摩托羅拉 (MSI) 2001 Q3 法說會逐字稿

Good morning and thank you all for holding. Your lines have been placed on listen-only until the question and answer segment of today's conference call. Today's call is also being recorded. If you have any objections please disconnect your lines at this time. During today's conference call, if you would like to ask a question, you may press '*' '1' from your touch-tone phones. I would now like to turn the call over to your host Mr. Ed Gams, Senior Vice-President and Director of Investor Relations. Thank you Sir, you may begin.

Good morning everyone. I am being joined this morning by Fred Shlapak, President of the Semiconductor Product Sector, Mike Zafirovski, President of the Personnel Communications Sector, Ed Breen, President of the Network Sector, Bob Growney, President and Chief Operating Officer, and Chris Galvin, Chairman and Chief Executive Officer of Motorola Inc. An Internet slide presentation is accompanying this conference call. The presentation can be viewed by visiting www.motorola.com/investor. This entire commentary will be available on the First Call Network and on our website later this morning approximately 90 minutes after the conclusion of this conference call. A taped call will also be available on our website at approximately noon Central Time today. This conference call is occurring on the morning of October 10, 2001. Content of this conference call contains time sensitive information. It is accurate only as of the time of this live broadcast. If any portion of this conference call is retransmitted on a later date, Motorola will not be reviewing any material that is this contained herein. This conference call is the property of Motorola Inc. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Motorola is strictly prohibited. We will be making forward-looking comments regarding the following, fixed asset spending, the timing and sales impact of new products, the impact of cost reduction actions, Wireless Handset Inventories, worldwide industry shipments of Wireless Handsets in 2001 and 2002, sales and profitability of the Personnel Communications Segment in the fourth quarter, worldwide Semiconductor industry growth in 2001 and 2002, Semiconductor Inventories, contracts for new Semiconductor Technology, timing of the Semiconductor industry recovery, Cable Equipment industry growth in 2002, two-way radio equipment industry growth in 2002, closing of pending transactions, 3G Wireless Infrastructure contracts, Wireless Infrastructure Equipment industry growth in 2002, new iDEN Technology availability, recoverability of amounts due under the loan to Telsim, attention to add ventures and other transactions, and expected Motorola sales and earnings per share for the fourth quarter of 2001.

Actual results could differ materially from these comments. Information about the factors that could cause such differences can be found on yesterday's earnings release and on pages F-29 through F-33 of Motorola's 2001 proxy statement, plus 2001 annual meeting and in other SEC filings. It is now my pleasure to introduce Chris Galvin.

Ed, thank you very much. Until about a year or so ago, Motorola became in the sense that the economy was in a downturn in the Telecommunications and Semiconductor industries. It turns out that some aspects of our business model remain predictors of the overall economic trends, and as you saw from that point, we began reducing costs, focusing on operating cash flow, strengthening our balance sheet, while maintaining significant investments in Research and Development, and until that the unexpected and horrific events on September 11th, is predictive indicators seemed to indicate that the world would most likely return to positive economic growth in the first or second quarter of next year. Unfortunately, the events near-term forecasting were challenging because there is an unpredictability associated with wherever future military events or other responses that will take place and yet there can be and may be an offset very positive near term stimulus, tax related to interest rate reduction and a massive infusion of liquidity that is coming from the government authorities. Nonetheless, holding of specific timing of a board economic turnaround is going to be difficult and as a consequence of this uncertainty, Motorola will continue very prudent managing its process and focusing on the balance sheet and utilization of our assets and also focusing on the things we cannot control. As you saw this quarter, relative to things that we can't control, we are getting a much more positive response to our handset business and new products. We have returned profitability in this quarter. We continue to be the leader in Broadband and two-way radio and have an excellent portfolio. In that context again relative to strategic business is in the business, what needs today and now going forward continue to make these kinds of changes.

As you saw this quarter, we had the sale of our Governmental Electronic business to General Dynamics and we purchased a company by the name of Blue Wave Systems. We have the pending purchase of River Delta Networks. These are examples of proactive portfolio management on the acquisition and divestiture side. These are always being done and with looking out for the highest value of Motorola shareholders and also finding buyers for companies that our employees have the greatest potential to prosper going forward. In addition, here within the last few weeks, President-Elect Ed Breen who is currently the head of our Network Sector to join me in the office of the Chairman as President and Chief Operating Officer on January 1, '02 succeeding Bob Growney. Bob has been the President and COO since 1997, a big friend and partner of mine in the office of the Chairman. He is going to retire at the end of March of next year after an extraordinary set of contributions to the company. I look forward to working with Ed in this partnership, and I want to take this opportunity to give my heartfelt appreciation to Bob for his tireless work on behalf of the Motorola and in this transition. Naturally, I observe that incredibly we were reminded of extraordinary benefit of Wireless Handset and Pagers and Public Safety two-way radios given the events of September 11th. These are and will continue to be spectacular businesses now going forward. In our opinion, we are also the leader in Broadband and we can fill the Broadband gap to the last mile, make available the network curve, continue to invent in Semiconductor and the Embedded Systems and therefore our long-term future is quite bright, and we are managing the issues currently, as you have seen affectively, we do know how to manage in tough times. We believe that when the overall world economic conditions change, we will flourish as the world growth returns. Ed?

Thank you Chris. I will begin my comments with a review of our overall corporate results for the third quarter of 2001, reported on our pro forma basis. Third quarter sales decreased to 22% versus a year ago. Net losses incurred a $153 million compared with earnings of $643 million last year. This was a loss of 7 cents per share compared with earnings per share of 28 cents last year. Net margin on sales was negative 2.1% versus a positive 6.8% a year ago. Manufacturing margin for the third quarter declined 30.4% of sales from 40.7% a year ago. The greatest declines occurred in the Semiconductor and Global Telecom Solutions Segments. Manufacturing margin improved versus a year ago in Personnel Communications and Broadband Segments. Manufacturing margins declined by 1.4% sequentially from the second quarter due to the mix of sales between segments. Manufacturing margins improved sequentially in all segments except the Integrated Electronic System Segment. SG&A expenses in the third quarter were 10.7% of sales versus 11.8% of sales a year ago, and 12.9% in the second quarter. R&D expenses were 14% of sales in the third quarter versus 12.3% a year ago. The increase in percent of sales is due to the decline in sales. As R&D expenses were $134 million a year ago sequentially versus the second quarter R&D expenses declined in both dollars and as a percent of sales. Depreciation expense was 7.2% of sales versus 6.2% a year ago and 7.8% in the second quarter. Depreciation expense continued to decline sequentially as a result of a very significant decline in fixed asset expenditures versus last year.

[________________] expenditures in the third quarter were $253 million versus $1.08 billion a year ago. In this quarter total, $104 million was spent in the Semiconductor business versus $649 million a year ago versus the second quarter fixed asset expenditures decreased by $63 million. The company now expects the fixed asset and expenditures for the full year to be approximately 1.6 billion versus 4.1 billion last year. Interest expense half percent sales versus 0.8% a year ago and 1.4% in the second quarter. Bob Growney will be providing more information on Motorola's balance sheet performance in a few minutes. From a total corporate perspective, orders in the quarter were 22% lower than last year. Sequentially versus the second quarter, orders increased approximately $600 million or 7%. The total corporate backlog position was down 10% versus a year ago. By segment, backlog is up in the Personal Communications and Commercial, Government, and Industrial Systems Segment not only in the Broadband Communication, Global Telecom Solutions Segments and down significantly in the Integrated Electronic Systems and Semiconductor segment. Sequentially versus the second quarter, total backlog increased approximately $100 million or 1%. Only the Integrated Electronic Systems, Personal Communication, and Semiconductor Segment having a sequential backlog increase. The total corporate backlog position is down 10% versus a year ago. By segment, backlog is up in the Personal Communications and Commercial, Government, and Industrial Systems Segments, and our earnings with Broadband Communication, Global Telecom Solution Segments were down significantly in the Integrated Electronic Systems and Semiconductor Segments.

Sequentially, versus the second quarter, total backlog increased approximately $100 million or 1%, along with the Integrated Electronic Systems, Personal Communications, and Semiconductor Segment having a sequential backlog increase. The market value of Motorola's portfolio of public [________________] securities was valued at approximately $2 billion as of September 28, 2001. The largest of these investments are in Nextel, the market value of 925 million; Callahan, with a market value of 367 million; and in Nex level communications, the market value of 196 million. Individual investment represented more than 10% of the total market value. Liquidity and realizable values of these securities are subject to market economic condition. As the majority of these securities represent investments in technology companies, fair market values of these securities are subject to substantial price product portfolio. Now I would like to introduce Mike Zafirovski, President of the Personal Communications.

Thank you Edward. Good morning, and I am pleased to report that our Personal Communications Sector continue to make good progress this quarter, despite change of market conditions. As compared to a strong third quarter of last year, it is tough year-to-year comparison. Orders were down 12%, shipments were flat, euros were down 60%, and profitability was down by 92%. With all these US shipments with technology many of these shipments were up 23% versus last year and IBM shipments were up 12%. GSM shipments were down 9% and PPME shipments were down 18%. However, we are very pleased with the sequential improvements in our business for a second quarter in a row. Here are some of the highlights. Sales for the quarter were $2.7 billion, which is up 8% sequentially in the second quarter of this year, and up 18% from the first quarter. Orders for the quarter were $3 billion, up 3% from a strong second quarter, and orders of high end embedded fields were a tough quarter in a row in favorable book to bill ratio this quarter of 1.1. Backlog at the end of the third quarter is $3.3 billion. This is up 9% from last quarter and 22% up from last years third quarter. And this is the highest in our [_______________] history reflecting increased momentum for our new product. GSM unit sales were down 13% sequential versus a second quarter, which we cannot attribute to the end of voice inventory clearance during our second quarter. Our average unit sales were also down by 13%. [________________] unit sale was up 18% sequentially and CPM a decreased by 15%. In GPRS, we are the industrial leader.

GP industrial units soared from 84,000 units sold in the second quarter to 1.5 million in the third quarter, representing more than 9% of all PCS unit sales for the quarter. In the last call inventory prices were expected to increase in our third quarter, they did by 14% compared to second quarter. The upward trend reflects increased shipments for our new products and significantly a fewer sales in end of voice product. EBITDA for the quarter was at positive $19 million. This is a 256 million improvement from our second quarter and up 421 million from the first quarter. This progress was driven by an improved product mix and the impact of previously announced cost reduction outlook. On an annualized basis, from our fourth quarter of last year through the fourth quarter of 2001, our cost, are expected to down by more than $1.2 billion. This years total security, a positive cash flow for our third quarter in the row bringing year-to-date positive cash flow from operations to more than $700 million. This is a significant improvement over our negative cash flow from last year. Cash flow results continue to be driven by dramatic improvements in our working capital performance. For example, unit [_______________] reduced from $3.4 billion at year-end to 1.1 billion on September 30th. The result on inventory returns have more than doubled and additional capital expenditures are down by 27% versus last year. Employment level since September 20th, were approximately 27,200, which is down from 33,000 a year ago. We have achieved our commitment to take the employment below 21,000 by the end of the third quarter, but as I addressed it repeatedly, as a leader of an organization the most difficult thing that you can do is to let people go.

[________________] people like we are seeing a sense of confidence and optimism for the future. Before just going to our new product and the outlook for the fourth quarter, let me make several comments on the market overall and the industry inventory levels. We are now expecting industry-wide handset shipments to be between 380 and 400 million euros in 2001, which was down 5% to 10% from last year. Around the world the industry [________________] inventory levels have normalized. We estimate that our current channel inventories are about 5 to 7 weeks in all regions, and for next year, for 2002, we expect the market to be in the 420 to 460 million-unit range. Operator customer response [________________] have been very positive. In fact, many of you who are listening on this call participated in mid year test drive of several new products. Your feedback has been valuable. We have simply no words; you and the media have set up our new product. Great interface, look is great, feel is great, even the weight is nice. Of course, some people have also told us how they would improve products; it will go Motorola experience. We are listening and we are taking the action. Few product highlights includes, our first is CDMA. We are now shipping and continue to win more customer approvals for V 120c and V 60c and Timeport 270c. This product, which features new simple to navigate, next generation user interfaces are fashionable, functional, and affordable. We also announced additional [_______________] CDMA in Korea and received acceptance and [________________] will talked about one either two from several operators in Latin America. In TDMA, we won numerous customer approvals for our V 60 in Mexico, Brazil, and US.

In GSM, we have [________________] blend of style and technology with Motorola V 100, V 66, and V 60. Public response of the V 66 has been very positive. For example, in UK [_______________] Motorola Magazine proclaims, "This call of Motorola. [_______________] Magazine says again this is a direct quarter again. So if V 60 shines [_______________] then we are kings of the traditional field. I mean, it's acoustic extravagance. Yes, it is worth it." We are not just about fashion, because consumers have been needing more, so we are delivering products with the Timeport 280 which enhances productivity, increases operator output. We are delivering solutions for [_______________] environment. Our i55 is the first rugged wireless for the North America with Java technology. The i55 is the third handset for Motorola with J2ME technology. Motorola has used this to customize the phone with software applications to fit their unique needs. Now lets take a look at GPRS. It is an enabling technology that will build Oracle for operators and fuel growth and profitability for PCS. In the course of the third quarter, we have more than 2.4 million GPRS units and order for more than 20 operators. Those units we will ship in the fourth quarter and we continue to believe that we will ship at least 5 million GPRS units at the end of 2001. Industry experts continued to report that only Motorola has a complete portfolio of commercially available GPRS solution. GPRS is an exciting opportunity for the industry and Motorola and neighboring technologies are leading the way to reach these levels of applications, messaging, information, it's a premium location, and commerce arena. Let me also remind you that GPRS enhances our [______________].

As such they are also very attractive to operators and may not be a way with the GPRS infrastructure. As such the operators can make phones, the technology proved to [______________] what a plain GPRS [______________]. Let me also just make a few comments on processes that we will be implementing to accelerate our progress. Six Sigma [_____________] 2 processes invented in Motorola and that VFTCS need to re-emphasize their renewed vigor and that is why it is part of business. Six Sigma helps us measure and drives customers satisfaction, growth, and cost reductions. [______________] is a program that [______________] product as they will help us synchronize our new products introduction processes. Starting with initial designs for our products to the broad introduction to the eventual end of voice activity. And so for the remainder of 2001, we expect a sequential increase in sales, a sequential continued significant increase in overall profitability. This is based on current trends and market condition. Let me wrap up by repeating our commitment, the governments of the economic outlook for [_____________], you can expect 3 things from them for the Motorola PCS. First, you will welcome [_____________] leadership. Second [_____________] working relationships with operators that ensure fate of commercialization. With Motorola technologies and applications, we are planning to develop customers and consumers and unyielding commitments innovation . We are confident that our long [_____________] coupled with unyielding efforts of our customers and applications and international brand execution and cost leadership will deliver the value that investors expect and demand. Thank you for listening and now we will like to introduce Mr. Fred Shlapak.

Thank you Mike and good morning everyone. I will provide you an update on the semiconductor industry on Motorola's semiconductor business and our continuing actions to manage through the deepest industry decline in history. The mobile semiconductor market continues to decline in the third quarter for the fifth consecutive quarter. We now are projecting that industry sales will decline 25% to 30% for the full year compared with the 15%-20% decline we predicted at the end of the last quarter. These revised numbers are in line with recent projections by numerous industry research firms. By comparison the deepest previous industry decline was 17% in 1985. Prior to the effects of September 11, we believe the semiconductor industry would begin to recover this year. However, we now believe that the economic uncertainty resulting from those effects will delay the recovery until the first half of 2002. Therefore, we have reduced our semiconductor market globe projection for next year from the 15%-20% range we shared with you last quarter to a range of 5%-10%. This revised estimate also is in line with the recent projections by numerous industry forecasters. We continue to believe that the semiconductor market cycle dynamics discussed with you over the past several quarters are still intact, they have just been postponed by 1 or 2 quarters. Evidence shows that customers are working up unwanted inventory and adjusting inventory levels aligned with more realistic expectations of end market product demands. Rule out macroeconomic support for the semiconductor industry recovered continues to put in place and including the 400 basis point reduction in short-term U.S. interest rate and the recent tax benefits.

We also believe the industry should benefit from an expected increase in economic activity associated with higher levels of spending for defense and public safety, communication and infrastructure security, all requiring significant electronics and semiconductor content. As you saw in the company's announced results continuing weak demand during the quarter negatively impacted our semiconductor business. Orders decreased 49% and sales were 48%, but low a year ago level. All of our business units, regions and markets were affected. Sales were down very significantly in the Americas and were down significantly in Europe, Asia-Pacific, and Japan. Sales of our major markets were down very significantly in networking, computing, and wireless broadband, and declined in transportation of standard products. Orders were down very significantly in Americas and Europe and declined significantly in Japan. Among major markets orders were down very significantly in networking and declined significantly in wireless and broadband and transportation of standard products, but the news is somewhat better on a sequential basis. Our orders were higher than the previous quarters and they exceeded sales during the quarter for the first time in a year. This means our book-to-bill ratio was slightly above 1 for the quarter. Our backlog moves slightly. This was driven by a substantial increase in orders for our wireless and broadband business. If this trend continues, then we should be able to confirm that the industry downtrends may have bottomed as well. Despite this glimmer of hope, we continue to reduce our cost aggressively. We cut expenses during the quarter by another 166 million, took out further SG&A costs, and achieved our goal of 4000 job reductions. As a result, our operating losses remained flat compared to previous quarters even though our sales were lower.

We are on tract to spend approximately 700 million in capital this year, the amount we announced previously. While we haven't finished our capital spending plans for next year, it will be focused only on the most mission critical items. These cost reduction actions and reduced business levels have resulted in significantly more than $1 billion in cost reduction on an annual run rate basis. We have kept a strong hand on the balance sheet with receivables in good shape and inventory balances getting better. Our cash flow was positive during the quarter and was enough to bring us to positive year-to-date. We also are continuing our intense focus on asset management through factory consolidations and mergers. During the past 4 years, we have reduced the number of wafer fabs by 50%, from 29 in 1997 to 14 by end of this year. And in August we announced the phase out of 2 more chip production lines in Arizona over the next 18-30 months. Looking forward in light of reduced expectations for the industry growth next year, we'll continue to adjust our cost structure and lower our breakeven as necessary. Our goal is to return to profitability as rapidly as possible and to participate fully and aggressively as the industry recovers. As I noted at Motorola's annual financial analysts meeting on July 31st, we have a true sense of urgency about improving our performance. We are not waiting for the industry upturn. We're continuing to work very hard to develop a business model that fundamentally changes how we fund and run the semiconductor product sector. We are assessing a variety of options and talking to potential partners. I can't discuss a timetable arranged [______________] right now, but I can assure you we have committed to a successful outcome.

In the interest of gravity, I will provide you an update on our target markets and many platform and product initiatives. But, I do want to give you a quick update on one of our most important strategy to offer complete and embedded 2.5 and 3G solutions to the merchant markets. This is a bold move for Motorola to take advanced wireless international property from across the company and aim it straight at what Gartner did at Quest, sales will give $25 billion market by 2004. We think that only Motorola can provide this unique value proposition, which essentially removes technological barriers for entry and speeds time to market. We announced this strategy in late July and in mid Sept we unveiled our 2.5G innovative convergence platform for i250 for the GSM products plus GPRS partner. It combines an advance chip set with industry recent developed environment, field proven GPRS protocol software type certifications support, and lowest [______________] count in products system cost. Just the chip set itself is an achievement, and includes a double [_____________] basement processor with a digital signal processor, and RM microprocessor, fabricated in our own light 1 micron copper based technology. The front end IC uses our silicon [_____________] corporate technology with superior high frequency performance. RM management and audio circuit continues to fund our smart [______________] process, and the power amplifier module uses our indium, gallium arsenide technology. Industry consultant Andrew [______________] says of this platform, in the next 3 or 4 years, companies like Motorola, that get out in front, which you are doing with this announcement, will be the one that lasts in the market place, and the ones that will win. We agree and we expect to announce new customer wins by year-end.

The i250 platform is just one of the bold initiatives we are pursuing to leverage our strength in the embedded processing and connectivity. We believe that we are well positioned for when the recovery begins and to enable to deliver the profitable growth you expect. Thank you. And now I am pleased to introduce Ed Breen. Ed.

Thank you and good morning everyone. Before I discuss the third quarter performance of the Network Sector, I would like to thank Chris, Bob, and the Board for giving me the opportunity to become President and Chief Operating Officer of Motorola beginning in 2002. I appreciate your confidence in me, and I am looking forward to working closely with Chris and Bob as we transition. I will make a few comments on the total Network Sector, which is comprised of the Broadband Communication Segment, Commercial, Government and Industrial Systems Segment, and Global Telecom Solutions Segment. On a sequential basis, sales were flat, but orders were down. Profit margins declined slightly from 7.3% to 7%, and the sector generated profits of $239 million. Despite the current challenging economic climate, the sector remains committed to improving its financial performance. We did generate positive operating cash flow during the quarter, and more than 1.2 billion year-to-date. We are also on target to reduce our capital spending by over 50% from prior year. During the quarter we successfully completed the sale of our defense and Government Electronics Business for $825 million in cash. We also completed the sale of our multi-service Networks division. Let me give you a little bit of review of our 3 Network Sector businesses in more detail. The Broadband Communication Segment reported orders of $647 million, and sales of $637 million during the quarter. This compares to orders of $941 million and sales of $917 million in the third quarter of last year. Despite the reduction in revenues, profitability during the quarter remained strong. Operating profits as a percentage of sales increased to 18.8% from 17.4% in the prior year.

This is the result of continued product cost reductions, favorable product mix, and overhead cost controls. Although, our customers have reduced capital expenditures, we continue to be the leading global provider of digital set-top and head-end solutions, as well as high-speed cable modems, and we are clearly focused on increasing our global leadership position into 2002 and beyond. During the quarter, we shipped approximately 1.5 million interactive digital set-top terminals. Total shipments now exceed 18 million. We also shipped more than 800,000 modems during the quarter, bringing the total number shipped to more then 6.4 million. In recognition of our commitment to serving the smaller and mid-sized cable operators, Motorola was selected by the National Cable Television Cooperative as the 2001 Vendor of The Year. We also were very pleased with the success of our IP Telephony trials and are now beginning to see a gradual transition of several system trials into commercial deployments especially in Europe. Most recently, Callahan Associates awarded Motorola a second network upgrade in Germany to supply network infrastructure electronics, voice over IP, consumer premise equipment, and cable modem combination system technology. With the addition of this second system Callahan is in a position to offer advanced interactive Broadband video, voice and data services, to more than 7.4 million homes in Germany. In France, Motorola successfully deployed a voice over IP system trial with [_______________] a subsidiary of [______________] Communications. We anticipate commercial launch in early 2002. As I indicated earlier, cable modem shipments remained strong. In addition to our traditional sales channel to cable operators, surfboard cable modems are now available in over 2000 retail stores throughout the United States.

During the third quarter, Motorola announced a definitive agreement will acquire River Delta Networks per stock. River Delta is a leading provider of a carrier based Broadband routing, switching, and cable modem combination systems and solutions. Upon closing this acquisition, which we anticipate to occur this month, Motorola will offer a complete suite of IP infrastructure products that will enable the operators to capitalize on the new revenue generating opportunities arising from the delivery of enhanced IP server systems to their subscribers. We expect cable operator capital spending to remain flat over the next few quarters, an increase in the second half of 2002, as international operators expand their system upgrades and roll-outs. In our Commercial, Government and Industrial System Segment, on a sequential basis, sales were flat, and profits improved significantly through our cost containment measures. In North America, we successfully conducted a trial in Pinellas County, Florida, of our next generation voice and data capabilities. This new technology is many times faster than the Department of US Public Safety standard and enables simultaneous live, wireless, mobile video, voice and high speed Internet and Ethernet-dated transmission of 1X system. In Europe, we announced a new [______________] compliant offering, which offers improved geographic coverage and connectivity to existing IT infrastructures. In the area of integrated solutions, we introduced new service to the municipality to support the customer service request for 311 systems. For a monthly fee, Motorola will implement host, manage, and maintain a customer's CSR system from our state of the art network operations and data center. The city of Baltimore, Maryland, is the first customer for this new service.

In [_______________] surfaces, we announced a multi-million-dollar agreement to provide our chemical company with portable radio communications management like facilities in Canada, United States, and Europe. Looking ahead, the worldwide two-way radio market is expected to experience modest growth in 2002. We will continue our focus on growing market share and improving profitability, while positioning this business for success in the emerging market for integrated solutions. In the global telecom solutions segment, sales and order were down from last year. Sales were up slightly on a sequential basis. The Asia-Pacific region continues to be positive for this segment securing more than 1.3 billion in contracts this year in China alone. We have shipped the initial CDMA system for installation into China Unicom's new Asian wide network, which it plans to commercially launch in Q4. We have expanded the GSM infrastructure networks of both China Mobiles and China Unicom, and recently announced upgrading of China Mobiles GSM, EPRS high-speed packet data services. We also received a 145 million contract for CDMA 2001 accessible from Telekom Malaysia and recently announced nearly 300 million in contracts for GSM and GPRS systems in India and Malaysia. In the America's Motorola recently won a 30 million 1X contract from Horizon BCS to expand and operate its CDMA network to 3G capabilities. We continue to provide 1X software and hardware for Horizon wireless sprinkled with DCS and [______________] networks and others. Our CDMA base stations and centralized base station controllers have been shipped to Globe Telecom and to [_______________] Cellular in Brazil.

And, last week, Motorola and Nextel announced new enhancements to double voice capacity with the iDEN Wireless network technology. These enhancements are expected to become available in 2003. In Europe, Motorola received a contract for the first CDMA wireless system in the Ukraine from CST & [_______________] limited. Commercial services expected to launch in the first quarter of 2002. We see reduced capital spending in the wireless infrastructure market continuing into 2002. Industry analysts have predicted that the global wireless infrastructure market could remain flat or decline as much as 10% in 2002. In closing, let me say that the network sector remains firmly committed to making investments in future growth areas, continuing to right size our cost structure, to generate strong operating cash flow and aggressively pursue all actions to improve our financial performance. Thank you for listening and now I will turn it over to Bob Growney. Bob ...............

Thank you Ed, and good morning. I'll have to begin my remarks with the detailed update on the very important subject of our balance sheet. As we discussed last quarter, the management team continues to be intensely focused on maintaining a strong balance sheet and improving operating cash flow. Cash flow from operations was again positive, approximately $200 million in the third quarter due largely to reduction in net inventories. Operating cash flow year-to-date is a positive $1.2 billion and total debt, net of cash, and cash equivalents than marketable securities decreased to $3.7 billion from the $6 million level at the end of the second quarter. During the third quarter, our total short-term debt increased by 1.3 billion, a $2.7 billion net loss as compared to $4 billion at the end of the second quarter and 6.4 billion at the end of last year. Two billion dollar term-loan facility was reduced to $720 million with the proceeds of the sale of all of Telefonica stock that Motorola held. Since the end of the quarter, the entire remainder of this term-loan facility has been paid using the proceeds of the sale of the business, the General Dynamics. Excluding the assets, we paid $720 million under the term-loan facility Motorola had total domestic and nondomestic involving credit facilities of 4.9 billion of which 660 million was considered utilized. Our commercial paper borrowings were 1.6 billion as of September 28, 2001, and we continued to access commercial paper market throughout September. As reported in our press release, we have increased reserve by $1.3 billion for the Telsim loan.

This is the largest single part of our special charges this quarter. Thus far, Telsim has been largely uncooperative in restructuring the loan or entering into the transaction with third party investors on a lighter scale or bring new equity into the company. This additional reserve and net amount receivable from Telsim on Motorola's books is now $530 million. Regardless of the reserves already taken, Motorola intends to continue pursuing a collaborative solution with Telsim, or if need be pursue all remedies to address Telsim's breech of contract and collect $2 billion Telsim owes to Motorola. I may like to give you an update on the steps we have been taking to reduce costs. As of the end of the third quarter, our employee population has been reduced by approximately 31,000. The total population reduction we now expect to achieve by the end of this year is approximately 39,000. This total was expected to be made up of 32,000 of announced major population reduction, 4000 positions associated with businesses sold, and 3000 positions eliminated through smaller reduction action and attrition. In Motorola's annual analyst meeting on July 31, 2001, we announced that we were hard at work in developing our new business model for our semiconductor business. In the same meeting, we also stated that we expected there would be ongoing industry collaborations, alliance, and/or consolidations among the wireless equipment manufacturers of handsets and infrastructure. We acknowledge that discussion activity was high among participants in both semiconductor and wireless equipment industries and that we were [________________] of many of these discussions.

While this environment continues, we will not comment on any of the recent rumors regarding Motorola and various potential mergers and business sales, spin-offs, or alliances. We will only state and we continue to search for new business models and can build on Motorola's strengths and enable the company to hold more value, more competitively, and consistently in the future and in the recent past. As we enter the fourth quarter, visibility of customer demand remains low, conditionally; and certainly these have been introduced since the world economic outcome, as a result of terrorist attacks on September 11, 2001, the resulting retaliation of the United States and its many allies in the war against terrorism. Turning to planned business conditions, Motorola will continue to take appropriate cost reduction actions. As a result, our guidance for the fourth quarter has become more conservative. Although we continue to believe that we can achieve sequential improvements in our financial results versus the third quarter, we expect sales from ongoing operations to be flat to 3% [________________] in the fourth quarter than in the third quarter. We now expect to incur loss on a pro forma basis of 4 cents to 5 cents per share in the fourth quarter. This improvement versus our third quarter loss is expected to come largely from further savings of cost reductions actions. This guidance assumes no further deterioration in global political or economic conditions. We will not be providing guidance for 2002, at this particular time. I'll conclude by saying that this management's aim remains intensely focused on [________________] the strength on the company's balance sheet and returning to creditable profitability as quick as market conditions allow. Now back to Ed Gams.

Thank you Bob. Now I'd like to review our segment guidance. Use of the word significantly in this guidance section indicates the change of greater than 25%, and use of the word very significantly indicates the change of greater than 50%. For our Personal Communications Segment versus the fourth quarter of last year, sales are expected to be down and the operating margin up; versus the third quarter of this year, the sales and operating margins are significantly up. In the Global Telecom Solutions Segment versus fourth quarter of last year, sales are expected to be down significantly, and we expect to incur an operating loss in the fourth quarter of this year versus the profit in the fourth quarter of last year; versus the third quarter of this year, sales are expected to be down, and again we expect an operating loss in the fourth quarter versus the profit in Q3. In the Commercial, Government, and Industrial Systems Segment versus the fourth quarter of last year, we expect sales and operating margins to be down; versus the third quarter of this year, the segment expects to have higher sales and a higher operating margin. In the Broadband Communications Segment versus the fourth quarter of last year, this year's fourth quarter sales are expected to be down significantly with a lower operating margin; versus the third quarter of this year, we expect Broadband Communication Segments sales to be flat, and the operating margins to be down. In the semiconductor segment versus the fourth quarter of last year, sales are expected to be down significantly, and we expect to report an operating loss in this year's fourth quarter versus the profit on last year's fourth quarter; versus the third quarter of this year, we expect semiconductor sales to be flat, and we expect to have a slightly smaller operating loss and lower negative operating margin.

The Integrated Electronics System Segment versus the fourth quarter of last year, sales are expected to be down significantly, and we expect to have an operating loss versus a profit in the fourth quarter of last year versus the third quarter of this year, this segments sales and operating margins are expected to be flat. In the other product segments sales versus last year in the fourth quarter are expected to be down significantly with a smaller operating loss and versus the third quarter of this year, sales are expected to be flat and again a smaller operating loss. Participating in our question and answer session along with our previous speakers will be Garth Milne, Senior Vice-President and Treasurer. Before we take your questions, we would like to ask that each of you to please limit yourself to one question and avoid multiple part questions. And only you [________________] help ensure that in the limited time available that many of you as possible can have an opportunity to ask your question. Your cooperation is appreciated. Operator, please give instructions on how to pose their questions to us.

At this time, if you would like to ask a question, please press '*' '1' from your touch-tone phone. Again, to ask a question please press '*' followed by '1' at this time. One moment. Bill Choi, please state your company name. You may ask your question.

Hi! Thank-you. It's Merrill Lynch. This question is for Mike. I was wondering if you could, given that your 2001 handset guidance is in the range of 20 million, for your handset shipment estimates, can you provide any more granularity on the sequential ramp in sales? I think you are seeing marketshare gains. I don't know if there is any way to quantify that? Whatever in unit terms or sales?

I am sorry. When you said 20 million can you clarify?

Yeah, I was a little bit surprised that given we only have another 3 months to go in 2001. Your ship and [_______________] is a wider apart 380 to 400. Is there any way to be more specific on your own shipment?

A couple of points, first of all I would welcome discussions with how we are strategy grouped into the very specific data on a country by country basis. What we use internally is the number is 786 million. The range dies appear to be quite wider in a regional-by-regional basis. [________________] about our business, based under very significant backlog in units, we do expect to see a sequential increase in sales, we do believe when we are aiming t have our unit shipments to be greater the fourth quarter of this year that they were in the fourth of last year.

Next question please?

Thank you. The next question comes from TC Robillard. Please state your company name.

TC ROBILLARD, Jr.: Right. Salomon Smith Barney, thank you. Actually a clarification in a question. Is your 380 to 400 million a sell-in or a sell through number? And can you give us an idea on your backlog that you quoted, how much of that is shippable in the next quarter? Thank-you.

Very good question. The number which we are using in [________________], a sell-through activities, these [________________] 40 million units that will compensate for the [________________] inventories at year-end of 2000. In terms of a backlog, well over 65% of that backlog is shippable in the fourth quarter and we are [________________] as well.

TC ROBILLARD, Jr.: Thank-you.

Next question please.

Thank you. Our next question comes from Brian Modoff. Please state your company name.

Deutsche Bank. Questions on your operating expense, because your SG&A and R&D expenses were down, particularly SG&A was down significantly from the previous quarter, what can we look at in terms of it, are these sustainable trends, you see SG&A and R&D expenses flattish sequentially or are they going to be rebounding significantly from Q3 estimates or numbers.

Brian this is [________________]. On the R&D side, I would expect them to be for the most part flat. The SG&A got a little bit lower in this past quarter. It might tend to be a little bit higher in the fourth.

Next question please.

Thank you. Our next question comes from Matthew Hoffman. Please state your company name.

SoundView Technology Group. Mike, it looks like, looking back [________________] 5 million units number. Where are you going to look to that upside geographically, you might find it in Asia or Europe or even here in America? Thank you.

I am not sure if I heard the first comment, but we do have 2.4 million units under the backlog, 2.4 million units are [________________] ship 99% of that was in the fourth quarter, and we do plan to get additional work in sequential [________________] order Europe, Asia, and North America and [________________] with the roll out if you would, infrastructure has been building in those regions.

Thank-you.

Next question please.

Thank-you. The next question comes from Charles [_______________]. Please state your company name.

[_______________] Associates. I have a short question, what happened to the sale the 3 million estimated sales of home products that you said in July?

We shipped quite a few of them, and then we sold quite a few in the second quarter and our end-of-life inventory is down to less than one million units. So virtually all of our [________________] away from product growth performed and it's reflective look in the larger and in the higher areas.

Yeah, 60 million went down to 3 million.

Can we have the next question please.

[________________] You may ask your question. Please state your company name.

[________________], JP Morgan H&Q. Mike something on 440 market, and 965 million subset in the year, can you quantify little more color on the replacement rate market? Do you expect any pick up this year in 2002, and what percent of the phones will be replacement phones versus new service?

We are noticing some pick up in the replacements in the later part of fourth quarter we do [________________] additional [________________] fourth quarter and next year we are [________________] resort to penetrating to the 50% [________________] the percentage in 2002 driven mostly obviously [________________] mostly in Europe and Asia.

Next question please.

Next question comes from Edward Snyder, please state your company name.

JP Morgan H&Q, and thank you. Mike, obviously your revenue for PCS was down 16% year-over-year and your unit volumes are up this year, you are suggesting your ASPs actually went up. Obviously a heavier mix of GPRS, if this spend continue, and of the improvement in profits in PCS how much of that came from cost cutting this quarter or cost cuts from last quarter versus improvements in gross margins and falls?

ASP declined over 16% since last year. ASP increase very nicely up third quarter as they had indicated in the last call, I would see the increase more than 200 million Q2 over Q1 and 200 million in Q3 over Q2. Our margin also increased by approximate 200 million per quarter, at least the [________________] were driven by offset in third quarter, [________________] the other half was [________________] improvements in our products.

Next question please.

[________________] you may ask your question. Please state your company name.

[_______________] you have any, could you give any guidance on what you expect on total handset unit shipments to do on a sequential basis in Q4? [________________] up?

We believe that that number would be in that 20% range Q4 to Q3 which is pretty consistent from a historical fourth quarter shipment.

Okay. Thank you very much.

Next question please.

John Bucher you may ask your question. Please state your company name.

Gerard Klauer Mattison. ASP trends for handsets, Q4 compared to Q3, and what are your estimates?

Just slightly higher.

And total employee headcount at the end of the quarter?

Ladies and gentlemen, again we'd like you to please limit yourself to one question at a time, if the time permits, we will take your additional question.

Twenty thousand.

Next question please.

Richard Windsor you may ask your question, please state your company name.

Yes, it is [________________] International. I was just wondering if you could give us few more details on the [_______________] change [_______________] change itself to make increase [________________]?

This is Bob Growney. No, as I had pointed out, we continue to work through the operator. We are hopeful that we can get on with a conclusion [________________].

Next question please.

The next question is from Sam May. Please state your company name.

Yeah it is Sam May with Piper Jaffray. Mike, I have a question for you. What extra [________________] handsets, can you give us an update on the market and the margins for those products in Q4 and next year? Thank you.

We are, obviously it is no different than market, the one that [________________] nicely in Korea, we have 3 [________________] majority of the business in Korea makes it to be a one nights program. We expected one extra [_______________] in the US, we anticipate the market will start picking up speed in the second quarter, what I may do is [________________] have the specific numbers here, we are very happy to provide that with you.

Next question please.

The next question is from [________________]. Please state your company name.

Yes, [_______________] Investment Management. I just wanted to if you could [_______________] Q4 over Q3, outlook for the [_______________] you see in terms of revenue and backlog evolution?

In infrastructure business, we expect revenue and orders to be down and currently on a geographic basis to give you a flavor on it, the strength we are expecting in the business will come from North America, China, and Japan, we are seeing extreme weakness across Europe and Latin America.

Next question please.

The next question is from Keith Bachman. Please state your company name?

ABN Amro. In the face of lack of demand or weakening demand on the infrastructure side, can you talk a little about your plans for vendor financing, have you taken any more laundering across the quarter, what do you anticipate in Q4 and what is your strategy in O2?

We took on no significant vendor financing during the quarter. I do not expect that we will do anything significant during the fourth quarter and the beginning of next year, and I will just make a comment, with the softening we are seeing at business, we will continue to take aggressive actions for right side that business for profitability.

Next question please?

The next question comes from Paul Sagawa. Please state your company name.

Sanford Bernstein. I wonder, can you could explain in the break out of businesses profit $19 million loss of the corporate element, different from the last year [_______________]?

That's the level of loss reported in the general corporate expenses is higher than we typically see in most quarters. More than half of that loss represents cost that will be reallocated [________________] segments in the fourth quarter. The allocation [________________] finalized that quarter earnings release and [_______________] expanses will referred in general corporate space. Well, they get more than half of those will [_______________] in the fourth quarter. Next question please?

Tim long, you may ask your question. Please state your company name.

Credit Suisse First Boston. Can you talk a little about the turn around late in the quarter in the infrastructure business, I think, that was if you can clarify how that was expected to be done and was actually up, and if you can, may be go quantify first what China meant to that business? Thank you.

Yeah, in fact, we had a nice figure [_______________] comments to the elsewhere a little bit more than we had expected. On that, I just gave you a kind of a flavor during the quarter. Our CDMA sales were very significant [________________] our China business was very significant, if I put it into percentages, CDMA was about 45 to 50% of our shipments, GSM was about 25%, and we did have a fairly strong quarter with Horizon Technology also which is the other 25% of our sales. I did comment [_______________] business is slightly profitable. We have to continue to take actions. We would still continue to see some weakness over the next few quarters in that business. So, we are going to continue to have to take the real cost of actions there.

Next question please?

Mr. Per Lindberg, you may ask your question. Please state your company name.

It's Dresdner Kleinwort Wasserstein, I have a big pleasure [________________]. How do you see that market overall behaving? Is it still growing this year? GSM infrastructure worldwide is growing as year 2001 or just down to perhaps by regional on 2002 America, Europe, Asia? Thank you.

Well, considering that is a large part of the [________________], if you look at any industry estimates [________________] these have been revised by very significantly over the last 3 or 4 months downward. I would say that the business level by and large will be down on GSM across the world, and we are planing it to be down slightly in that business. Well, we think by the way, and we are feeling we are seeing in our backlog. We are going get some real good strength and good margins in our business. [_______________], and we will continue [_______________] going into 2002, their business plans look very robust. On the GSM, I think, we are going to see a little bit of [_______________]. I think when you just look at total industry projections as I mentioned in my opening comments, we expect this business and the industry spending could be down by 0% to 10% next year from this year's level.

Next question please?

Mark McKechnie, you may ask your question. Please state your company name.

Yes, Bank of America Securities. A question for Bob Growney please. Bob, on the operating cash for a $200 million's share versus a billion last quarter. What should we expect on that front going forward? I am actually going to be focusing more on [_______________] that continue getting positive?

Well, we do expect to continue our momentum and we still have some ways to go when we talked of our net inventory change that we accomplished in the third quarter, we have some [________________]. So, all elements are [________________] we expect to continue improvements in reaching some fairly significant record levels of performance. [________________] cash.

Wojtek Uzdelewicz you may ask your question. Please, state your company name.

Bear Stearns. Thank you. Actually, the question I have is on the cable business. That business was very strong in the past and as we see the other business [________________] and that business really dropped off because of significantly [________________]. Ed are there any, there is a lot of hindrance and lot of [_______________] given to this [________________] and also some mumblings from some of your customers that [________________] as we would like, and how of that at all plays a role in that.

Yeah, let me break that. From an inventory standpoint, I think if you look at industry numbers, everybody is doing a good job track in the cable operators and their installations [_______________] be very public on that. Actually, the North America market has a fairly robust installs as we went through September. So, we were into the seasonality and a little bit into the business , but we did see a pickup in September. However, I think, the answer is, we shipped into the market place on both [_______________] and set-top boxes this quarter [_______________] what was installed. If you look at industry analyst numbers on what, again the cable market is [_______________]. I think we built any inventory and also says I don't think inventory declined much in the industry during the quarter, and we have one and I would two [______________] customers that are concerned, our inventory levels are a little high at that we need to work out, and we will be working on that during the next quarter or two. But let me also make a comment on the level of business. We feel it will pick up again in North America, but we are in an potential consolidation phase in the industry. We have been through these before, and we have some of our customers, who have a setback little here during this consolidation phase. When we come out of that I think it will be of extremely healthy because of a lot of systems that only to be rebuild and then upgraded and putting into the technology. But, we are in the window where I think we have to see a little softness because of that and then as we go into the second half next year. It is very clear from the Motorola perspective, our business will pick up because we are going to get a significant win particularly in the Europe. Next question please.

[_______________] you may ask your question. Please state your company name.

[_______________]. You indicated that semiconductor orders have picked up a bit in the third quarter versus second. I wonder that is it possible to get in the fourth quarter and if you could characterize what recent order rate, now sometime is going since September 11?

The order rate went up in the third quarter and primarily getting from Wireless and Broadband and obviously as we look into the fourth quarter, after obviously there rate was going up until September 11, and a sort of blacked out, there is a slight pick up. So, I think that the fourth quarter I mentioned and Ed did mention will be probably flat with the third quarter. Next question please.

[_______________] you may ask your question. Please state your company name.

[_______________]. Given your expectation next year that semi will increase 5% to 10%. I am curious about your cost structure? Are you in a position now where you can breakeven and still lose, [______________] customers have shipped.

Actually we have been aggressively taking cost out of the business this year. I have mentioned about a billion dollars in 2001, and obviously the market growth rate for next year will project somewhere near 5% or 10% and we are obviously continued to take cost out of it and it is possible to achieve the profitability probably in the second half assuming the markets first trend and as I said Q1 or Q2 of next year. We are continuously and religiously as I mentioned irrespective of any upturn, we are looking at how do we pick the cost the system [_______________] to our breakeven point. Next question please.

[______________], you may ask you question. Please state your company name.

JP Morgan. Regarding those general corporate expanses again, did those expenses move out of individual segments and if so [_______________] segments do worse then that, can you explain?

[_______________], this is Ed. Somewhat more than a half of the expense reported in general corporate expense represented cost incurred in the quarter for which the allocation [_______________] segment [_______________] and because we had a specific earnings release date that we believe is very important and we are disciplined we have reported these expenses in general corporate expenses. It will be reallocated to the segment in the fourth quarter, and it will be correct to assume that with the reallocation to occur with the allocation to have a fairly enough third quarter. The operating margins in the segments will be somewhat lower than those that were reported. These were not unusual items these were normal operating excessive expenses for which the allocation is not being finalized and we will get these trends in the segment in the fourth quarter. Well, we have one more question please. Thank you all for participating. Our answers are a bit related to expected performance drivers in our various businesses. I expect that handset shipments in 2001, future SG&A and R&D expenses, backlog expeditions, orders for products, expectations for the replacement market the selling price trend, employee headcounts, technology trends, [______________] loan, plans for vendor financing, trends in the infrastructure market, improvements in operating cash flow, expectations for the broadband communications segment in the industry and cost structure in semiconductor segment and profitability are forward-looking and involve risks and uncertainty, overall actual results could differ materially from those stated in these forward-looking statements and information about factors that cause such differences can be found in yesterdays earnings press release, pages F29, F33 on Motorola's proxy statement for the 2001 annual meeting of stockholders and in Motorola's other SEC filings. [______________] and I will of course will be available to all of you throughout the remainder of the day to continue to answer your questions. Thank you again very much. Good-bye.