4. Ed Zander
Chief Executive Officer
Chairman of the Board of Directors
Motorola Inc.
Slide 4
Q3 EARNINGS RELEASE – October 19, 2004
5. David Devonshire
Chief Financial Officer
Executive Vice President
Motorola Inc.
Slide 5
Q3 EARNINGS RELEASE – October 19, 2004
6. 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
7. 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
8. 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
9. 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
10. 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
$19M of Expense Related to the Separation of FSL, Operating Margin Improved.
Q3 EARNINGS RELEASE – October 19, 2004 Slide 10
11. Cash Flow and Debt
Cash Flow Debt
Q3 Year-End
($ 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
13. Mike Zafirovski
President and
Chief Operating Officer
Motorola Inc.
Slide 13
Q3 EARNINGS RELEASE – October 19, 2004
14. 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
15. 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
16. 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
18. 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
20. 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
21. 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
22. 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
23. 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
24. 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
25. 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
26. 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
27. 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
28. 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
29. 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
30. 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
31. 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
32. 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
33. 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
34. 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
