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Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 1
Motorola Motorola Q1 2003 Q1 2003 Earnings Earnings Release Release
Conference Conference CallCall
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 2
Ed GamsEd GamsSenior Vice PresidentSenior Vice President
Director of Investor Relations Director of Investor Relations
Motorola Inc.Motorola Inc.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 3
Safe Harbor StatementSafe Harbor StatementA number of forwardA number of forward--looking statements will be made during this conference looking statements will be made during this conference call. Forwardcall. Forward--looking statements are any statements that are not historical looking statements are any statements that are not historical facts. These forwardfacts. These forward--looking statements are based on the current expectations looking statements are based on the current expectations of Motorola and there can be no assurance that such expectationsof Motorola and there can be no assurance that such expectations will prove will prove to be correct. Because forwardto be correct. Because forward--looking statements involve risks and looking statements involve risks and uncertainties, Motorola’s actual results could differ materiallyuncertainties, Motorola’s actual results could differ materially from these from these statements. Information about factors that could cause, and in sstatements. Information about factors that could cause, and in some cases ome cases have caused, such differences can be found in yesterday’s earninhave caused, such differences can be found in yesterday’s earnings press gs press release, on pages Frelease, on pages F--33 through F33 through F--40 of Motorola’s Proxy Statement for the 40 of Motorola’s Proxy Statement for the 2003 annual meeting of stockholders and in Motorola’s other SEC 2003 annual meeting of stockholders and in Motorola’s other SEC filings. filings.
This presentation is being made on the morning of April 16, 20This presentation is being made on the morning of April 16, 2003. The content 03. The content of this presentation contains timeof this presentation contains time--sensitive information that is accurate only sensitive information that is accurate only as of the time hereof. If any portion of this presentation is ras of the time hereof. If any portion of this presentation is rebroadcast, ebroadcast, retransmitted or redistributed at a later date, Motorola will noretransmitted or redistributed at a later date, Motorola will not be reviewing or t be reviewing or updating the material that is contained herein.updating the material that is contained herein.
MOTOROLA and the Stylized M Logo are registered in the US PateMOTOROLA and the Stylized M Logo are registered in the US Patent & nt & Trademark Office. All other product or service names are the proTrademark Office. All other product or service names are the property of their perty of their respective owners. © Motorola, Inc. 2003respective owners. © Motorola, Inc. 2003
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 4
Chris GalvinChris GalvinChief Executive OfficerChief Executive Officer
Chairman of the Board of DirectorsChairman of the Board of Directors
Motorola Inc.Motorola Inc.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 5
55--Point Plan for ImprovingPoint Plan for ImprovingMotorola’s Financial Performance Motorola’s Financial Performance
1.1. Persistent Enhancement of the Management Team Persistent Enhancement of the Management Team and Work Environmentand Work Environment
2.2. Aggressive Focus on Strengthening the Balance Aggressive Focus on Strengthening the Balance Sheet and CashSheet and Cash
3.3. Relentless Pursuit of Cost Competitiveness, Quality Relentless Pursuit of Cost Competitiveness, Quality and Customer Satisfaction and Customer Satisfaction
4.4. Growth through Profitable Innovative Products, Growth through Profitable Innovative Products, Systems, Software and Customer Relationships Systems, Software and Customer Relationships
5.5. Continuous Reassessment and Improvement of our Continuous Reassessment and Improvement of our Business Strategies and PortfolioBusiness Strategies and Portfolio
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 6
David DevonshireDavid DevonshireChief Financial OfficerChief Financial Officer
Executive Vice President,Executive Vice President,Motorola Inc. Motorola Inc.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 7
Motorola Inc. Financial ResultsMotorola Inc. Financial Results
+$0.09+$0.09($0.08)($0.08)$0.01$0.01Earnings Per Share Excluding Earnings Per Share Excluding Special ItemsSpecial Items
$0.07$0.07
$6,043$6,043
Q1 2003Q1 2003Favorable Favorable
(Unfavorable)(Unfavorable)Q1 2002Q1 2002
+$0.27+$0.27($0.20)($0.20)Earnings Per Share GAAPEarnings Per Share GAAP
(2%)(2%)$6,181$6,181Sales $MSales $M
! EPS Met Expectations, Sales Slightly Below Expectations
! EPS Excluding Special Items Improved $0.09, Despite 2% Sales Decline
! GAAP Results Reflect Gain on Sale of 25 Million Nextel Shares
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 8
Gross MarginGross Margin(Ongoing Operations Excluding Special Items)
25%
30%
35%
40%
Q1'01 Q3'01 Q1'02 Q3'02 Q1'03
% of Sales% of Sales
27.2%
30.1%
32.7%
25%
30%
35%
40%
Q1'01 Q1'02 Q1'03
% of Sales% of Sales
MultiMulti--Year Trend of Year Trend of 11stst Quarter Gross Quarter Gross
MarginMargin
! Gross Margin Improved 2.6% Points vs. Q1 2002 and 5.5% Points vs. Q1 2001
! Improvement Reflects Continuing Success of Restructuring/Cost Reduction
! Largest Improvement versus Q1 2002 in SPS and GTSS
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 9
Selling, General and Administrative ExpensesSelling, General and Administrative Expenses(Ongoing Operations Excluding Special Items)
$0
$500
$1,000
$1,500
$2,000
Q1'01 Q3'01 Q1'02 Q3'02 Q1'03
$ in Millions$ in Millions
14.8%
18.1%15.4%
$0
$500
$1,000
$1,500
$2,000
Q1'01 Q1'02 Q1'03
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
! Very Tight Budgetary Control on Discretionary First Quarter Spending
SG&A Improved 3.3% Points from Q1 2002
! Improvement Reflects Continuing Success of Restructuring/Cost Reduction
! Lower G&A Partially Offset by Higher Selling/Advertising
$ in Millions$ in MillionsMultiMulti--Year Trend ofYear Trend of11stst Quarter SG&AQuarter SG&A
!
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 10
Motorola Work Force TrendMotorola Work Force Trend150 147
136125121
111 107102100 97 94 90
0
20
40
60
80
100
120
140
160
Aug-00
Dec-00
Mar-01
Jun-01
Sep-01
Dec-01
Mar-02
Jun-02
Sep-02
Dec-02
Mar-03
Dec-03Est
Wo
rk F
orc
e(T
ho
usa
nds)
! New Estimate of Approximately 90,000 By or Before End of 2003! Further Decrease Driven By:
! Announced Outsourcing of Portions of IT and HR! Attrition! Selective Work Force Reductions
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 11
Research & Development ExpensesResearch & Development Expenses(Ongoing Operations Excluding Special Items)
$0
$500
$1,000
$1,500
$2,000
Q1'01 Q3'01 Q1'02 Q3'02 Q1'03
$ in Millions$ in Millions
15.7%14.7%15.1%
$0
$500
$1,000
$1,500
$2,000
Q1'01 Q1'02 Q1'03
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%$ in Millions$ in Millions
MultiMulti--Year Trend ofYear Trend of11stst Quarter Quarter
R&DR&D
R&D Spending Remains Relatively Stable
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 12
Operating Margin %Operating Margin %(Ongoing Operations, Excluding Special Items)
-4%
-2%
0%
2%
4%
6%
8%
Q1'01 Q3'01 Q1'02 Q3'02 Q1'03
% of Sales% of Sales
2.2%
-2.7%-3.4%-4%
-2%
0%
2%
4%
6%
8%
! Considering Seasonality of Q1, Operating Margin Continues to Trend Upward
! Operating Margin Improved 4.9% Points Vs. Q1 2002, & 5.6% Points Vs. Q1 2001
! Operating Earnings Excl. Special Items Increased $300M from Q1 2002
! Largest Improvement from Q1 2002 in SPS and GTSS
% of Sales% of Sales
Q1’01 Q1’02
Q1’03
MultiMulti--Year Trend ofYear Trend of11stst Quarter Quarter
Operating MarginOperating Margin
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 13
Net Special Items in Q1 2003Net Special Items in Q1 2003
$43$43Restructuring / Employee Separation / Exit CostRestructuring / Employee Separation / Exit Cost
$62 $62 Fixed Asset Impairments Fixed Asset Impairments
($59)($59)Iridium Iridium –– Reduction of Reserves No Longer NecessaryReduction of Reserves No Longer Necessary
$47$47Investment ImpairmentsInvestment Impairments
($225) = $0.06 EPS ($225) = $0.06 EPS NET SPECIAL ITEM – PRETAX
($39)($39)Restructuring Reserves No Longer NecessaryRestructuring Reserves No Longer Necessary
($279)($279)Gains on Sales of InvestmentsGains on Sales of Investments
Pretax ImpactPretax Impact$ millions$ millions
..
!! Net Special Items for 2003 Are Expected to be Approximately $Net Special Items for 2003 Are Expected to be Approximately $0. The 0. The Company Expects to Have Special Item Charges During 2003 RelatedCompany Expects to Have Special Item Charges During 2003 Related to:to:
"" Acquisition Related Charges Associated with Winphoria/Next LevelAcquisition Related Charges Associated with Winphoria/Next Level"" The Initiation of Additional Actions to Improve Cost CompetitiThe Initiation of Additional Actions to Improve Cost Competitivenessveness
!! Reductions to Reserves Previously Established Through SpecialReductions to Reserves Previously Established Through Special Item Charges Item Charges Have Been Consistently Reflected as a Special ItemHave Been Consistently Reflected as a Special Item. .
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 14
Cash FlowCash Flow
$0.7$0.7
($0.6)($0.6)
$1.3$1.3
($1.1) ($1.1)
$2.4$2.4
Annual Annual 20022002
$0.4$0.4
($0.1)($0.1)
$0.5$0.5
($0.2)($0.2)
$0.7$0.7
Q1 Q1 20032003
$0.6$0.6
($1.0)($1.0)
$1.6$1.6
($0.8)($0.8)
$2.4$2.4
Fcst Fcst Annual Annual 20032003
Cash for Restructuring/OtherCash for Restructuring/Other
($ in Billions)($ in Billions)
Free Cash FlowFree Cash Flow
Capital ExpendituresCapital Expenditures
Operating Cash FlowOperating Cash Flow
Operating Cash Flow without Operating Cash Flow without Restructuring/Other Restructuring/Other
!! Ninth Consecutive Quarter of Positive Operating Cash FlowNinth Consecutive Quarter of Positive Operating Cash Flow!! Expect Annual Depreciation of Approximately $1.6BExpect Annual Depreciation of Approximately $1.6B!! Expect Cash Contribution to Pension Fund of Approximately $200Expect Cash Contribution to Pension Fund of Approximately $200MM!! Expect Neutral/Slightly Positive Working Capital Impact to CasExpect Neutral/Slightly Positive Working Capital Impact to Cash Flow h Flow
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 15
Average Working Capital / Sales RatioAverage Working Capital / Sales RatioAccounts Receivable + Inventory Accounts Receivable + Inventory -- Accounts PayableAccounts Payable
21.6%22.7% 22.3% 21.9%
19.9%18.4% 17.4% 17.0% 17.0% 17.1%
10.0%
15.0%
20.0%
25.0%
Q4 00 Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4'02 Q1'03
## Accounts Receivable Performance Remains GoodAccounts Receivable Performance Remains Good## Inventory Performance Continues to Need ImprovementInventory Performance Continues to Need Improvement
% to Sales% to Sales
Long TermLong TermTarget of 12%Target of 12%4 Quarter Rolling Average4 Quarter Rolling Average
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 16
Cash and DebtCash and Debt$ in Billions
16.7%16.7%
$2.3$2.3
($6.6)($6.6)
$8.8$8.8
$1.2$1.2
$6.0$6.0
$1.6$1.6
Dec. 2002Dec. 2002
$0.9$0.9$0.8$0.8Short Term/Current DebtShort Term/Current Debt
$7.2$7.2$6.0$6.0Long Term DebtLong Term Debt
$1.2$1.2$1.2$1.2Long Term Debt Linked to Long Term Debt Linked to Equity UnitsEquity Units
18.4%18.4%
$3.1$3.1
($6.2)($6.2)
$9.2$9.2
Dec 2001Dec 2001Mar. 2003Mar. 2003
12.3%12.3%NET DEBT/ NET NET DEBT/ NET DEBT+EQUITYDEBT+EQUITY
$1.6$1.6NET DEBTNET DEBT
($6.4)($6.4)Cash & Cash EquivalentsCash & Cash Equivalents
$8.0$8.0TOTAL DEBTTOTAL DEBT
! Total Debt Down $800M in Q1 2003, Net Debt Down $700M! PURS ($825M) Retired February 2003! Net Debt Ratio Improved by Over 4 Percentage Points Compared To Dec. 2002
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 17
Low Level of Debt Maturities Low Level of Debt Maturities (Excludes Commercial Paper)(Excludes Commercial Paper)
2003/2004/20052003/2004/2005
Strong Position to Meet Debt Maturities With $6.4B in CashStrong Position to Meet Debt Maturities With $6.4B in Cash
$0.0
$0.5
$1.0
$1.5
Q2/Q3/Q4 2003 2004 2005
~$0.4~$0.5
~$0.2
$ in Billions
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 18
Mike ZafirovskiMike ZafirovskiPresident andPresident and
Chief Operating OfficerChief Operating Officer
Motorola Inc.Motorola Inc.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 19
## Commitment to Continued Earnings And Balance Commitment to Continued Earnings And Balance Sheet ImprovementSheet Improvement
―― Conservatively Managing Cost Structure Conservatively Managing Cost Structure
―― Continued Focus on Positive Cash Flow Continued Focus on Positive Cash Flow
―― Drive Continuous ImprovementDrive Continuous Improvement
## Return to GrowthReturn to Growth
## Accelerate Addressing Opportunities and Fixing Accelerate Addressing Opportunities and Fixing Strategic IssuesStrategic Issues
Motorola Objectives for 2003Motorola Objectives for 2003
90% of Employee Bonuses Based on AchievingOperating Earnings and Cash Flow Goals
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 20
Performance of Motorola’s 6 Major SectorsPerformance of Motorola’s 6 Major Sectors
Number of SectorsNumber of Sectors
66
55
55
Q1 2003Q1 2003ActualActual
2003 Annual 2003 Annual EstimateEstimate
Q2 2003Q2 2003EstimateEstimate
6655Positive Operating Cash FlowPositive Operating Cash Flow
6655Positive Operating EarningsPositive Operating Earnings
(Excluding Special Items)(Excluding Special Items)
554/54/5Operating EarningsOperating Earnings
Year Over Year ImprovementYear Over Year Improvement
(Excluding Special Items)(Excluding Special Items)
Continued Improvement in a Tough Environment
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 21
Segment Segment Updates & GuidanceUpdates & Guidance
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 22
Personal Communications SegmentPersonal Communications Segment( Excluding Special Items)
4.4%4.4%
$108$108
$2,447$2,447
$2,495$2,495
Q1 2003Q1 2003Favorable Favorable
(Unfavorable)(Unfavorable)Q1 2002Q1 2002
--4.4%4.4%Operating MarginOperating Margin
2%2%$106$106Operating Earnings $MOperating Earnings $M
2%2%$2,406$2,406Sales $MSales $M
(6%)(6%)$2,644$2,644Orders $MOrders $M
! Excluding Discontinued Paging Business from Q1 2002:! Sales Up 4%, Orders down 2%, Operating Earnings up 11%
! Sales & Orders Near Parity in Q1 Now That New Order Process In Place! Higher Gross Margin Offset By Investment in R&D, Selling/Advertising
! Internet Software Content Group Integrated Into PCS
! Positive Operating Cash Flow During Q1 2003 and In 4 of Last 5 Quarters
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 23
Personal Communications SegmentPersonal Communications SegmentUnits and Market ShareUnits and Market Share
~16%~16%
14.2 Million14.2 Million
Q1 2002Q1 2002
~19%~19%
16.7 Million16.7 Million
Q1 2003Q1 2003
18%18%Unit ShipmentsUnit Shipments
Up 3 PointsUp 3 PointsMarket ShareMarket Share
Growth Growth
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 24
Personal Communications SegmentPersonal Communications SegmentQ1 2003 Estimated SellQ1 2003 Estimated Sell--In Market ShareIn Market Share
DownDownDownDownAsiaAsia
Up SlightlyUp SlightlyUp SlightlyUp SlightlyEuropeEurope
Down SlightlyDown SlightlyUp StronglyUp StronglyLatin AmericaLatin America
Up SlightlyUp Slightly
UpUp
Comparedto Q4 2002
Comparedto Q1 2002
UpUp
Up StronglyUp StronglyNorth AmericaNorth America
WorldwideWorldwide
!! Became a Clear #1 in Both U.S. and CanadaBecame a Clear #1 in Both U.S. and Canada!! Share is Down In China, But We Remain # 1 by More than 5 % PoShare is Down In China, But We Remain # 1 by More than 5 % Pointsints!! Local Companies in China Continue to Gain ShareLocal Companies in China Continue to Gain Share!! Modest Share Gain in EuropeModest Share Gain in Europe!! Latin America Share More than Double Q102, Modest Decline froLatin America Share More than Double Q102, Modest Decline from Q402m Q402
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 25
China Market ActionsChina Market Actions!Strong New Product Portfolio
" Recently Accelerated Launch Dates$ 3 New Products Launched In Q1$ 2 More In Q2$ 9 More In Q3
! Supporting New Product Launches with Digital Content and Personalization Features! Increasing R&D Resources Focused on China Market! Strengthening Distribution
" Aligning Support Around Distributors AND Operators" Extending Distribution Coverage of Smaller Cities" Initiatives to Work Directly with Large Retailers" Closer Collaboration with Operators
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 26
Personal Communications SegmentPersonal Communications SegmentUnit Shipments by TechnologyUnit Shipments by Technology
Down 5%Down 5%GSM Unit ShipmentsGSM Unit Shipments
Up 58%Up 58%CDMA Unit ShipmentsCDMA Unit Shipments
Up 315%Up 315%TDMA Unit ShipmentsTDMA Unit Shipments
Down 7%Down 7%iDEN Unit ShipmentsiDEN Unit Shipments
Q1 2003 Change from Q1 2003 Change from Q1 2002Q1 2002
! CDMA/TDMA Growth Driven By Americas
! GSM Weakness in Asia Partially Offset by Strength in Americas
! iDEN Decline From Ongoing Shift to Direct Fulfillment Program With Nextel
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 27
NEW NEW CCOOLLOORR PHONES SHIPPING IN Q1PHONES SHIPPING IN Q1
A388c PDA
GSM(Shipping in Asia)
C350
GSM(Shipping in Asia
and Europe)
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 28
E380V295Integrated Camera
E365
Camera
T725EDGE
V600Integrated Camera
A760
PDA
NEW NEW CCOOLLOORR GSM PHONES SHIPPING IN 3GSM PHONES SHIPPING IN 3rdrd QUARTERQUARTER
E390IntegratedCamera, 3D Audio
Integrated Java+Linux
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 29
E310(Q3 2003)
NEW NEW CCOOLLOORR CDMA PHONES SHIPPING IN 2CDMA PHONES SHIPPING IN 2NDND HALFHALF
… and More Than 10 to Come in the
Second Half of 2003. Most Will Be Announced
During Q2V810Integrated
Camera(Q4 2003)
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 30
Personal Communications Segment Personal Communications Segment Average Selling PriceAverage Selling Price
Down 5% from Q4 2002 Down 12% from Q1 2002
Q1 2003Q1 2003
ASP Decline Primarily Due To Higher Mix of Entry Level Products
Down ~5%Annual 2003 EstimateAnnual 2003 Estimate
ASP’s Expected to Increase Slightly in Second Half of 2003 as a Higher Percentage of Color, Camera and Other Feature Rich Phones Ship
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 31
Handset Industry PerspectiveHandset Industry Perspective
Q1 2003 Sell-Through Estimate~90 to 93 Million Units
Global Industry in Channel Inventory! Industry Inventory Was Reduced by Approximately 4 to 5 Million Units in Q1! Industry Inventory in the Channel is Approximately 9 Weeks! Highest Weeks of Industry Inventory in Asia at 11 to 12 Weeks
! China Higher than Elsewhere in Asia
Motorola in Channel Inventory! Motorola Global Channel Inventory Approximately 7 Weeks ! Within Historical Industry Norm of 6 to 8 Weeks! Motorola Channel Inventory in Asia is Within Normal Range of 6-8 Weeks
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 32
2003 Industry Handset Forecast2003 Industry Handset ForecastSellSell--Through UnitsThrough Units
Q2 2003~98 Million to 103 Million
Annual 2003~430 Million
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 33
Personal Communications Segment Personal Communications Segment Q2 2003 ForecastQ2 2003 Forecast
UpUpUp SlightlyUp SlightlySalesSales
Compared to Compared to Q1 2003Q1 2003
Compared to Compared to Q2 2002Q2 2002
HigherHigherUp SlightlyUp SlightlyOperating Margin % Operating Margin % (Excluding Special Items) (Excluding Special Items)
! Expect Competitive Environment in China to be Comparable to Q1 2003
! China Market Channel Inventory, While Down Approx. 1 Million Units Still is Too High
• GAAP Operating Margin % is Expected to be Higher in Q2 2003 Compared to Q2 2002 and Higher Compared to Q1 2003. Special Items Excluded Above are Described Further in the Company's Q1 2003 Earnings Press Release.• The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide • 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.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 34
Semiconductor Products SegmentSemiconductor Products Segment( Excluding Special Items)
(6.4%)(6.4%)
($74)($74)
$1,151$1,151
$1,104$1,104
Q1 2003Q1 2003Favorable Favorable
(Unfavorable)(Unfavorable)Q1 2002Q1 2002
13.7 % Points13.7 % Points(20.1%)(20.1%)Operating MarginOperating Margin
67%67%($227)($227)Operating Earnings $MOperating Earnings $M
2%2%$1,127$1,127Sales $MSales $M
(16%)(16%)$1,319$1,319Orders $MOrders $M
! Order Decline is Indicative of Ongoing Weakness in Served Markets ! Book to Bill Ratio of 0.96! Lower Operating Loss Driven by:
! Higher Gross Margin, Lower Operating Expenses! Sales Up Substantially in Wireless, Up in Transportation and Down Substantially in Networking/Computing.! Positive Operating Cash Flow During Q1 2003 and In 4 of Last 5 Quarters
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 35
SPS SPS –– Other DevelopmentsOther Developments
## Announced 11th Merchant Market Chipset CustomerAnnounced 11th Merchant Market Chipset Customer
## Motorola Wafer Fab. In Scotland Closing by End of Motorola Wafer Fab. In Scotland Closing by End of April 2003. Wafer Fabs Will then Total 8April 2003. Wafer Fabs Will then Total 8
## Cost Reduction Activities will Continue To Be Cost Reduction Activities will Continue To Be Implemented in 1st Half 2003. Breakeven Sales Implemented in 1st Half 2003. Breakeven Sales Expected To Be Reduced to Approximately $5.0 Billion.Expected To Be Reduced to Approximately $5.0 Billion.
## Capex Expected to be $350M in 2003Capex Expected to be $350M in 2003
## We Now Forecast Our Served Semiconductor We Now Forecast Our Served Semiconductor Markets to Grow Approximately 5Markets to Grow Approximately 5--10% in 200310% in 2003
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 36
Semiconductor Products Segment Semiconductor Products Segment Q2 2003 ForecastQ2 2003 Forecast
Up SlightlyUp SlightlyDownDownSalesSales
Compared to Compared to Q1 2003Q1 2003
Compared to Compared to Q2 2002Q2 2002
Smaller LossSmaller LossSmaller LossSmaller LossOperating Margin % Operating Margin % (Excluding Special Items) (Excluding Special Items)
Compared to Q1 2003
! Sales Expected to be Up in Transportation, Flat in Wireless & Networking
! Operating Margin Expected to Improve Due to Leverage on Higher Sales
• GAAP Operating Margin % is Expected to be a Smaller Loss in Q2 2003 Compared to Q2 2002 and Compared to Q1 2003. Special Items Excluded Above are Described Further in the Company's Q1 2003 Earnings Press Release.• The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide • 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.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 37
Global Telecom Solutions SegmentGlobal Telecom Solutions Segment( Excluding Special Items)
2.4%2.4%
$23$23
$952$952
$935$935
Q1 2003Q1 2003Favorable Favorable
(Unfavorable)(Unfavorable)Q1 2002Q1 2002
7.1 % Points7.1 % Points(4.7%)(4.7%)Operating MarginOperating Margin
>100%>100%($51)($51)Operating Earnings $MOperating Earnings $M
(12%)(12%)$1,085$1,085Sales $MSales $M
(28%)(28%)$1,293$1,293Orders $MOrders $M
! Decline in Orders and Sales Indicative of Industry Condition! Profitability Driven by Strong Execution:
! Higher Gross Margin & Lower Operating Expenses! Four Consecutive Quarters with Positive Operating Earnings! Positive Operating Cash Flow During Q1 2003 and In 4 of Last 5 Quarters
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 38
GTSS GTSS –– Other DevelopmentsOther Developments
## Breakeven Sales Now Reduced to Slightly Below $4.0B.Breakeven Sales Now Reduced to Slightly Below $4.0B.
## Announced Acquisition of WinphoriaAnnounced Acquisition of Winphoria
## Adds Next Generation PacketAdds Next Generation Packet--based Switching to based Switching to Wireless Networking Solutions PortfolioWireless Networking Solutions Portfolio
## Adding SoftAdding Soft--Switch, to Supplement Existing Outsourced Switch, to Supplement Existing Outsourced Circuit Switch Portfolio, Addresses LongCircuit Switch Portfolio, Addresses Long--Standing Need Standing Need for Core Switching Offering from GTSSfor Core Switching Offering from GTSS
## Wireless Infrastructure Industry Revenue Expected to Wireless Infrastructure Industry Revenue Expected to Decline 6Decline 6--12% in 2003. 12% in 2003.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 39
Global Telecom Solutions Segment Global Telecom Solutions Segment Q2 2003 ForecastQ2 2003 Forecast
UpUpDown SubstantiallyDown SubstantiallySalesSales
Compared to Compared to Q1 2003Q1 2003
Compared to Compared to Q2 2002Q2 2002
FlatFlatFlatFlatOperating Margin % Operating Margin % (Excluding Special Items) (Excluding Special Items)
! Financial Performance is Stabilizing on a Sequential Basis
• GAAP Operating Margin % is Expected to be a Smaller Loss in Q2 2003 Compared to Q2 2002 and a Loss Compared to a Profit in Q1 2003. Special Items Excluded Above are Described Further in the Company's Q1 2003 Earnings Press Release.• The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide • 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.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 40
Commercial Govt. and Industrial System SegmentCommercial Govt. and Industrial System Segment( Excluding Special Items)
8.0%8.0%
$69$69
$863$863
$905$905
Q1 2003Q1 2003Favorable Favorable
(Unfavorable)(Unfavorable)Q1 2002Q1 2002
1.8% Points1.8% Points6.2%6.2%Operating MarginOperating Margin
38%38%$50$50Operating Earnings $MOperating Earnings $M
8%8%$802$802Sales $MSales $M
3%3%$877$877Orders $MOrders $M
! Orders, Sales, Operating Earnings, Operating Margin All Increased! Increase in Operating Earnings Driven by:
! Sales Growth Driven by Strength in North America! Higher Gross Margin
! Positive Operating Cash Flow During Q1 2003 and In 4 of Last 5 Quarters
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 41
CGISS CGISS –– Other DevelopmentsOther Developments
## U.S. Federal Government Business ImprovingU.S. Federal Government Business Improving
## U.S. State and Local Government Business Still WeakU.S. State and Local Government Business Still Weak
## International Business Improving International Business Improving –– Q1 Tetra ContractsQ1 Tetra Contracts−− Hong Kong Hong Kong
−− Taiwan Taiwan −− UK UK −− VenezuelaVenezuela−− Mainland China Mainland China −− Singapore Singapore
!! 2003 Two2003 Two--Way Radio Industry Growth Forecasted to be Way Radio Industry Growth Forecasted to be 22--8%8%
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 42
Commercial Govt. and Industrial System SegmentCommercial Govt. and Industrial System SegmentQ2 2003 ForecastQ2 2003 Forecast
UpUpUp SlightlyUp SlightlySalesSales
Compared to Compared to Q1 2003Q1 2003
Compared to Compared to Q2 2002Q2 2002
HigherHigherHigherHigherOperating Margin % Operating Margin % (Excluding Special Items) (Excluding Special Items)
• GAAP Operating Margin % is Expected to be a Profit in Q2 2003 Compared to a Loss in Q2 2002 and a Higher Profit in Q2 2003 Compared to Q1 2003. Special Items Excluded Above are Described Further in the Company's Q1 2003 Earnings Press Release.• The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide • 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.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 43
Integrated Electronic Systems SegmentIntegrated Electronic Systems Segment( Excluding Special Items)
4.4%4.4%
$23$23
$521$521
$529$529
Q1 2003Q1 2003% Favorable % Favorable (Unfavorable)(Unfavorable)Q1 2002Q1 2002
0.1 % Points0.1 % Points4.3%4.3%Operating MarginOperating Margin
5%5%$22$22Operating Earnings $MOperating Earnings $M
2%2%$509$509Sales $MSales $M
(7%)(7%)$570$570Orders $MOrders $M
! Sales, Operating Earnings and Operating Margin Slightly Higher
! Sales Growth in Automotive, Largely Offset By Declines in Other Groups
! Operating Cash Flow Slightly Positive During Q1 2003 and Positive In 4 of Last 5 Quarters
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 44
Integrated Electronic Systems Segment Integrated Electronic Systems Segment Q2 2003 ForecastQ2 2003 Forecast
Up SlightlyUp SlightlyDown SlightlyDown SlightlySalesSales
Compared to Compared to Q1 2003Q1 2003
Compared to Compared to Q2 2002Q2 2002
HigherHigherSlightly HigherSlightly HigherOperating Margin % Operating Margin % (Excluding Special Items) (Excluding Special Items)
! Continued Strong Performance in Automotive Compared to Q2 2002
! Compared to Q1 2003 Sales Expected to be Up Slightly in Energyand Motorola Computer Group and Flat in Automotive
• GAAP Operating Margin % is Expected to be a Profit in Q2 2003 Compared to a Loss in Q2 2002 and a Higher Profit in Q2 2003 Compared to Q1 2003. Special Items Excluded Above are Described Further in the Company's Q1 2003 Earnings Press Release.• The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide • 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.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 45
Broadband Communications SegmentBroadband Communications Segment( Excluding Special Items)
6.4%6.4%
$26$26
$405$405
$343$343
Q1 2003Q1 2003% Favorable % Favorable (Unfavorable)(Unfavorable)Q1 2002Q1 2002
--2.6 % Points2.6 % Points9.0%9.0%Operating MarginOperating Margin
(45%)(45%)$47$47Operating Earnings $MOperating Earnings $M
(23%)(23%)$525$525Sales $MSales $M
(36%)(36%)$537$537Orders $MOrders $M
! Sales Decline Driven by Lower Capital Expenditures by Cable Operators
! Operating Margin Decline Due to Decrease in Sales Partially Offset by Lower Operating Expenses.
! Positive Operating Cash Flow During Q1 2003 and In Last 5 Quarters
! Remains Technology and Market Share Leader in Cable Equipment
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 46
BCS BCS –– Other DevelopmentsOther Developments
## Shipped 1.1 Million Set Top Boxes During Q1 2003, Down 300K frShipped 1.1 Million Set Top Boxes During Q1 2003, Down 300K from Q102om Q102
## Shipped 1.0 Million Cable Modems During Q1 2003, Up 400K from Shipped 1.0 Million Cable Modems During Q1 2003, Up 400K from Q102Q102
## Still Investing in Brand Advertising and R&D for BroadbandStill Investing in Brand Advertising and R&D for Broadband
## Expanded Motorola’s Presence in the Consumer Market, LaunchingExpanded Motorola’s Presence in the Consumer Market, Launching the the Broadband “Connected Home” StrategyBroadband “Connected Home” Strategy
## Significant Win from MTV for Their MultiSignificant Win from MTV for Their Multi--network Conversion from Analog to network Conversion from Analog to DigitalDigital
# Two Major Technology Wins in Mexico� Cablevisión Monterrey -Infrastructure & Digital Set-tops
� Multioperadora de Sistemas -Motorola IP Technology for the Delivery of High-Speed Data
!! Broadband Equipment Industry Revenue Expected to decline 10%Broadband Equipment Industry Revenue Expected to decline 10%--15% in 15% in 2003 as Cable Operators Continue To Reduce Capital Expenditures2003 as Cable Operators Continue To Reduce Capital Expenditures
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 47
Broadband Communications Segment Broadband Communications Segment Q2 2003 ForecastQ2 2003 Forecast
Flat to Up SlightlyFlat to Up SlightlyDown Very Down Very SubstantiallySubstantially
SalesSales
Compared to Compared to Q1 2003Q1 2003
Compared to Compared to Q2 2002Q2 2002
FlatFlatLowerLowerOperating Margin % Operating Margin % (Excluding Special Items) (Excluding Special Items)
! Sales Decline Compared to Prior Year Driven by Lower Capital Spending from Cable Operators, Product Mix and Reduced ASPs
! Operating Margins Compared to prior Year Impacted by Lower Sales and ASP Reductions, Partially Offset by Lower Operating Expenses
• GAAP Operating Margin % is Expected to be Lower in Q2 2003 Compared to Q2 2002 and Lower Compared to Q1 2003. Special Items Excluded Above are Described Further in the Company's Q1 2003 Earnings Press Release.• The terms Flat, Slightly, Substantially and Very Substantially are Only Used in Forecasting Sales on this Slide • Flat Indicates a Variance of 0.5% or Less, Slight or Slightly Indicates a Variance of up to 5%, Substantial or SubstantiallyIndicates a Variance From 15% up to 25%. Very Substantial or Very Substantially Indicates a Variance of 25% or More.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 48
## Commitment to Continued Earnings And Balance Commitment to Continued Earnings And Balance Sheet ImprovementSheet Improvement
―― Conservatively Managing Cost Structure Conservatively Managing Cost Structure
―― Continued Focus on Positive Cash Flow Continued Focus on Positive Cash Flow
―― Drive Continuous ImprovementDrive Continuous Improvement
## Return to GrowthReturn to Growth
## Accelerate Addressing Opportunities and Fixing Accelerate Addressing Opportunities and Fixing Strategic IssuesStrategic Issues
Motorola Objectives for 2003Motorola Objectives for 2003
90% of Employee Bonuses Based on AchievingOperating Earnings and Cash Flow Goals
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 49
Motorola, Inc.Motorola, Inc.Driving the Next Step Change in our Cost CompetitivenessDriving the Next Step Change in our Cost Competitiveness
Phase IPhase IMostly Restructuring ActionsMostly Restructuring Actions
• Staff Reductions• Facility Closures
• Outsourcing
Approximately $4B Cost Reductions
2001/2002
Phase IIPhase IIDigital Six SigmaDigital Six Sigma
•Cost of Poor Quality•Sourcing Effectiveness
• New Product Intro./ Eng. Effectiveness
Targeting $3 BCost Reductions
2003/2004
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 50
Guidance UpdateGuidance Update
David DevonshireDavid DevonshireChief Financial OfficerChief Financial Officer
Executive Vice President,Executive Vice President,Motorola Inc. Motorola Inc.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 51
Q2 2003 GuidanceQ2 2003 Guidance
$0.02 $0.02 --$0.04$0.04$0.01 $0.01 --$0.03$0.03$0.01$0.01$0.02$0.02$0.03 $0.03 --$0.05$0.05Earnings Per ShareEarnings Per Share
$0.07$0.07
$6.0B$6.0B
Q1 Q1 20032003
Favorable (Unfavorable)Favorable (Unfavorable)
$0.01$0.01--$0.03$0.03
$6.4B$6.4B--$6.6B$6.6B
Q2 2003Q2 2003 Q1 2003Q1 2003Q2 2002Q2 2002Q2 Q2 20022002
($0.04)($0.04)--($0.06)($0.06)$1.03 $1.03 --$1.05$1.05($1.02)($1.02)Earnings Per ShareEarnings Per Share
6%6%--9%9%(4%)(4%)--(7%)(7%)$6.9B$6.9BSalesSales
(on a GAAP Basis)(on a GAAP Basis)
(Excluding Special Items)(Excluding Special Items)
! Versus Q2 2002 Improvement in Operating Earnings On Sales Decline of 4-7% Due to Beneficial Results of Restructuring and Cost Reductions! Expect Special Items Charge of Approx. $0.02 Per Share Consisting Mostly of:
" Acquisition Related Charges for Winphoria/Next Level Transactions" Charges For Additional Cost Reduction Actions Which Could Not Be Recorded in Q1 2003
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 52
! Sales Guidance Lowered Slightly Due to Slow Pace of Economic Recovery which Slightly Reduced our Industry Forecasts for Handsets, Semiconductors and Broadband! Sales Growth Expected in PCS, CGISS, SPS and IESS ! Expect Positive Operating Earnings and Positive Operating Cash Flow in
Each of our Six Major Business Segments! Earnings Leverage Potential When Served Markets Improve
Annual 2003 GuidanceAnnual 2003 Guidance
~$0.40~$0.40
~$0.40~$0.40
~$28.0B~$28.0B
PreviousPreviousGuidanceGuidance
($1.78)($1.78)
($0.33)($0.33)
$30.5B$30.5B
20012001
$0.35 to $0.40$0.35 to $0.40Equal To Or Greater Equal To Or Greater Than EPS Excluding Than EPS Excluding
Special ItemsSpecial Items
$0.35 to $0.40$0.35 to $0.40
$27.5 to $28.0B$27.5 to $28.0B
20032003 20022002
($1.09)($1.09)
Earnings Per Share Earnings Per Share
$0.12$0.12Earnings Per Share Earnings Per Share
$27.3B$27.3BSalesSales
(Excluding Special Items)
(GAAP)(GAAP)
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 53
Estimated Quarterly EPSEstimated Quarterly EPS
-$0.15
-$0.10
-$0.05
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
Q1 Q2 EST Q3 EST Q4 EST
2002 2003 Lower End of Range 2003 Upper End of Range
(Excluding Special Items)
2nd Half Increase in EPS and Operating Margin Driven By:! Continued Implementation of Margin Improvement Programs in PCS
(Platform Strategy, Supply Chain Savings and Q3/Q4 2003 New Products)! Volume Leverage Expected To Return SPS to Profitability in 2nd Half of 2003! Impact of Additional Cost Reduction Actions To Be Implemented in 2003! Normal Seasonal Q4 Operating Margin Improvements In PCS and CGISS
Q1 EARNINGS RELEASE – April 16, 2003
SLIDE 54
Chris GalvinChris GalvinChief Executive OfficerChief Executive Officer
Chairman of the Board of DirectorsChairman of the Board of Directors
Motorola,Inc.Motorola,Inc.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 55
Motorola Q&A ParticipantsMotorola Q&A Participants
Mike ZafirovskiMike ZafirovskiChris GalvinChris GalvinChief Executive OfficerChief Executive Officer
Chairman of the Board of DirectorsPresident President
Chief Operating OfficerChairman of the Board of Directors Chief Operating Officer
Ed GamsEd GamsDavid DevonshireDavid DevonshireSenior Vice PresidentSenior Vice President
Director of Investor RelationsExecutive Vice PresidentExecutive Vice President
Chief Financial Officer Director of Investor RelationsChief Financial Officer
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 56
Use of NonUse of Non--GAAP MeasurementsGAAP Measurements
In addition to the GAAP results provided during this conference call, non-GAAP measurements, which present operating results on a basis excluding special items, have been provided. Management, as well as certain investors, use these results of
operations, excluding special items, to measure Motorola's current and future financial performance. The non-GAAP measurements do not replace the presentation
of Motorola's GAAP financial results. These measurements provide supplemental information to assist investors in analyzing Motorola's financial position and results of
operations. Motorola has chosen to provide this information to investors to enable them to perform meaningful comparisons of past, present and future operating results
and as a means to emphasize the results of core on-going operations. Details of the special 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 April 8, 2003, (ii) in the Form 8-K filed by Motorola on April 15, 2003 (which attached yesterday’s earnings press release, and (iii) 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
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 57
Safe Harbor StatementSafe Harbor StatementDuring 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 Q2 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) expectations for Motorola’s operating cash flow and free cash flow during 2003; (5) selling, general and administrative expenses; (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) the future direction of Chinese markets; (16) worldwide semiconductor industry growth; (16) the continued implementation and effectiveness of the “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-33 through F-40 of Motorola’s Proxy Statement for the 2003 annual meeting of stockholders and in Motorola’s other SEC filings.
Q1 EARNINGS RELEASE – April 16, 2003 SLIDE 58