potential benefits from Motorola’s process optimization activities; (5) Motorola’s ability to successfully distribute its remaining ownership of FSL in a timely manner and (6) the impact of the distribution of the remaining interest in FSL and Motorola’s future plans with respect to its other businesses.. Motorola’s actual results could differ materially from those stated in the forward looking statements and information about factors that could cause such differences can be found in this afternoon's press release, on pages 76 through 85 in Motorola’s 2003 Annual Report on Form 10-K. Q3 EARNINGS RELEASE – October 19, 2004 Slide 32
    • Corporate Initiatives Status Report 2003 vs. 2002 Baseline YTD’04 vs. YTD’03 Annual Annual $ Fav Q3 Q3 $ Fav YTD YTD 2002 2003 (Unfav) (Unfav) 2003 2004 R&D as a % Gross Margin 41.1% 41.9% ($ 93M) 45.1% 32.2% $1,183M COPQ as a % NSAD 8.4% 6.7% $513M 6.8% 6.0% $ 207M Procurement Effectiveness $328M $582M Total Improvement $748M $1,972M Q3 EARNINGS RELEASE – October 19, 2004 Slide 33
    • Vital Few – Opportunity Base: Goal: Actual End of Improvement 2002 2005 Opportunity Engineering Leverage 41.1% 30.0% ~ $1.1B (R&D$ % of Gross Margin $) Cost of Poor Quality 8.4% 5.4% ~ $0.9B (% of Sales) Procurement Baseline ~ $1.0B Effectiveness Totals ~ $3.0B Q3 EARNINGS RELEASE – October 19, 2004 Slide 34
    • Reconciliation of Non-GAAP Measurements Q3 '03 Q2 '04 Q3 '04 $ % of Sales $ % of Sales $ % of Sales GAAP Operating Earnings $ 263 3.9% $ 845 9.7% $ 718 8.3% Goodwill Impairment - - (67) Severance (49) 13 (55) Freescale Separation Charges - (41) (19) Other Charges 10 18 4 $ 302 4.4% $ 855 9.8% $ 855 9.9% Q3 EARNINGS RELEASE – October 19, 2004 Slide 35