q3 2003 motorola inc. earnings conference call presentation

Q3 EARNINGS RELEASE – October 13, 2003 SLIDE 1

Motorola Motorola Q3 2003 Q3 2003 Earnings Earnings Release Release

Conference Conference CallCall


Ed GamsEd GamsSenior Vice PresidentSenior Vice President

Director of Investor Relations Director of Investor Relations Motorola Inc.Motorola Inc.


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 this morning’s earhave caused, such differences can be found in this morning’s earnings press nings 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 afternoon of October 13This presentation is being made on the afternoon of October 13, 2003. The , 2003. The content of this presentation contains timecontent of this presentation contains time--sensitive information that is sensitive information that is accurate only as of the time hereof. If any portion of this preaccurate only as of the time hereof. If any portion of this presentation is sentation is rebroadcast, retransmitted or redistributed at a later date, Motrebroadcast, retransmitted or redistributed at a later date, Motorola will not be orola will not be reviewing or updating the material that is contained herein.reviewing or 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


Chris GalvinChris GalvinChief Executive OfficerChief Executive Officer

Chairman of the Board of DirectorsChairman of the Board of DirectorsMotorola Inc.Motorola Inc.


David DevonshireDavid DevonshireChief Financial OfficerChief Financial Officer

Executive Vice PresidentExecutive Vice PresidentMotorola Inc. Motorola Inc.


Motorola Inc. Financial ResultsMotorola Inc. Financial Results

$0.00$0.00$0.06$0.06$0.06$0.06Earnings Per Share Excluding Earnings Per Share Excluding Special ItemsSpecial Items

$0.05$0.05

$6,829$6,829Q3 2003Q3 2003

Favorable Favorable (Unfavorable)(Unfavorable)Q3 2002Q3 2002

$0.00$0.00$0.05$0.05Earnings Per Share GAAPEarnings Per Share GAAP

4.5%4.5%$6,532$6,532Sales $MSales $M

Sales Increase Largely Due To PCS & CGISSEPS Excluding Special Items Flat to Last Year as a Result of a Decrease in Gross Margin Percent


Gross MarginGross Margin

25%

30%

35%

40%

Q1'01 Q3'01 Q1'02 Q3'02 Q1'03 Q3'03

% of Sales% of Sales

(Ongoing Operations Excluding Special Items)

27.1%

35.8% 34.0%

25%

30%

35%

40%

Q3'01 Q3'02 Q3'03

Decline in Gross Margin Largely Attributable to:Increased Handset Competition and Pricing Pressures in Asia Combined With Sales of Discontinued Products in PCS at Low Gross MarginsLower Gross Margins in SPS Due to Decreased Manufacturing Utilization as SPSFocused on Inventory Reduction and Cash Flow Generation

% of Sales% of Sales MultiMulti--Year Trend of 3rd Year Trend of 3rd Quarter Gross MarginQuarter Gross Margin


$0

$500

$1,000

$1,500

$2,000

Q1'01 Q4'01 Q3'02 Q2'03

Selling, General and Administrative ExpensesSelling, General and Administrative Expenses(Ongoing Operations Excluding Special Items)

$ in Millions$ in Millions

15.0% 16.9%

$0

$500

$1,000

$1,500

$2,000

Q3'01 Q3'02 Q3'030.0%

5.0%

10.0%

15.0%

20.0%

25.0%

SG&A % to Sales Improved 1.1% Points from Q3 2002Sequential Dollar Increase vs. Q2 Due to Increased Advertising Spend and Higher Incentive Compensation Accruals as a Result of Improved Cash FlowYTD SG&A % to Sales Improved 2.1% Points Over Same Period Last Year

$ in Millions$ in MillionsMultiMulti--Year Trend ofYear Trend of3rd Quarter SG&A3rd Quarter SG&A

15.8%


$0

$500

$1,000

$1,500

$2,000

Q1'01 Q3'01 Q1'02 Q3'02 Q1'03 Q3'03

Research & Development ExpensesResearch & Development Expenses(Ongoing Operations Excluding Special Items)


13.8%14.5%13.8%

$0

$500

$1,000

$1,500

$2,000

Q3'01 Q3'02 Q3'030.0%

5.0%

10.0%

15.0%

20.0%

25.0%

R&D % to Sales Improved .7% Points vs. Last Year While Dollar Spending HasRemained StableYTD R&D % to Sales is up .7% Points While Dollar Spending is Up 2%


MultiMulti--Year Trend ofYear Trend of3rd Quarter 3rd Quarter

R&DR&D


Operating Margin %Operating Margin %

-4%-2%

0%2%4%

6%8%

Q1'01 Q3'01 Q1'02 Q3'02 Q1'03 Q3'03


(Ongoing Operations, Excluding Special Items)

4.4%4.4%

-1.7%-4%

-2%

0%

2%

4%

6%

8%

Operating Margin in Q3 2003 Flat Compared to Q3 2002 But Was More Than Twice the Level of Q2, 2003Improvements in % to Sales of SG&A and R&D Offset the Impact of Lower Gross Margin


Q3’01

Q3’03

MultiMulti--Year Trend ofYear Trend of 3rd 3rd Quarter Operating MarginQuarter Operating Margin

Q3’02


Net Special Items in 2003Net Special Items in 2003

..

$32$32$ 0$ 0In Process Research and Development (Winphoria)In Process Research and Development (Winphoria)

YTD 2003YTD 2003Q3 2003Q3 2003$ millions$ millions

$27$27

$17$17$60$60

($11)($11)

($8)($8)($31)($31)

$140$140Restructuring / Employee Separation / Exit CostRestructuring / Employee Separation / Exit Cost$114 $114 Fixed Asset / Investment Impairments Fixed Asset / Investment Impairments

($100)($100)Iridium Iridium –– Gain on Sale of Assets Previously Written Off Gain on Sale of Assets Previously Written Off and Reduction of Reserves No Longer Necessaryand Reduction of Reserves No Longer Necessary

($279)($279)NET SPECIAL ITEM – PRETAX

($127)($127)Restructuring Reserves No Longer Necessary/OtherRestructuring Reserves No Longer Necessary/Other

($338)($338)Gains on Sales of InvestmentsGains on Sales of Investments

Reductions to Reserves Previously Established Through Special ItReductions to Reserves Previously Established Through Special Item Charges em Charges Have Been Consistently Reflected as a Special ItemHave Been Consistently Reflected as a Special Item. .


Reporting of Orders to End After Q4, 2003Reporting of Orders to End After Q4, 2003

Changes in Business Process Cycle Times Have Reduced the Usefulness of Order Reporting as a

Leading Indicator of the Next Quarter’s Sales.

As a Result, Motorola Will No Longer Report Orders by Segment After the 4th Quarter of 2003.


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

$0.9$0.9

($0.2)($0.2)

$1.1$1.1($0.1)($0.1)

$1.2$1.2

Q3 Q3 20032003

$1.3$1.3

($0.7)($0.7)

$2.0$2.0($0.5)($0.5)

$2.5$2.5

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

Eleventh Consecutive Quarter of Positive Operating Cash FlowEleventh Consecutive Quarter of Positive Operating Cash FlowExpect Annual Depreciation of Approximately $1.6BExpect Annual Depreciation of Approximately $1.6BExpect Annual Cash Contribution to Pension Fund of ApproximatelyExpect Annual Cash Contribution to Pension Fund of Approximately $200M$200MExpect Approx. $750M Annual Positive Working Capital Impact to CExpect Approx. $750M Annual Positive Working Capital Impact to Cash Flow ash Flow


Average Working Capital / Sales RatioAverage Working Capital / Sales Ratio

21.8% 22.1% 21.4%20.1%

18.5%16.9% 16.4% 15.9% 16.2% 16.8% 16.3%

10.0%

15.0%

20.0%

25.0%

Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03

% to Sales% to Sales

Long TermLong TermTarget of 12%Target of 12%

Accounts Receivable + Inventory Accounts Receivable + Inventory -- Accounts PayableAccounts Payable

4 Quarter Rolling Average4 Quarter Rolling Average

Versus Q2, 2003: Versus Q2, 2003: Inventory Decreased by $96M. Turns Improved to 6.2 Turns From 6.Inventory Decreased by $96M. Turns Improved to 6.2 Turns From 6.0.0.Accounts Payable Increased by $376M; Days Outstanding Grew to Accounts Payable Increased by $376M; Days Outstanding Grew to 50 From 46.50 From 46.Accounts Receivables Increased by $226M; DSO Dropped toAccounts Receivables Increased by $226M; DSO Dropped to 51 Days From 53.51 Days From 53.


Cash and DebtCash and Debt$ in Billions

19.6%*19.6%*$2.7*$2.7*

($6.6)($6.6)$9.3*$9.3*

$1.2$1.2$6.5*$6.5*$1.6$1.6

Dec. 2002Dec. 2002$0.9$0.9$1.2$1.2Short Term/Current DebtShort Term/Current Debt$7.7*$7.7*$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

21.0%*21.0%*$3.6*$3.6*

($6.2)($6.2)$9.7*$9.7*

Dec 2001Dec 2001Sept 2003Sept 2003

9.1%9.1%NET DEBT/ NET NET DEBT/ NET DEBT+EQUITYDEBT+EQUITY

$1.2$1.2NET DEBTNET DEBT($7.2)($7.2)Cash & Cash EquivalentsCash & Cash Equivalents$8.4$8.4TOTAL DEBTTOTAL DEBT

Total Debt Down $900M in 2003, Net Debt Down $1.5BNet Debt Ratio Improved by Over 10% Points Compared to December 2002Strongest Balance Sheet in Past 20 Years

* Effective July 2003, $486M of TOPrS Were Reclassified as Long-Term Debt in Accordance with New Accounting Standards. For Comparative Purposes Only, All Amounts Above Have Been Adjusted to Reflect This Change.


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 $7.2B in CashStrong Position to Meet Debt Maturities With $7.2B in Cash

$0.0

$0.5

$1.0

$1.5

Q4 2003 2004 2005

Short Term Debt Long Term Debt

~$0.4~$0.5

<$0.1

$ in Billions


Mike ZafirovskiMike ZafirovskiPresident andPresident and

Chief Operating OfficerChief Operating OfficerMotorola Inc.Motorola Inc.


Segment Segment Updates & GuidanceUpdates & Guidance


Personal Communications SegmentPersonal Communications Segment( Excluding Special Items)

5.6%5.6%$165$165

$2,924$2,924$3,700$3,700

Q3 2003Q3 2003Favorable Favorable

(Unfavorable)(Unfavorable)Q3 2002Q3 2002

(2.7 PPTS)(2.7 PPTS)8.3%8.3%Operating MarginOperating Margin(27%)(27%)$225$225Operating Earnings $MOperating Earnings $M

8%8%$2,715$2,715Sales $MSales $M44%44%$2,565$2,565Orders $MOrders $M

Sales Grew Strongly in North America and Latin America, but Declined Significantly in Asia and were Down in Europe.Orders Showed Strong Growth Overall, Particularly in Europe, Asia and Latin America. North America Orders Also Increased.Higher Operating Earnings in North America and Latin America offset by Much Weaker Results in Asia and to a Minor Degree in Europe. Asia Weakness Centered on China Due to Pricing Pressures and Loss of Market Share vs. Last Year From Intense Locally Based Competition.Positive Cash Flow for Q3


PCS End of Life Products PCS End of Life Products –– Impact Impact to Q3to Q3

End of Life Product Sales Increased By Approximately End of Life Product Sales Increased By Approximately $300M Sequentially vs. Q2$300M Sequentially vs. Q2

These End of Life Sales Generated Less Than Normal These End of Life Sales Generated Less Than Normal Gross MarginGross Margin

The Average Selling Price of These Handsets Was The Average Selling Price of These Handsets Was Significantly Lower Than That of the Other Handsets Significantly Lower Than That of the Other Handsets Sold During the Quarter.Sold During the Quarter.


Personal Communications SegmentPersonal Communications SegmentUnit Mix Trend Unit Mix Trend –– Color, CameraColor, Camera

~ 50%~ 50%~ 70%~ 70%~ 80%~ 80%~ 85%~ 85%Black & WhiteBlack & White

~ 20%~ 20%~ 10%~ 10%~ 5%~ 5%~ 5%~ 5%Color & CameraColor & Camera

~ 30%~ 30%~ 20%~ 20%~ 15%~ 15%~ 10%~ 10%Color OnlyColor Only

% Units% Units

Q4 ‘03Q4 ‘03Q3’ 03Q3’ 03Q2 ‘03Q2 ‘03Q1 ‘03Q1 ‘03


Personal Communications SegmentPersonal Communications SegmentAreas of LeadershipAreas of Leadership

•• Technology Technology -- 11stst Digital HandsetDigital Handset -- 11stst in Pushin Push--toto--Talk Talk -- 11stst Dual BandDual Band -- 11stst in GPRSin GPRS-- 11stst Tri BandTri Band -- 11stst in UMTSin UMTS-- 11stst Quad BandQuad Band

•• #1 Share in :#1 Share in :-- U.S.U.S. -- MexicoMexico-- ChinaChina -- ArgentinaArgentina-- CanadaCanada -- NigeriaNigeria-- Russia Russia -- Among OthersAmong Others


Personal Communications SegmentPersonal Communications SegmentUnit Shipments by RegionUnit Shipments by Region

Up 19%Up 19%

Down 16%Down 16%

Up 38%Up 38%

Up 9%Up 9%Up 89%Up 89%Up 35%Up 35%

Q3 2003 vs.Q3 2003 vs.Q3 2002Q3 2002

Down 8%Down 8%EuropeEurope

Up 19%Up 19%SubtotalSubtotal

Up 37%Up 37%Latin AmericaLatin AmericaUp 24%Up 24%North AmericaNorth America

Up 74%Up 74%AsiaAsia

Up 28%Up 28%Total UnitsTotal Units

Q3 2003 vs.Q3 2003 vs.Q2 2003Q2 2003


Personal Communications SegmentPersonal Communications SegmentUnit Shipments by TechnologyUnit Shipments by Technology

Up 19%Up 19%Up 19%Up 19%Up 7%Up 7%

Up 18%Up 18%Up 27%Up 27%

Q3 2003 vs.Q3 2003 vs.Q3 2002Q3 2002

Up 10%Up 10%TDMATDMAUp 28%Up 28%GSMGSMUp 59%Up 59%CDMA CDMA

Up 7%Up 7%iDENiDENUp 28%Up 28%TOTALTOTAL

Q3 2003 vs.Q3 2003 vs.Q2 2003Q2 2003


Flat to Q2 2003 Down 8% from Q3 2002

Down ~6%

Personal Communications Segment Personal Communications Segment Average Selling PriceAverage Selling Price

Q3 2003Q3 2003

Annual 2003 EstimateAnnual 2003 Estimate

ASP Expected to Increase Sequentially in Q4 of 2003 Due to a Higher Percentage of Mid-Tier and High-Tier New Products with Color Screens,

Cameras, Other Features, and Fewer End of Life Products

ASP Decline from Q3 2002 Due to Higher Mix of Entry Level Products and End of Life Products

Q3 2003 Excl. Increase in End of Life ProductsQ3 2003 Excl. Increase in End of Life Products

Up 9% vs. Q2 2003 Up 6% vs. Q3 2002


E380Asia

NEW Q3 NEW Q3 CCOOLLOORRand and CCOOLLOORR + CAMERA GSM HANDSETS+ CAMERA GSM HANDSETS

C350vVideo-clip playback

China

E365Integrated

CameraChina – and

now in Europe!

V750Integrated

CameraChina


V688China

MS150Integrated Camera

Korea

NEW Q3 NEW Q3 CCOOLLOORRand and CCOOLLOORR + CAMERA CDMA HANDSETS+ CAMERA CDMA HANDSETS

T730North America

V868Integrated Camera

China


CDMA: C210Latin America

NEW Q3 MASSNEW Q3 MASS--MARKETMARKETGSM and CDMA HANDSETSGSM and CDMA HANDSETS

CDMA: V60xNorth America

GSM: C200Asia


WORLD’S 1WORLD’S 1stst PUSHPUSH--TOTO--TALK CDMA HANDSET!TALK CDMA HANDSET!

V60p – Motorola innovation extending and expanding the push-to-talk market!

Introduced and shipped in Q3 – North America


NEW Q3 TDMA HANDSETSNEW Q3 TDMA HANDSETS

C353t – colorNorth America

C150tLatin America

V60t – colorNorth America


NEW Q3 UMTS HANDSETNEW Q3 UMTS HANDSET

A920 – streaming video and so much more!

Europe and Asia


V300Europe and

North America

NEW Q4 NEW Q4 CCOOLLOORR + CAMERA GSM HANDSETS+ CAMERA GSM HANDSETS

V500Europe

V600Europe


MOTOROLA’S 1MOTOROLA’S 1stst GSM HANDSET USINGGSM HANDSET USINGMICROSOFT WINDOWS MOBILEMICROSOFT WINDOWS MOBILE™™ OS!OS!

MPx200 – Industry’s first Windows Mobile enabled

handset from a Tier 1 manufacturer!


SOME of NEW Q4 SOME of NEW Q4 CCOOLLOORR + CAMERA CDMA HANDSETS+ CAMERA CDMA HANDSETS

MS200 / V870Korea / China

E310Americas


NEW Q4 UMTS HANDSETSNEW Q4 UMTS HANDSETS

A925Europe and Asia

A835 – shipping now!Europe and Asia


China Market StatusChina Market StatusTotal Industry Channel Inventory Continues to be an Issue, Although

Rate of Growth Has Slowed; 2-3M Units Added in Q3, Total Now Estimated at Approximately 30M Units, or 29 Weeks.

Tight Control of Motorola Channel Inventory Continues, So as toPromote Strong New Product Demand in Q4. Current Motorola Inventory in Channel Less Than 2M Units.

Motorola Held Share at Approximately 21% and Remains the MarketLeader

Motorola New Products in China in Q3 Include:GSM: E365 and V750 - Color and Integrated Camera

E380 - Color and HapticsC350v - Color and Video Clip PlaybackC200 - Grayscale Entry-Level

CDMA: V868 - Color and Integrated CameraC210 – Grayscale Entry-Level


Personal Communications Segment Personal Communications Segment Q4 2003 ForecastQ4 2003 Forecast

Up 15%Up 15%--20%20%Up 0%Up 0%--5%5%SalesSales

Compared to Compared to Q3 2003Q3 2003


Up Up Flat to DownFlat to DownOperating Margin % * Operating Margin % * (Excluding Special Items) (Excluding Special Items)

* GAAP Operating Margin % is Expected to be Down in Q4 2003 Compared to Q4 2002 and Up Compared to Q3 2003. Special Items Excluded Above are Described Further in the Company's Q3 2003 Earnings Press Release.


Semiconductor Products SegmentSemiconductor Products Segment( Excluding Special Items)

(4.5%)(4.5%)($55)($55)

$1,225$1,225$1,409$1,409



(5.4 (5.4 pptsppts.).)0.9%0.9%Operating MarginOperating Margin$12$12Operating Earnings/(Loss) $MOperating Earnings/(Loss) $M

(4%)(4%)$1,275$1,275Sales $MSales $M8%8%$1,310$1,310Orders $MOrders $M

Order Increase Related to Networking and Wireless Markets – Book to Build Ratio at 1.15Sales Flat in Transportation, Down in Networking and Down in WirelessOperating Earnings Decreased Largely Due to Lower Sales Positive Cash Flow During Q3 2003 and in 6 of Last 7 Quarters


On October 6, Motorola Announced Plans to Separate On October 6, Motorola Announced Plans to Separate SPS Into an Independent Company. SPS Into an Independent Company.

Cost Reduction Actions Continued to Be Implemented in Cost Reduction Actions Continued to Be Implemented in Q3 and More Are Anticipated to Occur in Q4.Q3 and More Are Anticipated to Occur in Q4.

Shipments of Shipments of i.xxxi.xxx Chipsets More Than Doubled Chipsets More Than Doubled Sequentially vs. Q2, With Almost All Going to PCS. Sequentially vs. Q2, With Almost All Going to PCS. Shipments to External Customers Expected to Begin in Shipments to External Customers Expected to Begin in Volume in Q4.Volume in Q4.

SPS SPS –– Other DevelopmentsOther Developments


Semiconductor Products Segment Semiconductor Products Segment Q4 2003 ForecastQ4 2003 Forecast

Up 0Up 0--5%5%Down 5%Down 5%--10%10%SalesSales



Profit vs. Loss Profit vs. Loss UpUpOperating Margin % * Operating Margin % * (Excluding Special Items) (Excluding Special Items)

* GAAP Operating Margin % is Expected to be Approximately Break Even Q4 2003 Compared to a Profit in Q4 2002 and a Loss Compared to Q3 2003. Special Items Excluded Above are Described Further in the Company's Q3 2003 Earnings Press Release.


Global Telecom Solutions SegmentGlobal Telecom Solutions Segment( Excluding Special Items)

5.2%5.2%$55$55

$1,054$1,054$1,099$1,099



4.7 4.7 pptsppts..0.5%0.5%Operating MarginOperating Margin$5$5Operating Earnings $MOperating Earnings $M

2%2%$1,029$1,029Sales $MSales $M23%23%$ 894$ 894Orders $MOrders $M

Orders Increased in All Regions; Strongest Growth in AsiaBest Year Over Year Change in Sales & Orders in 10 Quarters.Operating Margin Improvement Resulted from Higher Gross Margin and Lower Operating Expense % to Sales; Also Best in 10 Quarters.Sixth Consecutive Quarter with Positive Operating EarningsPositive Cash Flow During Q3 2003 and in 6 of Last 7 Quarters


China Mobile Communication Corporation (CMCC), the World’s Largest Mobile Operator, Signed 13 Contracts With GTSS Totaling $139 Million. The Agreements With CMCC Cover a Range of Services Including GSM/GPRS Capacity Expansion and the Network Support Program (NSP).

GTSS Signed its First Agreement to Pilot Motorola’s GPRS PTT Solution With Fastlink of Jordan. Group and Individual PTT Calls Have Been Successfully Demonstrated at Fastlink’s Facility in Amman.

As Part of a $50M Expansion Contract With M-Tel of Nigeria, GTSS Announced the First Commercial Deployment of its New GSM Circuit Core, the Motorola Telephony Server for GSM (MTS-G).

GTSS GTSS –– Other DevelopmentsOther Developments


Global Telecom Solutions Segment Global Telecom Solutions Segment Q4 2003 ForecastQ4 2003 Forecast

Up 15%Up 15%--20%20%FlatFlatSalesSales



FlatFlatUpUpOperating Margin % * Operating Margin % * (Excluding Special Items) (Excluding Special Items)

* GAAP Operating Margin % is Expected to be a Profit in Q4 2003 Compared to a Loss Q4 2002 and Down Compared to Q3 2003. Special Items Excluded Above are Described Further in the Company's Q3 2003 Earnings Press Release.


Commercial Govt. and Industrial Solutions SegmentCommercial Govt. and Industrial Solutions Segment( Excluding Special Items)

14.7%14.7%$152$152

$1,035$1,035$1,037$1,037



6.1 6.1 pptsppts..8.6%8.6%Operating MarginOperating Margin100%100%$76$76Operating Earnings $MOperating Earnings $M17%17%$884$884Sales $MSales $M4%4%$997$997Orders $MOrders $M

Orders Up in North America, Europe and Asia; Down in Latin America Sales Up in North America and Europe; Flat in Latin America and Asia Operating Margin Improvement Due to Sales Growth, Higher Gross Margin and Lower Operating Expense % to SalesPositive Cash Flow During Q3 2003 and in 6 of Last 7 Quarters


Growing Homeland Security BusinessGrowing Homeland Security Business––Strong WorldStrong World--wide Orders and Saleswide Orders and Sales––Unveiled New Unveiled New FiregroundFireground Communications System for Monitoring Communications System for Monitoring Personnel at Fire ScenesPersonnel at Fire Scenes

Motorola Only Supplier Providing Products Compliant With Both DMotorola Only Supplier Providing Products Compliant With Both Digital igital Standards (Project 25 and TETRA)Standards (Project 25 and TETRA)––Project 25 Project 25 –– More Than 650 Contracts to DateMore Than 650 Contracts to Date––TETRA TETRA –– More Than 90 Contracts in 35+ Countries to DateMore Than 90 Contracts in 35+ Countries to Date

Continued Leadership in Interoperable CommunicationsContinued Leadership in Interoperable Communications––Project 25 Contracts Received from Detroit, Project 25 Contracts Received from Detroit, York County/James City York County/James City Counties, VACounties, VA––Concept Demonstrated the U.S.Concept Demonstrated the U.S.’’s First Statewide Shared, Standardss First Statewide Shared, Standards--based based System Combining State/Federal/Local Resources (State of Alaska/System Combining State/Federal/Local Resources (State of Alaska/DOD)DOD)

Blackout / Hurricane Isabel Blackout / Hurricane Isabel –– Demonstrated Importance of Private Radio Demonstrated Importance of Private Radio SystemsSystems

CGISS CGISS –– Other DevelopmentsOther Developments


Commercial Govt. and Industrial Solutions Segment Commercial Govt. and Industrial Solutions Segment Q4 2003 ForecastQ4 2003 Forecast

Up 15Up 15--20%20%Up 0Up 0--5%5%SalesSales



UpUpUpUpOperating Margin % * Operating Margin % * (Excluding Special Items) (Excluding Special Items)

* GAAP Operating Margin % is Expected to be Flat in Q4 2003 Compared to Q4 2002 and Flat Compared to Q3 2003. Special Items Excluded Above are Described Further in the Company's Q3 2003 Earnings Press Release.


Integrated Electronic Systems SegmentIntegrated Electronic Systems Segment( Excluding Special Items)

6.3%6.3%$35$35

$559$559

$613$613Q3 2003Q3 2003

% Favorable % Favorable (Unfavorable)(Unfavorable)Q3 2002Q3 2002

1.3 1.3 pptsppts..5.0%5.0%Operating MarginOperating Margin30%30%$27$27Operating Earnings $MOperating Earnings $M

3%3%$544$544Sales $MSales $M

9%9%$562$562Orders $MOrders $M

Automotive Electronics Orders and Sales IncreasedComputer Group Orders and Sales IncreasedEnergy Systems Group Orders Increased but Sales DecreasedOperating Margin Improvement on Higher Sales and Lower Operating Expense % to Sales


During the Quarter, ACES Won Significant Business Awards With a Combined Lifetime Value of More Than $1 Billion Over Several Years. The Business Awards Are for Several Original Equipment Manufacturers and Commercial Equipment Manufacturers, as Well as Tier 1 Automotive Suppliers in the area of Telematics, Chassis, Powertrain Control, and Interior Controls.

ACES Was Among the First Automotive Electronics Suppliers to Achieve a Multi-Site Certification For the ISO/TS 16949:2002 Standard. The Certification is the Highest Recognition of Quality in the Industry.

IESS IESS –– Other DevelopmentsOther Developments


Integrated Electronic Systems Segment Integrated Electronic Systems Segment Q4 2003 ForecastQ4 2003 Forecast

Up 5%Up 5%--10%10%Up 5%Up 5%--10%10%SalesSales



Up Up Up Up Operating Margin % * Operating Margin % * (Excluding Special Items) (Excluding Special Items)

* GAAP Operating Margin % is Expected to be Up in Q4 2003 Compared to Q4 2002 and Up Compared to Q3 2003. Special Items Excluded Above are Described Further in the Company's Q3 2003 Earnings Press Release.


Broadband Communications SegmentBroadband Communications Segment( Excluding Special Items)

5.7%5.7%$24$24

$421$421$409$409

Q3 2003Q3 2003% Favorable % Favorable (Unfavorable)(Unfavorable)Q3 2002Q3 2002

(7.0 (7.0 pptsppts.).)12.7%12.7%Operating MarginOperating Margin(64%)(64%)$66$66Operating Earnings $MOperating Earnings $M(19%)(19%)$519$519Sales $MSales $M

6%6%$385$385Orders $MOrders $M

Sales Decline Driven Primarily by Lower Capital Expenditures by Cable Operators Operating Margin Decline Largely Due to Decrease in Sales Remain Global Technology and Market Share Leader In BroadbandPositive Cash Flow in Q3 2003 and in Last 7 Quarters


Motorola Enhanced its Global Market Position With Technology Motorola Enhanced its Global Market Position With Technology Wins From:Wins From:

- Cox Communications,US, - GrischaVision – Switzerland

- Altice – France, - Telenet – Belgium

- Aster City – Poland - Iquara/British Gas -Singapore/India

Motorola Began Shipping Its HDTV/PVR Advanced Interactive Set-top in North America.

Motorola Announced Two New All Digital Set-tops, the DCT700 and the DVi700. Aster City, Poland Became the First European Operator to Commit to Deploying the DVi700 for Its All-Digital System Upgrade in Warsaw.

BCS BCS –– Other DevelopmentsOther Developments


Broadband Communications Segment Broadband Communications Segment Q4 2003 ForecastQ4 2003 Forecast

Up 5%Up 5%--10%10%Down 5%Down 5%--10%10%SalesSales



FlatFlatDown Down Operating Margin % * Operating Margin % * (Excluding Special Items) (Excluding Special Items)

* GAAP Operating Margin % is Expected to be Down in Q4 2003 Compared to Q4 2002 and Down Compared to Q3 2003. Special Items Excluded Above are Described Further in the Company's Q3 2003 Earnings Press Release.


Driving the Next Phase of Improvement in Financial Driving the Next Phase of Improvement in Financial Performance Performance -- Targeting $3.0B in 2005Targeting $3.0B in 2005

NPI /EngineeringEffectiveness

Sourcing

Cost of Poor Quality

Aggressive Cross Sector LeverageLow Cost Region Sourcing Centers

Fully Digitized Negotiation and Procurement Processes

Improve Software QualityReduce Warranty RepairReduce Inventory Excess &Obsolescence and Scrap

Improve Customer Sat.Improve Linkage to CustomerImprove Gross MarginImprove “Say / Do” RatioImprove Market Share


Corporate Initiatives Status ReportCorporate Initiatives Status Report

$521MTotal Improvement

$262MBaseline$262MProcurement Effectiveness

$397M8.4%6.5%COPQ as a % NSAD

($138M)42.9%45.1%R&D as a % Gross Margin

$ Favorable (Unfavorable)*YTD 2002YTD 2003

R&D - Degradation vs. 2002 in PCS, IESS, BCS and SPS. Improvements in CGISS and GTSS. Q3 Was 40.5%, Same as Prior Year.COPQ (Cost of Poor Quality) - Improvement Over Last Year in Virtually Every Segment, Biggest Dollar Improvements in SPS and GTSSProcurement - Largest Improvements Versus Baseline in Indirect, GTSS, and SPSCompetitive Pricing Pressures YTD Have Prevented Full Flow Through of Improvement to Operating Earnings

* Based on 2003 Sales Excluding Special Items


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 Growth Return to Growth –– 22ndnd HalfHalfAccelerate 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


David DevonshireDavid DevonshireChief Financial OfficerChief Financial Officer

Executive Vice President,Executive Vice President,Motorola Inc. Motorola Inc.

Guidance UpdateGuidance Update


Q4 2003 GuidanceQ4 2003 Guidance

$0.06$0.06$0.13$0.13$0.11$0.11--$0.15$0.15Earnings Per Share Earnings Per Share (Excluding Special Items)(Excluding Special Items)

$0.05$0.05

$6.8B$6.8B

Q3 2003Q3 2003

ActualActualActualActual

$0.08$0.08--$0.12$0.12

$7.5B$7.5B--$7.8B$7.8B

Q4 2003Q4 2003 Q4 2002Q4 2002

$0.08$0.08Earnings Per Share Earnings Per Share (on a GAAP Basis)(on a GAAP Basis)

$7.7B$7.7BSalesSales


Chief Executive OfficerChief Executive OfficerChairman of the Board of DirectorsChairman of the Board of Directors

Chris GalvinChris Galvin

Motorola Q&A ParticipantsMotorola Q&A Participants

Mike ZafirovskiMike Zafirovski

Ed GamsEd Gams

President President Chief Operating OfficerChief Operating Officer

Senior Vice PresidentSenior Vice PresidentDirector of Investor RelationsDirector of Investor Relations

David DevonshireDavid DevonshireExecutive Vice PresidentExecutive Vice President

Chief Financial OfficerChief Financial Officer


Use of NonUse of Non--GAAP MeasurementsGAAP MeasurementsIn 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.

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 results of operations, excluding special items, to evaluate the performance of its businesses and to evaluate results relative to incentive compensation targets. 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. 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 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 October 13, 2003 (which attached this morning’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


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 Q4 2003; (2) net special items in 2003; (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) capital expenditures; (6) depreciation expense; (7) expected cash contributions to our pension fund; (8) working capital plans; (9) expectations for sales, profitability, orders, cash flow, operating earnings, operating margin and market share for each of Motorola’s segments; (10) trends in average selling prices; (11) the timing, sales impact and pricing of new products; (12) the future direction of Chinese markets and the impact of increased competition in those markets on Motorola; (13) timing and impact of governmental spending on homeland security; (14) capital expenditures by cable providers; (15) potential benefits from Motorola’s process optimization activities; and (16) the proposed separation of SPS, including the impact of such a separation 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 F-33 through F-40 of Motorola’s Proxy Statement for the 2003 annual meeting of stockholders and in Motorola’s other SEC filings.

q3 2003 motorola inc. earnings conference call presentation

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