Motorola, Inc. Q4 2009 Earnings Call


Good morning and thank you for holding. Welcome to Motorola’s fourth quarter 2009 earnings conference call. Today’s call is being recorded. If you have any objections, please disconnect at this time. The presentation material and additional financial tables are currently posted on Motorola’s Investor Relations website.

In addition, a replay of this conference will be available approximately three hours after the conclusion of this call over the Internet through Motorola’s Investor Relations website. The website address is At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.

I would now like to introduce Mr. Dean Lindroth, Corporate Vice President of Investor Relations. Mr. Lindroth, you may begin your conference.

Dean Lindroth

Thank you, and good morning. Welcome to Motorola’s fourth quarter results conference call. Today’s call will include prepared remarks by Sanjay Jha, Co-Chief Executive Officer of Motorola and CEO of Mobile Devices; Greg Brown, Co-Chief Executive Officer of Motorola and CEO of Broadband Mobility Solutions; and Ed Fitzpatrick, Motorola’s Chief Financial Officer.

A number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola and there can be no assurance that such expectations will prove to be correct.

Because forward-looking statements involve risks and uncertainties, Motorola’s actual results could differ materially from these statements. Information about factors that could cause and in some cases, have caused such differences can be found in this morning’s press release on pages 18 through 30 and Item 1A of Motorola’s 2008 Annual Report on Form 10-K and in Motorola’s other SEC filings.

This presentation is being made on the 28th of January 2010. 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.

I will now turn the call over to Sanjay.

Sanjay Jha

Thanks, Dean. Good morning and thank you for joining us. This morning, Motorola reported results for the fourth quarter and full year 2009. Sales in the quarter were $5.7 billion and net earnings, excluding highlighted items, were $0.09 per share. For the year, sales were $22 billion and net earnings from continuing operations, excluding highlighted items, were $0.02 per share.

Throughout last year, all of our businesses focused on reducing cost, improving cash flow, and providing innovative products and solutions to our customers. In 2009, we reduced our overall cost structure by over $1.9 billion with $1.5 billion coming from – in Mobile Devices.

We generated over $870 million in operating cash flow in the fourth quarter, ending the year with $8 billion in total cash, up nearly $600 million from the end of 2008. In Mobile Devices, we reduced product platform, simplified processes, and delivered two Android-powered smartphone on time in the fourth quarter, all while implementing a major restructuring of the business.

Our new devices have been well received by consumers, resulting in shipments of 2 million smartphones in the fourth quarter. In 2009, we significantly reduced Mobile Devices operating loss and cash consumption compared to 2008. All that said, we are just at the beginning stage of our transition to a smartphone company, and we have a lot of work ahead of us.

Broadband Mobility Solutions delivered over $1.6 billion in operating earnings for the full year despite the economic headwinds, continued to prioritize R&D to position this business for future growth and sustainable market leadership and introduced industry-leading products, including a next generation mission-critical communication platform with APX family of multi-band radios and our most advanced rugged mobile computer with the MC9500.

As we head into 2010, our markets remain extremely competitive, but offer opportunities for growth. Across the company, our priorities will continue to focus on driving innovation, solving customer needs, optimizing our cost structure, and improving our financial results.

I’ll now turn the call over to Ed to review the financial results in more detail. Following that, I’ll come back to discuss Mobile Devices and then Greg will review Broadband Mobility Solutions. Ed?

Ed Fitzpatrick

Thanks, Sanjay. Total sales were $5.7 billion in the quarter and $22 billion for the full year. On a GAAP basis, we reported fourth quarter net earnings of $0.06 per share, which includes net charges of $0.03 per share for highlighted items, which relate primarily to cost associated with business reorganization comparing for separation in two public companies and legal settlements, which are partially offset by a gain in the sales and investment.

Excluding highlighted items, earnings were $0.09 per share in the fourth quarter compared to $0.02 per share in the third quarter. The sequential increase in earnings was driven by the increase in sales and improving gross margin percentage, as well as lower other income and expense costs.

For the full year, on a GAAP basis, we reported a net loss from continuing operations of $0.05 per share compared to a loss of $1.87 per share in 2008. Excluding highlighted items, earnings from continuing operations were $0.02 per share, flat with 2008. Consistent with previously reported results, earnings include non-cash charges for amortization of intangibles and stock-based compensation expense. During this quarter, we will provide details on these expenses to give you additional insight into our earnings performance.

For the quarter and full year on a pretax basis, stock-based compensation expense were $71 million and $296 million respectively. Amortization of intangibles was $68 million and $278 million respectively. Together these expenses impacted earnings per share by $0.04 in the quarter and by $0.16 for the full year. Further details on our highlighted items, stock compensation expense and amortization of intangibles can be found on our Web site. Our remaining financial references will exclude highlighted items and include stock compensation expense and amortization of intangibles.

Gross margin percentage in the quarter was 36% compared to 33.2% in the third quarter. Sequential improvement was due largely to favorable product mix in Enterprise Mobility Solutions and Mobile Devices as well as further supply chain efficiencies in Mobile Devices. For the full year, gross margin percentage improved to 32.3% from 29.9% in 2008, driven largely by the change in our overall sales mix among the businesses

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