Q4 2002 Earnings Release Presentation

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Q4 2002 Earnings Release Presentation

  1. 1. Motorola – Q4 2002 Earnings Release Conference Call Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 1
  2. 2. Ed Gams Senior Vice President Director of Investor Relations Motorola Inc. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 2
  3. 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 yesterday’s earnings press release, on pages F-35 through F-40 of Motorola’s Proxy Statement for the 2002 annual meeting of stockholders and in Motorola’s other SEC filings.” This presentation is being made on the morning of January 22, 2003. 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.quot; 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. 2002. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 3
  4. 4. Chris Galvin Chief Executive Officer Chairman of the Board of Directors Motorola Inc. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 4
  5. 5. 5-Point Plan for Building Investor Value 1. Persistent Enhancement of the Management Team and Work Environment 2. Aggressive Focus on Strengthening the Balance Sheet and Cash 3. Relentless Pursuit of Cost Competitiveness, Quality and Customer Satisfaction 4. Growth through Profitable Innovative Products, Systems, Software and Customer Relationships 5. Continuous Reassessment and Improvement of our Business Strategies and Portfolio Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 5
  6. 6. Exceeded Many of Our Interim Turnaround Goals BUT We Are Not Satisfied With Profit and Growth Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 6
  7. 7. David Devonshire Chief Financial Officer Executive Vice President, Motorola Inc. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 7
  8. 8. Motorola Inc. Financial Results % Favorable (Unfavorable) Q4 2002 Q4 2001 Q3 2002 Q4 Q3 2001 2002 Sales $M $7,546 $7,312 $6,371 3% 18% Earnings Per Share GAAP $0.08 -$0.55 $0.05 Earnings Per Share $0.13 -$0.04 $0.06 Excluding Special Items Sales and EPS exceeded expectations All Major Segments Had Positive Operating Earnings Excluding Special Items for Second Consecutive Quarter Operating Earnings Excluding Special Items increased $566M from Q4 2001 Versus Q4 2001 Largest Improvement in Operating Earnings in SPS, PCS & GTSS Versus Q3 2002 Largest Improvement in Operating Earnings in CGISS & PCS Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 8
  9. 9. Gross Margin (Ongoing Operations, Excluding Special Items and Exited Businesses) 40% % of Sales 35% 30% 25% 20% 15% 10% 5% 0% Q1'01 Q2'01 Q3'01 Q4'01 Q1'02 Q2'02 Q3'02 Q4'02 Gross Margin Improved 4.2% Points from Q4 2001 to Q4 2002 and 5.3% Points for Full Year 2002 Versus 2001 Sequential Decline in Gross Margin Due Largely to: — Sales Mix Shift Towards PCS Segment Which has Lower Gross Margin Than Corporate Average. — We Focused SPS on Cash Flow By Cutting Back Production. As Expected This Resulted in Unabsorbed Fixed Mfg. Costs Adversely Affecting Gross Margin Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 9
  10. 10. Selling, General and Administrative Expenses (Ongoing Operations, Excluding Special Items and Exited Businesses) $ in Millions 17.3% $1,600 18.0% 16.7% 15.7% 15.9% 15.8% $1,500 15.1% 16.0% 14.6% 14.2% $1,400 13.1% 14.0% $1,300 $1,200 12.0% $1,100 10.0% $1,000 8.0% $900 $800 6.0% Q4'00 Q1'01 Q2'01 Q3'01 Q4'01 Q1'02 Q2'02 Q3'02 Q4'02 Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 10
  11. 11. Motorola Work Force Trend 160 150 147 136 140 125 121 120 111 107 Work Force (Thousands) 102 100 97 100 93 80 60 40 20 0 Aug-00 Mar-01 Jun-01 Mar-02 Jun-02 Jun-03 Est Dec-00 Sep-01 Dec-01 Sep-02 Dec-02 Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 11
  12. 12. Research & Development Expenses (Ongoing Operations, Excluding Special Items and Exited Businesses) $ in Millions % of Sales $1,200 15.5% 16.0% 15.1% 14.8% 14.7% 15.0% 14.2% 14.0% 14.0% $1,100 14.0% 12.7% $1,000 13.0% 12.0% $900 11.0% $800 10.0% Q1'01 Q2'01 Q3'01 Q4'01 Q1'02 Q2'02 Q3'02 Q4'02 Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 12
  13. 13. Operating Margin % (Ongoing Operations, Excluding Special Items and Exited Businesses) % of Sales 10% 8% 6% 4% 2% 0% Q1'01 Q2'01 Q3'01 Q4'01 Q1'02 Q2'02 Q3'02 Q4'02 -2% -4% -6% Q4 2002 Operating Margin of 7.2%, Highest Operating Margin Since Q3 2000 Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 13
  14. 14. Net Special Items in Q4 2002 $ millions Impact Additional Reserve for Restructuring Actions $150 Debt Redemption Charges (net) $98 Investment/Fixed Asset/Goodwill $74 Impairments/Other Gains on Sales of Investments ($24) Reduction of Reserves No Longer Necessary ($95) NET SPECIAL ITEM – PRETAX $203 INCOME TAXES ($78) NET SPECIAL ITEM – AFTER TAX $125 • Reductions to Reserves Previously Established Through Special Item Charges Have Been and Will Consistently be Reflected as a Special Item and Not Included in Normal Operating Results. . • Complete Reconciliation and Disclosure Provided in our Press Release, and Quarterly and Annual SEC Filings Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 14
  15. 15. Cash Flow ($ in Billions) Q4 Annual 2002 2002 2001 2000 Operating Cash Flow without $0.6 $2.3 $2.8 ($1.1) Restructuring/Other Cash for Restructuring/Other ($0.1) ($1.0) ($0.8) ($0.1) Operating Cash Flow $0.5 $1.3 $2.0 ($1.2) Capital Expenditures ($0.2) ($0.6) ($1.3) ($4.1) Free Cash Flow $0.3 $0.7 $0.7 ($5.3) Emphasis on Cash Continues With Positive Operating and Positive Free Cash Flow Each Quarter of the Last Two Years Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 15
  16. 16. Average Working Capital / Sales Ratio Accounts Receivable + Inventory - Accounts Payable (% to Sales) 25.0% 22.0% 22.7% 22.5% 21.8% 20.3% 18.9% 17.7% 17.4% 17.4% 20.0% 15.0% Long Term 10.0% Target of 12% Q4 00 Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4'02 Institutionalizing Continuous Improvement Cash Benefit in 2001/2002 of Approximately $1.4B Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 16
  17. 17. $ in Billions Cash and Debt Dec. 2002 Dec 2001 Dec. 2000 Short Term/Current Debt $1.5 $0.9 $6.4 Long Term Debt $6.1 $7.2 $4.3 Long Term Debt Linked $1.2 $1.2 $0.0 to Equity Units TOTAL DEBT $8.8 $9.2 $10.7 Cash & Cash Equivalents ($6.6) ($6.2) ($3.7) NET DEBT $2.3 $3.1 $7.0 NET DEBT/ NET 16.7% 18.4% 27.4% DEBT+EQUITY Total Debt Down $400M in 2002, Net Debt Down $800M Decline in Long Term Debt due Largely to Shift of $825M PURS to Current Maturities PURS ($825M) scheduled to be Retired 2/03/03 Net Debt Ratio Improved by Approximately 2 Percentage Points During 2002 Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 17
  18. 18. Low Level of Debt Maturities* 2003/2004/2005 $ in Billions $1.5 * Debt Maturities ~$1.0 (Excluding Commercial $1.0 Paper of $0.5B) ~$0.5 ~$0.4 $0.5 PURS - $825M Scheduled To Be Repurchased in Feb. $0.0 2003 Debt Maturities 2004 2005 in 2003 Strong Position to Meet Debt Maturities With $6.6B in Cash Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 18
  19. 19. 2003 Operating & Free Cash Flow Forecast Earnings: ~$925M (EPS of $0.40) Depreciation: ~$1.6B Working Capital: Continue to Reduce Ratio to Sales Neutral to Slightly Positive Cash Effect Cash for Restructuring: ~$0.7B Pension Contribution: ~$0.2B OPERATING CASH ~$1.6 B FLOW Capital Expenditures: ~$1.0 B FREE CASH FLOW ~$0.6 B Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 19
  20. 20. Mike Zafirovski President and Chief Operating Officer Motorola Inc. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 20
  21. 21. Key Takeaways Continued Progress in a Very Tough Environment “5 Point Plan” Focus In All We Do — Impact of Restructuring/Rebuilding Reflected in Operating Results Commitment to Earnings And Balance Sheet Improvement Eight Consecutive Quarters of Positive Operating Cash Flow — Q4 2002 Operating Earnings On a GAAP Basis — 5 out of 6 Major Segments Had Positive Operating Earnings — All 6 Major Segments Improved from Q4 2001 — Q4 2002 Operating Earnings Excluding Special Items — All 6 Major Segments had Positive Operating Earnings for 2nd — Quarter in a Row 4 of 6 Segments Increased Operating Earnings from Q4 2001 — Q1 2003 Operating Earnings on GAAP Basis Versus Q1 2002 — 5 of 6 Major Segments Guiding to Higher Operating Earnings — Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 21
  22. 22. Segment Updates & Guidance Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 22
  23. 23. Personal Communications Segment (Ongoing Operations, Excluding Special Items) % Favorable (Unfavorable) Q4 2002 Q4 2001 Q3 2002 Q4 2001 Q3 2002 Orders $M $2,142 $2,202 $2,481 (3%) (14%) Sales $M $3,293 $2,975 $2,631 11% 25% Operating Earnings $M $301 $208 $224 45% 34% Operating Margin 9.1% 7.0% 8.5% • Q4 2002 Operating Earnings Highest Since 1997 • 2002 Earnings Improvements Driven By: • Improved Customer Relationship • Compelling Mix of Products Across All Technologies • Manufacturing, Platform Design and Supply Chain Efficiencies • Reductions in Operating Expenses as a % of Sales Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 23
  24. 24. Personal Communications Segment Units and Market Share Q4 2002 Q4 2001 Growth 2002 2001 Growth Unit 22.2 17.5 27% 70.2 62.5 12% Shipments Million Million Million Million Market ~19% ~17% Up 2 ~17.5% ~16.5% Up 1 Share Points Point Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 24
  25. 25. Personal Communications Segment Trends - Estimated Market Share Q4 2002 Market Q4 2002 Market 2002 Share Compared Share Compared Annual Market to Q4 2001 to Q3 2002 Share Trend North America Up Up ~29% Latin America Up Up ~28% Asia Down Up ~15% Europe, Mideast, Flat Up ~10% Africa Worldwide Up Up ~18% Continue to Focus on Improving Market Share in Every Region Q4 2002 Market Share Performance Highest Since Q2 1999 Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 25
  26. 26. Personal Communications Segment Unit Shipments by Technology Q4 2002 Change from Annual 2002 Change Q4 2001 from Annual 2001 CDMA Unit Shipments Up 51% Up 23% GSM Unit Shipments Up 11% Up 7% TDMA Unit Shipments Up 146% Up 69% iDEN Unit Shipments Down 12% Up 5% iDEN Decline in Unit Shipments a Result of Nextel Inventory Adjustments Resulting from Adoption of our Direct Fulfillment Program Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 26
  27. 27. Q4 2002 High Volume Products V60i C33X T720 Series 120 V66i i95cl Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 27
  28. 28. Personal Communications Segment Average Selling Price Q4 2002 Down 3% from Q3 2002 Down 11% from Q4 2001 Annual 2003 Estimate Annual 2002 Down 5% from 2001 Flat to Down 5% • ASP Without iDEN Flat Q4 2002 from Q3 2002 • ASP Decline versus Q4 2001 Due to Higher Mix of Entry Level Products • Rebates Adequately Provided For In Q4 Operating Earnings Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 28
  29. 29. 2002 Industry Handset Forecast Sell Through Units Q4 2002 ~115 Million Annual 2002 ~400 Million Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 29
  30. 30. 2003 Industry Handset Forecast Sell Through Units Q1 2003 90 Million – 95 Million Annual 2003 430 Million – 440 Million Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 30
  31. 31. New Products For 2003 A835 UMTS Color 388c E365 - Color T725 Color C350 Integrated Camera Integrated Video EDGE PDA Camera Color Color V295 A380 V600 Color Color Color Integrated Camera Integrated Camera Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 31
  32. 32. Personal Communications Segment Q1 2003 Forecast Compared to Compared to Q1 2002 Q4 2002 Sales Up Down Substantially Operating Margin % Higher Lower (Q1 2003 Based on GAAP results Versus Prior Periods Results Excluding Special Items) • Expect Normal Seasonality in Q1 versus Holiday Driven Sales in Q4 • Flat Indicates a Variance of 0.5% or Less, Slight or Slightly Indicates a Variance of up to 5%, Substantial or Substantially Indicates a Variance From 15% up to 25%. Very Substantial or Very Substantially Indicates a Variance of 25% or More. • The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 32
  33. 33. Semiconductor Products Segment (Ongoing Operations, Excluding Special Items) % Favorable (Unfavorable) Q4 2002 Q4 2001 Q3 2002 Q4 2001 Q3 2002 Orders $M $1,189 $1,012 $1,258 17% (5%) Sales $M $1,286 $1,123 $1,223 15% 5% Operating Earnings $M $9 ($284) $13 >100% (31%) Operating Margin 0.7% (25.3%) 1.1% Operating Earnings Improvement Versus Q4 2001 Driven By Higher Gross Margin and Much Lower Operating Expenses Operating Earnings Flat Versus Q3 2002 Driven By Lower Gross Margin Offset by Lower Operating Expenses. Lower Gross Margin Due to Our Decision to Scale Back Production and Generate Cash. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 33
  34. 34. Semiconductor Products Segment Wafer Fab Consolidations 25 18 20 16 15 11 9 8 10 5 0 Dec. 2000 Dec. 2001 Sept. 2002 Dec. 2002 March 2003 Estimate Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 34
  35. 35. SPS – Other Developments TCL Mobile Communications, China’s Largest Locally Headquartered Handset Manufacturer, Became 10th Merchant Market Customer to Adopt Motorola’s Wireless Chipset Architecture Cost Reduction Actions Will Continue to be Implemented in 1st Half 2003. Breakeven Sales Expected to be Reduced to Approximately $4.8-$4.9B by Mid-2003. SPS Capex in 2002 of $220M, 2003 Capex Forecasted to be Approximately $350M Worldwide Semiconductor Industry Growth in 2003 Forecasted to Be Approximately 10% Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 35
  36. 36. Semiconductor Products Segment Q1 2003 Forecast Compared to Compared to Q1 2002 Q4 2002 Sales Up Down Operating Margin % Small Loss Small Loss in Q1 2003 Compared to Compared to Small (Q1 2003 Based on GAAP Large Loss Positive Operating results Versus Prior Periods Earnings in Q4 2002 Results Excluding Special Items) Effect of Lower Sales in Q1 2003 Versus Q4 2002 Expected to Be Partially Offset By Improved Gross Margin • Flat Indicates a Variance of 0.5% or Less, Slight or Slightly Indicates a Variance of up to 5%, Substantial or Substantially Indicates a Variance From 15% up to 25%. Very Substantial or Very Substantially Indicates a Variance of 25% or More. • The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 36
  37. 37. Global Telecom Solutions Segment (Ongoing Operations, Excluding Special Items) % Favorable (Unfavorable) Q4 2002 Q4 2001 Q3 2002 Q4 2001 Q3 2002 Orders $M $1,091 $1,120 $880 (3%) 24% Sales $M $1,220 $1,365 $1,014 (11%) 20% Operating Earnings $M $3 ($109) $5 >100% (40%) Operating Margin 0.2% (8.0%) 0.5% Operating Earnings Improvement Versus Q4 2001 Driven By Higher Gross Margin and Much Lower Operating Expenses. Operating Earnings Flat Versus Q3 2002 On Higher Sales Due to: Lower Gross Margin Resulting From Different Mix of Technologies Shipped & Lower Prices Partially Offset by Lower Operating Expenses. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 37
  38. 38. GTSS – Other Developments GTSS Signed Contracts Totaling $446M For Deployment of CDMA 1X System For China Unicom Largest Award of Any Single Infrastructure Vendor Much of Equipment Shipped in Q4 2002 Delivered Phase 1 of iDEN Nationwide Direct Connect to Nextel. Wireless Infrastructure Industry Revenue Expected to Decline 6-12% in 2003 Cost Reduction Activities will Continue To Be Implemented in 1st Half of 2003. Breakeven Sales Expected to be Reduced to Approximately $4.0B by Mid-2003. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 38
  39. 39. Global Telecom Solutions Segment Q1 2003 Forecast Compared to Compared to Q1 2002 Q4 2002 Sales Down Down Very Substantially Operating Margin % Smaller Loss Small Loss in Q1 2003 Compared to Breakeven (Q1 2003 Based on GAAP results in Q4 2002 versus Prior Periods Results Excluding Special Items) Sequential Sales Decline Versus Q4 2002 (Due in Large Part to Lower Shipments to China Unicom) Will Lower Gross Margin Which Will Only Partially Be Offset By Lower Operating Expenses Smaller Loss Versus Q1 2002 Despite Lower Sales Due to Improved Gross Margin and Much Lower Operating Expenses • Flat Indicates a Variance of 0.5% or Less, Slight or Slightly Indicates a Variance of up to 5%, Substantial or Substantially Indicates a Variance From 15% up to 25%. Very Substantial or Very Substantially Indicates a Variance of 25% or More. • The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 39
  40. 40. Commercial Govt. and Industrial System Segment (Ongoing Operations, Excluding Special Items and Exited Businesses) % Favorable (Unfavorable) Q4 2002 Q4 2001 Q3 2002 Q4 2001 Q3 2002 Orders $M $1,081 $1,141 $987 (5%) 10% Sales $M $1,170 $1,198 $874 (2%) 34% Operating Earnings $M $170 $181 $77 (6%) >100% Operating Margin 14.5% 15.1% 8.8% Q4 2002 Results Showed Normal Seasonal Strength Versus Q3 2002 Q4 2002 Orders Slightly Lower Than Q4 2001 Due to Large System Procurement Delays By Governmental Customers in North America as Homeland Security Programs Still Being Finalized Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 40
  41. 41. CGISS – Other Developments CGISS Received Prestigious 2002 Malcolm Baldrige National Quality Award For Operational Excellence and Quality Achievement Homeland Security Update – U.S. Department of Homeland Security Established in Q4 Clearer View of Homeland Security Opportunity Should Be Available As 2003 Unfolds Greg Brown Joined Motorola from Micromuse to be President and CEO of CGISS. 2003 Two-Way Radio Industry Growth Forecasted to be 5-8% Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 41
  42. 42. Commercial Govt. and Industrial System Segment Q1 2003 Forecast Compared to Compared to Q1 2002 Q4 2002 Sales Up Slightly Down Very Substantially Operating Margin % Higher Lower (Q1 2003 Based on GAAP results Versus Prior Periods Results Excluding Special Items) Versus Q1 2002 Expect Higher Sales and Lower Operating Expenses Should Contribute to Higher Operating Margin Versus Q4 2002 Expect Normal Seasonal Sales Decline Will Cause Operating Margin to be Lower • Flat Indicates a Variance of 0.5% or Less, Slight or Slightly Indicates a Variance of up to 5%, Substantial or Substantially Indicates a Variance From 15% up to 25%. Very Substantial or Very Substantially Indicates a Variance of 25% or More. • The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 42
  43. 43. Broadband Communications Segment (Ongoing Operations, Excluding Special Items) % Favorable (Unfavorable) Q4 2002 Q4 2001 Q3 2002 Q4 2001 Q3 2002 Orders $M $353 $525 $385 (33%) (8%) Sales $M $489 $579 $519 (16%) (6%) Operating Earnings $M $65 $78 $75 (17%) (13%) Operating Margin 13.3% 13.5% 14.4% Sales and Orders Down Versus Last Year and Q3 2002 as Cable Service Providers Reduce Capital Expenditures and Shorten Order Cycle Time Excellent Cost Controls Have Allowed BCS to Maintain Double Digit Operating Margin Despite Sales Decline Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 43
  44. 44. Broadband Communications Segment Change Change From From Q4 2001 Q3 2002 Maintaining Market Share in Set-Top Boxes Set Top Box Down Down Unit Shipments ~300K ~100K ~1.2 Million Continue to Have Market Share That is Greater Than Cable Modem Up Up 2X Our Nearest Competitor in Unit Shipments ~100K ~100K Cable Modems ~1.1 Million Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 44
  45. 45. BCS – Other Developments Motorola BCS Remains Strong #1 in Overall Cable Equipment Market Share BCS Continues to Have Broadband Technology Leadership as Recently Demonstrated at Broadband Plus Show and Consumer Electronics Show Broadband Equipment Industry Revenue Expected to decline 10% in 2003 as Cable Operators Reduce Capital Expenditures Again Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 45
  46. 46. Broadband Communications Segment Q1 2003 Forecast Compared to Compared to Q1 2002 Q4 2002 Sales Down Down Substantially Operating Margin % Lower Lower (Q1 2003 Based on GAAP results Versus Prior Periods Results Excluding Special Items) Sales Decline Driven by Lower Capital Spending From Cable Operators Operating Margin Decline Results from Decrease in Sales Partially Offset by Lower Operating Expenses • Flat Indicates a Variance of 0.5% or Less, Slight or Slightly Indicates a Variance of up to 5%, Substantial or Substantially Indicates a Variance From 15% up to 25%. Very Substantial or Very Substantially Indicates a Variance of 25% or More. • The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 46
  47. 47. Integrated Electronic Systems Segment (Ongoing Operations, Excluding Special Items) % Favorable (Unfavorable) Q4 2002 Q4 2001 Q3 2002 Q4 2001 Q3 2002 Orders $M $558 $483 $562 15% (1%) Sales $M $570 $540 $544 6% 5% Operating Earnings $M $32 ($27) $28 >100% 14% Operating Margin 5.6% (5.0%) 5.2% Versus Q3 2002 Showed Consistent Results Versus Q4 2001 Operating Earnings Improved From: Higher Sales Higher Gross Margin Lower Operating Expenses Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 47
  48. 48. IESS – Other Developments Dennis Carey Joined Motorola from Home Depot to be President and CEO of IESS 2002 Revenue Dynamics Very Substantial Growth in Automotive Electronics Slight Decline in Energy Systems Very Substantial Decline in Motorola Computer Group as Telecom Market Weakness Has Continued Automotive, Energy Systems and Motorola Computer Group All Improved Operating Earnings in 2002 Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 48
  49. 49. Integrated Electronic Systems Segment Q1 2003 Forecast Compared to Compared to Q1 2002 Q4 2002 Sales Up Slightly Down Operating Margin % Higher Lower (Q1 2003 Based on GAAP results Versus Prior Periods Results Excluding Special Items) • Flat Indicates a Variance of 0.5% or Less, Slight or Slightly Indicates a Variance of up to 5%, Substantial or Substantially Indicates a Variance From 15% up to 25%. Very Substantial or Very Substantially Indicates a Variance of 25% or More. • The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 49
  50. 50. Key Takeaways Continued Progress in a Very Tough Environment “5 Point Plan” Focus In All We Do — Impact of Restructuring/Rebuilding Reflected in Operating Results Commitment to Earnings And Balance Sheet Improvement Eight Consecutive Quarters of Positive Operating Cash Flow — Q4 2002 Operating Earnings On a GAAP Basis — 5 out of 6 Major Segments Had Positive Operating Earnings — All 6 Major Segments Improved from Q4 2001 — Q4 2002 Operating Earnings Excluding Special Items — All 6 Major Segments had Positive Operating Earnings for 2nd — Quarter in a Row 4 of 6 Segments Increased Operating Earnings from Q4 2001 — Q1 2003 Operating Earnings on GAAP Basis Versus Q1 2002 — 5 of 6 Major Segments Guiding to Higher Operating Earnings — Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 50
  51. 51. Guidance Update David Devonshire Chief Financial Officer Executive Vice President, Motorola Inc. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 51
  52. 52. Q1 2003 Guidance % Favorable (Unfavorable) Q1 Q1 Q4 Q1 Q4 2003 2002 2002 2002 2002 Sales 0%-3% (17%-20%) $6.0B-$6.2B $6.0B $7.5B Breakeven-$0.02 ($0.20) $0.08 Earnings Per Share (on a GAAP Basis) Earnings Per Share Breakeven-$0.02 ($0.08) $0.13 (Excluding Special Items) Versus Q1 2002 Very Substantial Improvement in Operating Earnings on Flat to Slightly Higher Sales Due to Beneficial Results of Restructuring Driving Higher Gross Margin and Lower Operating Expenses Entire Reason For Sequential Decline in EPS is Gross Margin Impact of Sequential Decline in Sales, Partially Offset By Lower Operating Expenses Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 52
  53. 53. Annual 2003 Guidance Previous 2002 2003 Guidance Actual 2001 $27.5B $27.5B $26.6B $29.9B Sales $0.40 $0.40 ($1.09) ($1.78) Earnings Per Share (On a GAAP Basis) No Change from Previous Guidance Sales Growth Expected in PCS, CGISS, SPS and IESS Sales Decline Expected in GTSS and BCS Expect Positive Operating Earnings and Positive Operating Cash Flow in Each Business Segment Earnings Leverage Potential When Served Markets Improve Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 53
  54. 54. Chris Galvin Chief Executive Officer Chairman of the Board of Directors Motorola,Inc. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 54
  55. 55. 2003 NEXT PHASE OF MOTOROLA’S POSITIVE RENEWAL Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 55
  56. 56. Motorola Q&A Participants Mike Zafirovski Chris Galvin 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 Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 56
  57. 57. 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 2003 and full year 2003; (2) the expected timing for completion of our restructuring actions, including the reduction of our employee population and the closing of facilities; (3) the impact of our restructuring actions on our financial performance, including cost savings; (4) plans to reduce debt; (5) expectations for Motorola’s operating cash flow and free cash flow during 2003; (6) research and development expenses; (7) capital expenditures; (8) depreciation expense; (9) working capital plans; (10) expectations for sales, profitability, orders, cash flow, operating earnings, operating margin and market share for each of Motorola’s segments; (11) trends in average selling prices; (12) the timing, sales impact and pricing of new products; (13) order and backlog positions over the next several quarters, including the impact of new business models on these numbers; (14) projected worldwide industry shipments of wireless handsets; (15) worldwide semiconductor industry growth; (16) the implementation and effectiveness of our “asset-light” semiconductor business model; (17) worldwide wireless infrastructure industry growth; (18) growth in the worldwide two-way radio industry; (19) timing and impact of governmental spending on homeland security, and (20) projected broadband equipment industry revenue. 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 yesterday’s press release, on pages F-35 through F-40 of Motorola’s Proxy Statement for the 2002 annual meeting of stockholders and in Motorola’s other SEC filings. 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. 2002 Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 57
  58. 58. Q4 2002 Motorola Earnings Conference Call – Jan. 22, 2003 SLIDE 58

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