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Q4 2004 Motorola Inc. Earnings Conference Call Presentation

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  • 1. Motorola Q4 2004 Earnings Release Conference Call January 18, 2005 Slide - 1 Q4 2004 Earnings Release – January 18, 2005 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 2. Ed Gams Senior Vice President of Investor Relations Motorola Inc. Slide - 2 Q4 2004 Earnings Release – January 18, 2005 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 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 and in Motorola’s other SEC filings. This presentation is being made on the afternoon of January 18, 2005. 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 Q4 Earnings Release – January 18, 2005 Slide -- 3 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 4. Ed Zander Chief Executive Officer Chairman of the Board of Directors Motorola Inc. Slide - 4 Q4 2004 Earnings Release – January 18, 2005 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 5. 1/18, 2004 Conference Call Full-Year 2004 Priorities v Earnings Improvement v Revenue/Market Share v New Product Execution v Key Customer Relationships v Strengthen Brand Prioritize Key IP Investments/Rationalize Strategy v Q4 Earnings Release – January 18, 2005 Slide -- 5 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 6. David Devonshire Chief Financial Officer Executive Vice President Motorola Inc. Slide - 6 Q4 2004 Earnings Release – January 18, 2005 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 7. Motorola Inc. Q4 Financial Results Q4 Q4 Fav (Unfav) 2004 2003 Q4’04/Q4’03 Sales $M $8,842 $6,935 27% Earnings Per Share $0.28 $0.18 56% From Continuing Operations Q4 Earnings Release – January 18, 2005 Slide -- 7 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 8. Motorola Inc. Annual Financial Results Annual Annual Fav (Unfav) 2004 2003 Q4’04/Q4’03 Sales $M $31,323 $23,155 35% Gross Margin % 33.6% 32.7% 0.9 ppts. Earnings Per Share $0.91 $0.39 133% From Continuing Operations Q4 Earnings Release – January 18, 2005 Slide -- 8 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 9. Gross Margin From Continuing Operations % of Sales 35% 33.6% 31.8% 30% Q4'03 Q4'04 Q4 Earnings Release – January 18, 2005 Slide -- 9 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 10. Research & Development Expenses From Continuing Operations $ in Millions 31.7% $900 32.0% 27.5% 24.0% $700 16.0% 10.1% 9.2% $500 8.0% Q4'03 Q4'04 R&D $ R&D % to Sales R&D % GM Q4 Earnings Release – January 18, 2005 Slide -- 10 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 11. Selling, General and Administrative Expenses From Continuing Operations $ in Millions % NSAD $1,250 20.0% $1,000 15.0% 14.5% 12.4% $750 10.0% Q4'03 Q4'04 Q4 Earnings Release – January 18, 2005 Slide -- 11 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 12. Operating Margin % From Continuing Operations % of Sales 12.0% GAAP 12% 0.3% 10.2% Excluding 10% Reorg./Goodwill Impairment 1.6% 7.6% 8% 0.9% 6% 11.7% 8.6% 4% 6.7% 2% 0% Q4'03 Q3'04 Q4'04 Q4 Earnings Release – January 18, 2005 Slide -- 12 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 13. Cash Flow and Debt From Continuing Operations Cash Flow Cash & Debt Year-End Year-End ($ in Billions) ($ in Billions) Q4 Annual 2004 2003 2004 2004 Cash/Equiv/Mkt Sec $10.7 $ 7.9 Operating Cash Flow $0.7 $3.1 Per Share $0.29 $1.27 Short Term/Current ($0.7) ($0.9) Debt Long Term ($4.6) ($7.2) Free Cash Flow $0.6 $2.6 Debt/TOPrS Per Share $0.22 $1.07 TOTAL DEBT ($5.3) ($8.1) Net Cash/ (Net Debt) $5.4 ($0.1) Q4 Earnings Release – January 18, 2005 Slide -- 13 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 14. Q1 2005 Outlook Q1 2005 Sales $7.5B-$7.9B Earnings Per Share $0.17-$0.20 Continuing Operations Q4 Earnings Release – January 18, 2005 Slide -- 14 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 15. Q4 Earnings Release – January 18, 2005 Slide -- 15 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 16. Personal Communications Segment – Q4 Q4 2004 Q4’04 vs. Q4’03 Sales $M $4,947 Up 51% Operating Earnings $M $526 Up 314% Operating Margin 10.6% Up 6.7 ppts Units Q4 31.8M Up 42% Units Full Year 2004 104M Up 39% Market Share – Q4 16.6% Up 3.2 pts. Up 2.9 pts vs. Q3’04 Market Share Full Year 2004 15.2% Up 1.6 pts vs. FY’03 Q4 Earnings Release – January 18, 2005 Slide -- 16 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 17. Q4 2004: Motorola “Must Haves” E1000 Motorola V3 / Razr V710 3G/UMTS CDMA Q4 Earnings Release – January 18, 2005 Slide -- 17 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 18. Q4 2004: Sampling of New Handsets MPx220 – C980 A1000 C975 V980 V975 GSM and 3G/UMTS 3G/UMTS 3G/UMTS 3G/UMTS 3G/UMTS Windows Mobile OS MPx – WiFi and Windows Mobile OS i833 iDEN Baby i265 Phat iDEN Q4 Earnings Release – January 18, 2005 Slide -- 18 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 19. Q4 2004: Sampling of New Handsets A630 - GSM V620 V550 V551 A668 GSM GSM Edge GSM C381p PoC - GSM V260 - CDMA V510 - CDMA C215 - CDMA V265 - CDMA Q4 Earnings Release – January 18, 2005 Slide -- 19 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 20. Personal Communications Segment – Q4 • #1 in North America, Now # 3 in Europe • Shipped 20 New Handsets in Q4 • 50% Cameras, 70% Color • 55% Increase in Java/Linux Handsets vs. Q3 • 1.7M UMTS/3G Handsets; 3M in 2004 • Low Channel Inventory • Push-To-Talk Leadership • MotoPro For Windows Mobile Users Q4 Earnings Release – January 18, 2005 Slide -- 20 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 21. Slide - 21 Q4 2004 Earnings Release – January 18, 2005 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 22. Mobile Device Summary Q4 Earnings Release – January 18, 2005 Slide -- 22 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 23. Global Telecom Solutions Segment Q4 2004 Q4’04 vs. Q4’03 Sales $M $1,389 Up 2% Up 24%, FY ‘04 Operating Earnings $M $281 104% Operating Margin 20.2% Up 10.1 ppts Market Share Up For FY 2004 Q4 Earnings Release – January 18, 2005 Slide -- 23 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 24. Global Telecom Solutions Segment – Q4 Three-Year Extension of Supply Agreement With n Nextel. Executed Next Generation IP Based PTT n Development Contract With Nextel. Extended Infrastructure Agreement With Sprint - n Upgrade To EV-DO. China Unicom – CDMA2000 1X Expansion. n New Contracts With Push-to-Talk Over Cellular - n Now Have 23 Contracts in 27 Countries. Slide - 24 Q4 2004 Earnings Release – January 18, 2005 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 25. New “Networks” Organization • Next Generation IP Networks • Wireless and Fiber Broadband Access • Standards Based Cellular Infrastructure • Embedded Communication Infrastructure Computing Platform • Application and Content-Managed Services Q4 Earnings Release – January 18, 2005 Slide -- 25 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 26. Commercial Govt. and Industrial Solutions Segment Q4 2004 Q4’04 vs. Q4’03 Sales $M $1,280 Up 3% Operating Earnings $M $207 (14%) Operating Margin 16.2% (3.2 ppts) Q4 Earnings Release – January 18, 2005 Slide -- 26 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 27. Commercial, Government, and Industrial Segment – Q4 • U.S. Postal Service Award - $294M • Austrian Ministry Interior Award, Country-Wide TETRA Network • Statewide Awards - New Jersey, Wyoming, and North Dakota • York County, SC Award For High-Speed Private Data System • New Softswitch Technology, MOTOBRIDGE IP, To Be Deployed By State of Florida • MeshNetworks, Inc. and CRISNET Acquisitions Slide - 27 Q4 2004 Earnings Release – January 18, 2005 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 28. New “Government and Enterprise Mobility Solutions” Organization • Government • Enterprise • Automotive Slide - 28 Q4 2004 Earnings Release – January 18, 2005 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .
  • 29. Integrated Electronic Systems Segment Q4 2004 Q4’04 vs. Q4’03 Sales $M $703 Up 5% Operating Earnings $M $42 (33%) Operating Margin 6.0% (3.9 ppts) • Received $1.1B in Multi-Year Awards – NA, Asia, Europe • Force Integration Complete - #1 in Embedded Communication Computing Market Q4 Earnings Release – January 18, 2005 Slide -- 29 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 30. Broadband Communications Segment Q4 2004 Q4’04 vs. Q4’03 Sales $M $691 Up 25% Operating Earnings (Loss) $M $47 Profit vs. Loss Operating Margin 6.8% Up 16.2 ppts Q4 Earnings Release – January 18, 2005 Slide -- 30 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 31. Broadband Communications Segment – Q4 • HD/DVR Units Up 29% Versus Q3’04 • Shipped 1.6M Digital Entertainment Devices – Best Quarter in 3 Years • CMTS Revenue Up 65% Sequentially • Taiwan Broadband Communications Contract • New Verizon Contract To Provide Digital Voice Network Infrastructure and Premise Equipment In Support of Their FTTP Network • Acquired Ucentric Systems, a Leading Provider of Home Media Networking Software Q4 Earnings Release – January 18, 2005 Slide -- 31 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 32. New “Connected Home” Organization • Cable • Video Over Fiber • Next Generation STB’s • Connected Home Solution – Media Gateway – Home Monitoring – Home Security Q4 Earnings Release – January 18, 2005 Slide -- 32 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 33. Connected Home Solutions Home Monitoring and Control HD/DVR Dual Tuner Set-top Motorola Ojo Personal Video Phone Q4 Earnings Release – January 18, 2005 Slide -- 33 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 34. New Organizational Structure Motorola Product Functional Competencies / Businesses Leadership Thought Leadership Finance Technology Mobile Devices Legal Strategy / Business Networks Development Human Resources Government and Enterprise Mobile Corporate Marketing Solutions Supply Chain Connected Home Solutions Information Technology Quality / Customer Satisfaction Q4 Earnings Release – January 18, 2005 Slide -- 34 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 35. 2005 Priorities • Execution • Improve Financial Performance • Customer “Delight’/Quality • Market Share/Thought Leadership • “WOW” Products/End-to End Solutions • Organizational Efficiency • Refine and Execute On Strategic Direction Q4 Earnings Release – January 18, 2005 Slide -- 35 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 36. Motorola Q&A Participants David Devonshire Ed Zander Chief Executive Officer Executive Vice President Chairman of the Board of Directors Chief Financial Officer Ed Gams Ron Garriques Senior Vice President Executive Vice President Investor Relations President, Mobile Devices Business Q4 Earnings Release – January 18, 2005 Slide -- 36 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 37. 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 January 18, 2005 (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 Q4 Earnings Release – January 18, 2005 Slide -- 37 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 38. 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 Q1 2005; (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; and (4) potential benefits from Motorola’s process optimization activities. 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 and in Motorola’s other SEC filings. Q4 Earnings Release – January 18, 2005 Slide -- 38 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.
  • 39. Reconciliation of Non-GAAP items discussed during this call Full Year 2004 earnings from continuing operations, excluding items highlighted in quarterly earnings press releases: Q4 2004 PBT Tax PAT EPS Impact Gain on Sale of Investments $ 93 $ 36 $ 57 Goodwill Impairment $ (58) $ - $ (58) Reorg Reversals $ 28 $ 10 $ 18 Loan Reserve Reversals $ 23 $ 9 $ 14 IPR&D $ (17) $ - $ (17) $ 14 $ 0.006 Q3, 2004 PBT Tax PAT EPS Impact Gain on Sale of Investments $ 195 $ 73 $ 122 Debt Retirement Fees $ (81) $ (31) $ (50) Goodwill Impairment $ (67) $ - $ (67) Reorg Charges $ (55) $ (20) $ (35) Tax Audit Settlement $ - $ (39) $ 39 $ 9 $ 0.004 Q2, 2004 PBT Tax PAT EPS Impact Tax Benefit $ - $ (197) $ 197 Reorg Reversals* $ 21 $ 9 $ 12 Loan Reserve Reversals $ 21 $ 8 $ 13 Deferred Gain $ 20 $ 8 $ 12 Recovery of Impaired Invst $ 20 $ 20 IPR&D $ (15) $ (15) $ 239 $ 0.099 Q1, 2004 PBT Tax PAT EPS Impact Gain on Sale of Investments* $ 130 $ 50 $ 80 Reorg Reversals* $ 12 $ 4 $ 8 $ 88 $ 0.036 Total EPS Impact $ 0.14 Reported EPS $ 0.91 EPS Excluding Highlighted Items $ 0.77 * Indicated items have been adjusted to exclude portions attributable to Freescale Semiconductor, Inc. Full Year 2003 earnings from continuing operations, excluding special items $ 0.38 2003 Full Year Net Earnings Per Share $ 0.25 2003 Full Year Net Earnings Per Share Excluding Special Items $ (0.02) 2003 Full Year Special Items Per Share Attributable to Freescale Semiconductor, Inc. $ 0.27 Q4 Earnings Release – January 18, 2005 Slide -- 39 MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.