摩托羅拉 (MSI) 2007 Q2 法說會逐字稿

Good morning and thank you for holding.

Welcome to Motorola's second-quarter 2007 earnings conference call.

Today's call is being recorded.

(OPERATOR INSTRUCTIONS).

A replay of this call will be available approximately two hours after the completion of this call over the Internet through Motorola's Investor Relations website at www.Motorola.com/investor.

(OPERATOR INSTRUCTIONS).

I would now like to introduce Mr.

Dean Lindroth, Corporate Vice President of Investor Relations.

Mr.

Lindroth, you may begin your conference.

Thank you and good morning to the Motorola second-quarter results conference call.

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 on pages 16 through 24 in Item 1A of Motorola's 2006 annual report on Form 10-K and in other SEC filings.

This presentation is being made on the 19th of July, 2007.

The contents of this presentation contain time-sensitive information that is accurate only at 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.

Before I turn it over to Ed, I want to mention that details in addition to this presentation outlining highlighted items, GAAP to non-GAAP reconciliations and other related information can be found on our website after this call.

I will now turn the call over to Ed Zander, Chairman and CEO.

Good morning.

With me today are Greg Brown, President and Chief Operating Officer, and Tom Meredith, Chief Financial Officer.

We're here to review our second-quarter results and provide perspectives on the third quarter and the remainder of the year.

We will be reviewing our results with you today in the new financial segment reporting structure described in the Form 8-K and on our website.

You will also notice that during this call we will provide more financial metrics and quantitative data in an effort to improve the understanding of each of our business units and the markets they serve.

With respect to second-quarter results, sales were $8.7 billion, which is in line with the range we reported last week but well below our second-quarter guidance.

The GAAP operating loss from continuing operations was $0.02 per share.

EPS excluding highlighted items was $0.02 per share.

In Mobile Devices we did not achieve the level of sales and unit shipments that we had expected, primarily in Asia and the Middle East and Africa.

Europe, as we have been saying all year, continues to be a challenge.

The impact of lower volume was offset somewhat through cost controls and a more favorable sales mix.

Our top priorities remain unchanged -- to improve our product portfolio in key markets and segments and reduce cost.

Late in the quarter we started to make some progress refreshing our product portfolio.

These included two new devices on our Linux/Java platform, the ROKR Z6 and the GSM RAZR2.

We also began to ship our first 3G [query] device, the Q9.

We have just recently begun shipping the CD-ready RAZR2 in certain countries in Asia and the multimedia Z8 in parts of Europe.

These represent tangible steps toward our portfolio renewal focusing on the feature fashion phone and multimedia messaging segment of the market.

Last week we reported Stu Reed as President of the Mobile Devices unit.

Stu Reed has extensive operational experience in the Mobile Devices business and brings to this role an outstanding combination of leadership and execution discipline.

We're confident that Stu Reed and the management team will improve operations, execution and financial performance in this important business.

Greg will provide more detail on the specifics of Mobile Devices, but let me say progress is being made.

Gross margin percentage rose for the first time in several quarters.

ASPs were stabilized, channel inventory was down, more 3G multimedia messaging rich experience devices began to ship, a new senior executive team was put in place and operating costs in the division have begun to decrease.

Make no mistake about it, there is still lots more to do.

However, we do expect financial performance to improve in Mobile Devices in the second half of this year.

As it relates to our new organizational structure, we combined the Connected Home Solutions business with the Cellular Wireless Networks business to form Home and Networks Mobility.

This segment focuses our combined wireless, wireline and cable resources on our carrier telco and cable customers.

Our two enterprise businesses, Government and Public Safety and Enterprise Mobility, which includes the Symbol and Good acquisitions, will now form Enterprise Mobility Solutions.

Realignment and integration efforts are progressing very well, and we are confident that these changes will enable us to further sharpen our focus on our customers.

Both Home and Networks Mobility and Enterprise Mobility Solutions had very solid quarters.

Connected Home delivered over $1 billion in sales, while Government and Public Safety and Enterprise Mobility also demonstrated very strong year-over-year results.

The Cellular Wireless Network business performed in line with expectations, and we also demonstrated continued momentum in the WiMAX wireless broadband space.

Overall we're committed to reducing costs and improving profitability.

To this end, during the first half, we announced reductions in force totaling 7500, which are expected to be completed by the end of the year.

This and other actions are expected to yield cost savings of $1 billion in 2008.

Before I pass the call over to Tom to discuss the detailed financials, I want to first thank all of the employees around the world for their hard-working dedication.

The management team is committed to getting Mobile Devices back on track.

The consistent execution and solid results in Home and Networks Mobility and Enterprise Mobility Solutions should not go unnoticed.

We will continue to make strategic investments that build on our vision of seamless mobility and better position Motorola for success over the long-term.

Now I will turn the call over to Tom to cover the financial results.

Thanks, Ed.

In the quarter sales were $8.7 billion, down 19% versus last year and down 7% as compared to the first quarter of this year.

As Ed said, the sales decline was attributable to the Mobile Devices business.

On a GAAP basis, the Company had a net loss from continuing operations of $0.02 per share compared to net earnings from continuing operations of $0.54 per share last year.

The second-quarter GAAP results include highlighted items of $0.04 per share related to charges associated with our announced workforce reductions and an insurance litigation matter.

Gross margin percentage for the Company excluding highlighted items increased approximately 150 basis points compared to the first quarter.

This is primarily a function of the overall sales mix, but also reflects a sequential gross margin improvement in Mobile Devices.

The impact of lower sales was partially offset by the increase in gross margin percentage and a slight decline in operating expenses, which resulted in an operating loss of $32 million excluding highlighted items.

With some favorable income tax benefits and other income items, our earnings per share excluding highlighted items was $0.02.

Operating cash flow was a negative $35 million in the quarter.

The key contributing factors were the operating loss in Mobile Devices and our cash conversion cycle.

When comparing the operating cash flow to the second quarter last year, we called that it included a $410 million collection related to Telsim.

We ended the quarter with net cash of $4.3 billion.

The $300 million decrease in net cash as compared to the first quarter was primarily due to acquisitions, capital expenditures and our dividend payout.

To date approximately $7.1 billion of our $11.5 billion stock repurchase authorizations have been completed.

We have now repurchased approximately 335 million shares, which represents approximately 14% of the outstanding shares in May of 2005 when we initiated our first repurchase program.

Our second-quarter cash conversion cycle was 50 days.

This compares to 36 days in the second quarter last year and 56 days in the first quarter.

We intend to drive significant improvement in this area going forward, and many of you have heard me talk about this focus in recent months.

To give you some color on where our challenges are, I will share with you the cash conversion cycle for each of our three business segments.

Mobile Devices ended the second quarter at 49 days, Home and Networks Mobility was 50 days, and Enterprise Mobility Solutions was 53 days.

We have the opportunity to improve in all three segments, and we intend on doing so.

In each business we're identifying ways to improve receivable terms and conditions and shorten sales outstanding.

For example, we recently consolidated in one hub all receivable management activity for our North American customers.

We expect this to drive improvement in G&A costs, receivable performance and customer service.

As for inventory, we saw a reduction of nearly $300 million compared to the first quarter.

However, turns declined slightly to 8.3 times.

Here too we have opportunities to drive significant improvements.

I was in China recently and was very impressed by the turns in our Tianjin factory and their goal to double their turns.

To do that we need to change the way we do business, including doing better demand planning and improving shipment linearity.

Finally, in accounts payable we see opportunity there as well.

These actions will directly benefit our cash conversion cycle, and for everyday we can reduce the cash conversion cycle and we can improve operating cash flow by approximately $100 million.

Ultimately we expect these efforts could add over $2 billion in cash to our balance sheet.

We are measuring each business regularly against specific goals.

You can be sure the goals reflect significant improvement versus our current levels of performance.

For Motorola overall we would like to be a lot closer to 25 days.

You can watch for this metric in our ensuing quarterly conference calls.

I will now turn to return on invested capital.

ROIC most recently peaked in 2005.

This metric keeps us focused on operating earnings and the use of assets whether they be receivables, buildings or investment in other companies.

This is another metric that you can measure us against and watch for in future earnings calls.

Details of this calculation can be found on our website.

Now let's talk about our cost savings initiatives.

As you know, we have announced workforce reduction of 7500 and other actions resulting in a negative savings of $1 billion in 2008.

We have now accumulatively recognized the charges associated with 4100 employees affected by the reduction in force.

Remaining charges associated with our announced programs are scheduled to be completed in the second half.

I want to also add that we will continue to look for ways to reduce cost.

This is an ongoing process.

Our outlook for earnings per share from continuing operations in the third quarter is flat to slightly up compared to second-quarter earnings from continuing operations, excluding highlighted items.

While we do not expect Mobile Devices business to be profitable for this full year, we do expect financial results to improve in the second half of the year.

Greg will provide more color in his commentary as well as some perspectives on the other business.

Greg?

Thanks, Tom.

Before I get into a review of the Company operations, I would like to first comment on changes we made to our leadership team and organizational structure.

As we have said, Stu Reed was appointed President of Mobile Devices, and we are extremely excited to have him at the helm of this business.

Additionally we have made a number of other necessary changes at the senior management level in Mobile Devices over the last several months.

Rita Lane was promoted and is now the leader of the Integrated Supply Chain bringing her vast experiences in engineering and quality manufacturing and logistics.

Rita formerly lead our Worldwide Procurement Organization.

Under the leadership of Dan Moloney, we have formed Home and Networks Mobility.

This organization will include the former Connected Home business and the Cellular Wireless Networks business as well.

As you may recall, early last year we merged Networks and GEMS or Networks and Government and Public Safety.

Since that time we rationalized engineering, completed the Huawei 3G partnership, ramped our WiMAX efforts here in the states, especially with Clearwire and Sprint and combined certain functions to achieve G&A synergies.

With both of those organizations now leaner and given the market trends and complementary strategies, it makes sense then to take the next step and bring together our cable, wireless and wireline businesses under one roof.

Our Government and Public Safety business and the Enterprise Mobility business made up primarily of Symbol and Good will form Enterprise Mobility Solutions.

Together these businesses which have very complementary product portfolios, customer segments and distribution channels gives us one of the most competitive and comprehensive enterprise product offerings in the marketplace.

Gene Delaney will head our Government and Public Safety business, while Kathy Paladino will lead the Enterprise Mobility business.

In reviewing the business operations, in Mobile Devices sales for the second quarter were $4.3 billion on volume of 35.5 million units.

Our estimated market share in the quarter was about 13.5%.

Excluding highlighted items, the operating loss in the quarter was $264 million compared to the $204 million operating loss in the first quarter.

Sales and units were below expectations due largely to weakness in Asia and the Middle East and Africa where channel inventory remained elevated.

It is important to note, however, that channel inventory overall declined as compared to the end of the first quarter.

Europe was again challenged due to our limited 3G and multimedia product line, while results in North America and Latin America were in line with our expectations.

While disappointed with the overall results, we continued to maintain discipline in our pricing, improve gross margin percentage and had lower operating expenses.

The RAZR family and KRZR devices were among our top sellers and largest contributors to sales and gross margin results.

As a matter-of-fact, in the quarter we shipped our 100th million RAZR right around the time that our initial RAZR2 devices were beginning to ship in Asia.

This quarter we received a noteworthy recognition by J.D.

Power & Associates in which we received the highest rating in a US Consumer Satisfaction Survey for mobile phones citing our strengths in design, operation and features.

We were honored to receive such a distinction, and we're confident that consumer satisfaction will continue to be a distinctive advantage for Motorola.

On the last earnings calls, we mentioned several actions enabling the recovery in Mobile Devices.

We have already talked about cost reductions.

I want to update you next on a couple of other very important initiatives.

We have taken the first steps toward enhancing our product portfolio.

Starting with the feature fashion phone segment, we're now shipping CDMA and GSM RAZR2s in Asia.

In this category we also began to ship the dual mode ic902.

Later this quarter we will begin shipping 3G RAZR2 globally and launch GSM and CDMA RAZR2s in all other regions.

In the multimedia category, we launched the music optimized ROKR Z6 in China, and we have just begun shipping the multimedia MOTO Z8 in Spain.

In the Messaging and Enterprise category, we began shipping in the quarter both the GSM Q8 in Southeast Asia and HSDPA Q9 in Denmark and Italy.

We've talked about the W-series product family in the mass market and as crossover into the feature phone segment.

In these segments we expect the W-series to continue to gain traction and become a larger percentage of the overall mix.

Next, as you know, Alain Mutricy recently joined Mobile Devices from Texas Instruments to head up the implementation of our silicon and software initiatives.

He is a recognized leader in the industry, and we're excited to have him on board.

I mentioned earlier that we're now shipping both the ROKR Z6 and GSM RAZR2, both of which are based on our Linux/Java platform.

We expect to announce additional LG products in the second half, and as we have said before, we expect to introduce products with a lower-cost silicon architecture next year.

So to recap, we had another challenging quarter.

We also know we still have a lot to do.

As Tom mentioned, we expect an operating loss for mobile devices for the full year.

But there was progress made.

We have a new leader in Mobile Devices, strength in the management team, improved gross margin percentage, reduced channel inventory, lowered operating expenses, took initial steps toward enhancing the portfolio and made progress on the software and silicon front.

We remain vigilant on what remains to be done, and we will stay focused with a sense of urgency.

In regards to Home and Networks Mobility, sales for the segment were $2.6 billion, up approximately 9% versus last year and up approximately 10% sequentially versus the first quarter, driven largely by the Connected Home business.

Excluding highlighted items, operating margin was 8.1% versus 10.5% last year and 8.6% in the first quarter.

The Connected Home business delivered another exceptional quarter with sales of $1.1 billion, up 40% versus last year, up 8% versus the first quarter.

Operating margin was again in the double-digits, attributed largely to a better sales mix offset partially by a full quarter of costs associated with acquired companies.

Sales and margin performance in the second quarter reflected strong demand for high-end HD DDR and IPTV devices as well as new digital cable host products.

We have seen this increased demand from both the traditional cable customers, as well as customers like AT&T and Verizon as they ramp their respective video businesses.

Total unit volume in the quarter was 4.2 million devices, of which approximately 30% were HD DDR and 15% were IPTV.

Although unit shipments declined approximately $700,000 from the first quarter due to accelerated purchases of low-end products in advance of the FCC's separable security mandate, the mix was favorable from a sales and margin perspective.

In addition, high-end unit volume increased sequentially as market demand trends remain strong.

Voice and data modem growth continued with shipments of 2.9 million units, up 11% from last year.

As operators around the world continue to drive voice services, nearly 40% of our volume was voice gateways resulting in over 20% unit growth as compared to last year.

Finally, we recently closed on the acquisition of Modulus Video and announced plans to acquire Terayon Communication Systems, and just a couple of weeks ago we announced plans to acquire Leapstone Systems as well.

By strengthening our video seamless mobility core with these acquisitions, we are enabling the delivery of Next Generation video services such as increased HD programming and enhanced advertising and interactive video capabilities.

The fundamentals underlying this business remain strong.

With that said and as we anticipated, the second half will be softer than the first half due to the FCC mandate.

Operating margin will be down a bit, but we still expect it to improve for the full year.

Cellular Wireless Network sales increased sequentially, driven by higher GSM sales in EMEA and Asia.

Margins continue to be under pressure due to ongoing pricing pressure in GSM and the reduced level of iDEN sales in the US.

CDMA continues to perform well, and iDEN is performing in line with our expectations.

iDEN accounted for approximately 15% of our cellular wireless network sales in the quarter.

Through the remainder of the year, we do not expect any significant changes to the current trends in this space.

Finally, in the Mobile Broadband area, our WiMAX momentum continues, while financially it is still in the investment mode.

Our MOTOwi4 portfolio continues to be recognized for innovation, having won awards including the Eos Excellence of Achievement Award in Access Networks and a top device award at WiMAX World Europe.

In regards to Enterprise Mobility Solutions, sales for Enterprise Mobility Solutions were $1.9 billion, up approximately 42% versus last year, driven by the Symbol acquisition and continued strength in the Government and Public Safety business.

Sequentially sales increased approximately 12%.

Excluding highlighted items, operating margin was 15.7% versus 18.6% last year and 13.3% in the first quarter.

The Government and Public Safety business had another outstanding quarter in sales and operating margin, driven by our state and local government business in North America, completion of several [asterial] projects in Latin America and strong customer acceptance of the recently introduced MOTOTRBO product line.

Looking regionally, the North America market continued to be our strongest, representing approximately 63% of the business with sales up 7% over last year, and sales outside North America were up slightly.

With respect to new business, we signed a large nationwide TETRA Public Safety contract in Denmark.

We are also seeing increasing momentum around our Next Generation mission-critical solutions.

Our Enterprise Mobility business inclusive of good technologies had another solid quarter with sales of over $550 million.

Operating margin was in the low double-digit range.

Demand for Enterprise Mobility products and solutions was strong globally, particularly in EMEA and Asia-Pac, which accounted for nearly 30% and 10% of sales respectively.

We continued to expand our vertical presence with key customer wins in the retail, transportation and logistics, field mobility and warehouse sectors.

From a product perspective, demand for our mobile computers remains strong, lead by growth from our enterprise grade devices and wearables.

On a stand-alone basis, sales generated by the Symbol business, which we acquired in January, grew in the double-digit range.

Compared to last year, operating margin was in the midteens as a result of favorable product mix and cost synergies.

In that regard, the overall integration is going very well.

Looking ahead to the third quarter, we expect Enterprise Mobility Solutions to continue to deliver solid results on both top and bottom line.

In closing, as we look at our overall operating performance, there are things that went well and obviously things that did not.

In the areas where we had challenges, we are taking action and recognize how critical it is to execute according to the plans we put in place.

In the areas that went well, we need to stay focused on results and build on that momentum.

And now I will turn it back over to Dean Lindroth for Q&A.

Before we begin taking questions, I would like to remind callers to limit themselves to one question so that we can accommodate as many participants as possible.

Operator, if you can now provide our callers with instructions on how to pose a question.

(OPERATOR INSTRUCTIONS).

Tim Long, Banc of America Securities.

Just a question on the Mobile Device business.

Could you talk a little bit -- there has obviously been some headcount changes.

But just could you talk to us a little bit more on a high-level about what you are doing on the design front?

Obviously there has been some market share losses, and product has something to do with that.

Has there been a cut in investment there, an increased investment despite the overall headcount changes?

What could that mean for product cycle into the second half and the first half of next year?

This is Ed.

I will let Greg also add.

We actually added, as you know in 2006, actually 2005 and 2006, a number of investments in engineering.

We have been very careful as we get into this difficult period -- in this difficult period in 2007 that we did not cut into the significant R&D programs.

We really have focused on a lot of the synergies around some of the acquisitions done back last year to as well as in our field structure, our marketing, our G&A activities.

There is some synergies that we have looked at especially in some of the software areas.

But by and large, we have stepped up investments.

For example, we have had to -- I think Greg touched on it -- in the last five months rearchitect actually the priorities in our portfolio and focused much more on rich experiences, multimedia, the software architecture and the silicon that we need to really get lower-cost 3G products.

So actually we are not increasing.

You can see by the R&D areas, but actually we are redeploying some of our R&D assets into the areas that I think can bring us the higher gross margin, the higher ASPs and play well to our R&D strengths.

Greg, I don't know if you want to add to that.

Yes, specifically we have not cut user interface and design engineering.

We are really prioritizing and optimizing the R&D spend that is there.

We are very careful and pragmatic not to cut meat into the bone and not to sacrifice the very product portfolio that is critical to our recovery.

So I understand.

Matthew Hoffman, Cowen.

Greg, Ed commented that your Cellular Wireless Infrastructure business performed in line with expectations.

It looks like some of your top customers are moving more rapidly to WiMAX and EV-DO Rev A and away from iDEN.

And then you indicated that iDEN sales were still around 15%.

I was hoping you could help reconcile that dynamic and also provide a bit more color on the overall outlook for your CDMA and GSM infrastructure businesses.

Thanks.

Yes, the Cellular Wireless Infrastructure business, as you know, think of it as CDMA, GSM, iDEN and actually WiMAX.

CDMA and iDEN are performing to our expectations.

GSM, as we have described in previous calls, continues to be challenging from a margin standpoint and a competitive pricing pressure standpoint.

I think when you factor those ingredients in and iDEN over time obviously has come down as a percentage of the overall Cellular Infrastructure business, but it is tracking to the expectations in the plan that we built into fiscal 2007.

I think when you reconcile in the new segmentation Home and Network Mobility, and you say what is the bridge?

The bridge is CDMA is in line.

IDEN is in line.

GSM remains challenging and is below our expectations but where also a substantial amount of that year-over-year operating margin compression is the proactive decision to continue to invest in WiMAX.

And we remain optimistic about WiMAX, but we also don't view it as a panacea or some short-term rescue.

It is not.

It is a longer-term end-to-end architecture with access points, chipsets, handsets, infrastructure, and we expect more material WiMAX contribution more in the late '08/'09 timeframe.

The other thing I will point out about iDEN is the iDEN customer here in the United States is also a CDMA customer and is also our big WiMAX customer.

So there is going to be over the next several years a conversion into that space, and the dual mode products we have introduced which feature CDMA and iDEN also plays to our strength.

IDEN outside the United States is doing very well, in fact.

And I think, as Greg pointed out, the GSM is always going to be challenged.

We also decreased over the past year our investment in UMTS and 3G as we have talked previously.

Phil Cusick, Bear Stearns.

One quick one and then a little more involved.

First, you have an update on mobile WiMAX timing, when that software is going to be available?

And second, a little more involved, can you talk about the regional mix in handset share and margins?

I know that you're still very strong in the United States and North America and then Latin America.

But it seems like Sony Ericsson and Samsung are coming on pretty strong there.

So can you talk about both margins and share year-to-year and how we should think about that?

So first on mobile WiMAX we continue to roll out the expedience portfolio, which think of it is a pre-802.16e substantiation throughout here in the US.

We've talked about the two dozen plus trials that we have globally, which we believe represents approximately 50% of all WiMAX trials worldwide.

We are rapidly moving towards an 802.16e architecture, and I think you will see some things between now and the end of the year in the early part of '08.

Again, we are optimistic about the prospects in that whole space, but I also think we are pragmatic about its phased financial contribution.

In terms of market share on mobile devices, obviously we dropped substantially.

Primarily the biggest drops in share were Asia-Pac and EMEA.

North America and Latin America performed performed in line with our expectations.

We remain the market leader in North America.

So that is a general margin distribution, or excuse me, share distribution geographically around the international theaters.

Okay.

And can you give us any sort of year-to-year move on the North America, Latin America?

Generally they are -- North America was down slightly sequentially.

Latin America was down slightly sequentially.

We are pretty confident of maintaining our leadership position in North America.

In Latin America it is consistent with the ebb and flow and within reason that tracks with the last several quarters.

Jeff Kvaal, Lehman Brothers.

I was wondering if you could update us on the channel inventory position?

You've suggested it is lower.

I was wondering if you had an estimate of how much remains or how long it will take until that clear?

That would be helpful.

Yes, I think in Q2 we made solid progress working closely with our customers and demand pull generation to lower channel inventory, and we have clearly improved it in certain markets.

It does remain elevated in other markets.

We will continue to work closely with the customers on demand pull and working with them on marketing programs that enable sell-through in Q3.

Would you be able to help us gauge how much of the channel inventory came down in this quarter so that we could gauge what your sell-through share might be, Greg?

Actually this is Tom Meredith.

The sell-through came down or the channel inventories came down fairly significantly in selected markets, in particular in India and China and also to a lesser extent in a few smaller markets for us.

But, as Greg said, they are still elevated in selected geographies, including Southeast Asia in the Middle East and sub-Sahara in Africa.

Mark Sue, RBC Capital Markets.

Ed, much has been made about the duration of the recovery at Motorola's Handset division.

With the products that you have now and the products that you have planned, is it your view that things snap back next year, or are we looking at a multiyear process?

And along those lines, if you can just touch on the commitment by the board members.

It was a little bit -- we did not get a clear reception.

The question I believe was on how quick in mobile devices is the transformation or turnaround.

Certainly it is always very tough to call.

We certainly have not been very necessarily hitting it in the last several months in terms of calling that.

And a lot depends, of course, on products.

I think just reading all your reports out there, you pretty much have it right.

It is all about good products.

And while products were certainly encouraged by certain some of the shipments that we had late in the quarter and early this quarter, it is good to see new products.

I think if you look through our portfolio in Q1, Q2, there were not many really new wow products.

The Z8 in the initial couple of weeks in Europe very well received.

We have had some feedback in Korea and other places on the RAZR2s well received, the Q9 in parts of Europe well received and the ROKR music in some areas of China, these are good early indicators.

I don't want to overstate them, but we do need some of these new products out there.

We need to get our portfolio refreshed.

As Greg said, some of these new products will hit other geographies during the course of this quarter and next quarter.

We are, as I said earlier, working very hard on the 2008 portfolio, on the silicon software.

I think we're making progress.

But I don't want to predict -- I don't think we have been necessarily good at that.

But this is a business where obviously seen over the past four years with good products and the market reach that we have, the brand that we have, the distribution that we have, we can certainly do some interesting things here over the next year.

So we are confident we're doing the right things, but we have got to put the numbers up, and we have got to put the products into the marketplace.

The commitment from the board remains strong as ever?

I'm sorry?

The commitment from the board members?

For who?

For us, the Company, or me?

Generally -- yes.

Yes, I think the answer is I think we're doing the right thing.

This has been a certainly very difficult year for us, the management team, Greg, Tom and myself and the people we have put in place.

Kathy, Dan and Stu are working real hard.

We're doing the right things.

That is all I can say at this point in time from my book.

We just have to start demonstrating to our investors and Wall Street that we are making progress and certainly progress is in our numbers, and we will just have to keep working real hard to go do that.

Good luck, gentlemen.

Maynard Um, UBS.

In Q2 your comments on handset inventories implies you had greater sell-through versus sell-in.

With the inventory issue improving, I would have thought that you should be seeing volume and marketshare improvement in the third quarter, but your guidance and comments about the headcount reduction implies the Mobile Device business might be, let's say, kind of flat in volume, despite the expectations for industry growth of around 8% plus.

Can you just talk a little more in-depth about what is happening there?

Is it demand?

Is it pricing or some other reason?

And does improvement -- when you talk about improvement, does that imply maybe we can hit the profitability by the fourth quarter?

So I think just to add to what Ed just commented, obviously the last couple of quarters have been quite rugged and challenging.

So I think specifically what you see in our guidance is a reflection of us being as prudent as we possibly can.

Quite frankly, we just want to avoid getting out ahead of our own headlights and ahead of ourselves, and I think that would be a very fair interpretation of what we're trying to guide you with in terms of our overall direction.

And in terms of profitability, do you think that is achievable by the fourth quarter?

We have not obviously broken out any specifics or linearity within the year.

Obviously we updated the fact that we expect on the full-year Mobile Devices not to be profitable, and that is really all we are prepared to say at this point in time.

Brian Modoff, Deutsche Bank.

So looking at the handset business in the quarter, are you expecting the operating margin to improve sequentially?

Would you expect factoring in your sell-through, what do you think your marketshare was in Q2 on a sell-through basis?

I think just to repeat what Greg just said, we're trying not to get out in front of our (inaudible) here, and the consequence of that is that we are not really providing guidance at that level.

So I will just call it out.

You guys are no doubt going to look for ASP guidance, unit guidance, gross margin guidance and we are just not in a position to want to do that right now.

And what we did do is give you a grounding in terms of what we anticipate the EPS to be in terms of a range.

And to that end, we would hope that you can glean from Greg's color commentary on the other segments what is going to happen in mobile devices.

And then sell-through, any ideas there?

Also, can you talk about 3G, when would we expect to see a broader range of 3G products?

Well, the sell-through question is always very, very hard.

I think you're going to have -- I think all of you have to do a really good job with the channels and channel checks and things along those lines.

It is a difficult number to peg in terms of sell-in versus sellout.

The 3G portfolio is, there is good news, but there is also news that we have said since January, February that we have to work on.

The short-term is we have got more 3G products out there today.

We're actually the only one with an HSDPA 3.6 megabits per second Q and RAZR and Z8, which is a great product that if you're in Europe you take a look at.

We just did not have those.

We're actually now leading in some of the speed performance areas with these products.

Having said that, there is a market developing for much more volume around 3G at different price points.

And for that we are working with our current silicon partners and cost, but we also need, as we have said for the last two quarters, newer silicon that could allow us to achieve a price point less than what we have today for 3G products, and that is a 208 play.

So the good news is we have got some 3G products around multimedia-rich experiences.

The challenge is to get out the next generation products based on lower-cost points with new 3G silicon, which we're working very, very hard on right now.

It is probably one of the biggest priorities inside of mobile devices and one that Stu is personally handling.

Brant Thompson, Goldman.

I was wondering if you could help us on two things.

First, on the ASPs in the quarter, if we just look at the last couple of quarters, the amount of unit volume drop that we have seen, and you have actually been able to hold ASPs quite stable.

I would have thought that a lot of that unit volume drop would have been low-end phones, and you could see then a boost in the ASP.

Could you just walk through kind of that mix dynamic that has driven the ASP trend over the last kind of two or three quarters?

And then also on your other line, in terms of the other product segment loss is really significant.

It is larger than some of your divisions.

Could you just give us any color into exactly how we should be thinking about that line item?

Thank you.

I'm sorry.

What was the second part of your question?

If you look at your other -- the other line on your income statement when you guys break down your P&L,, it is a very significant number now.

It is bigger than some of your divisions.

And I just wanted on any clarity on how we should be thinking about that corporate and other line?

Thanks.

This is Tom.

In the context of ASPs, I think you pegged it.

We know that we highlighted last quarter and actually earlier in the first quarter as well that we were going to go after profitable growth and highlighted that that probably translated to us losing share.

So we chose to lose share in order to stabilize our pricing to get the pricing disciplines back in the marketplace.

We have targeted, as Greg said on the last call, not to exit the low tier market or very low tier market but to be very selective in how we played in those markets.

And the consequence of that is we did lose share, but we absolutely did raise our ASPs by over $1.00 in the course of Q2 over Q1.

And we fundamentally feel very good about where we are and how we are positioned going forward, especially with the start of the refresh of our overall mix of product.

In terms of the second question, which was other income, I am assuming you're talking about the corporate eliminations that showed up as $320 million.

And that is a mix of a whole bunch of items, including intangible amortization, a legal reserve for Telsim, a stock compensation expense and some restructuring charges.

If you want, we can give you the details of that off-line.

Ittai Kidron, CIBC World Markets.

A couple of questions for me.

Tom, with regard to the margins, it looks like gross margins have improved sequentially, but operating margins have declined.

Will it be fair to say that the cost reduction activities you have taken up until this point have yet to be reflected in your financials even to a small extent?

And the second question, with regards to your distribution partners, what is the level of confidence your distribution partners have right now in taking your product and feeling comfortable that it will not get stuck in the channel, that there will be good sell-through?

How is the sentiment in your distribution partners?

If you can give us some color, that would be great.

This is Greg on the distribution piece first.

I think we've had a lot of discussion with a number of our distributors very closely in the last 90 days, specifically Ray Roman's team and Jason Few and the whole alternate distributor team that actually I think has done a really, really good job in the last three months.

I think their confidence is higher today than it was a quarter or two ago.

We have worked very closely with each of them on thoughtfully demand pull strategies and enabling them for sell-through.

And I think a lot of progress has been made.

Yes, there is still work to do, but I actually think it has improved Q2 over Q1.

In terms of your first question in the operating margin decline in Q2 over Q1, you are correct.

A lot of the costs reductions that we had implemented started to take effect late in the quarter.

We did take out as you can see some of the costs.

I would also call out a couple of other thoughts.

One is that the amortization of goodwill and stock expense year-over-year was up probably about $90 million or so, and Dean and [Laurie] can give you more details on that kind of activity off-line, which we don't typically call out apart from on a call such as this or one-off calls.

I would also say that the people who were 4100 notified, you saw us take a restructuring charge this quarter as opposed to the first quarter in which we did not take a restructuring charge for headcount actions.

And that too had an effect on our operating margin at onetime.

Very good.

If I could follow-up just on this margin answer.

The new products you just introduced that you mentioned, did they -- or they sold in the market at the ASPs you expected them to sell and at the margins you hoped they would sell?

Yes, but we have only just started to ship them late in the quarter.

So the answer is yes, but it is also very early.

So we will see how it develops over Q3 and Q4.

Ehud Gelblum, JPMorgan.

First, a clarification and then a question or two.

Tom, do you have the cash conversion cycles by segment for last year and the year before just to kind of see what Motorola has done in the past?

So we can see kind of how well and how good it has been?

Yes, you might assume that I do have that, and I have been actually walking through that off-line.

I can say it is actually in the slide that was earlier presented as well.

So, for example, on the cash conversion slide itself, it is highlighted by segment.

For example, Q1 of last year Mobile Devices was 18 versus Q2 of this year, 49.

Obviously that is not an acceptable trendline, and you can assume we are maniacally focused on improving that.

Enterprise Mobility, just to give you that sort of Q2 to Q2 was 57 to 53.

So improvement there.

Home and Networks Mobility went from 67 to 50.

I can say that in each case we have what I would call significant opportunity to improve our, frankly, working capital efficiency and our operational efficiency, which will lead to an improved return on invested capital and a lot more cash on our balance sheet.

Okay.

That is actually very helpful.

Sorry, I could not actually -- I can't get the slides working on my PC.

On the estimate that you had of 13.5% market share, it implies that the market was around 263 million units, which was only 1% up f quarter on quarter.

Is that kind of what your estimate is, and what does that kind of imply your thoughts are for the entire market?

And then Ed you mentioned that you're getting ready for new product refresh of the portfolio in 2008.

Should we take away from that that, yes, you will have a couple of one-off types of new product introductions this year like the Z8 and the Q9, but that we should not be expecting a whole slew of new products going into the Christmas selling season?

That you're really focused more on coming out in mid-2008 with a new product refresh?

The answer to your first question is yes.

We are estimating the TAM at about 263 or 264 million, which translates to about a 13.5% market share.

I understand that there may be other estimates in the overall TAM.

We will see how it unfolds ultimately for Q2, but that is our current estimate.

I think the second question is products.

We have products in Q3 and in Q4 out for the year.

We have, as you know, starting late last year, we took a new track about not preannouncing in advance significant products.

I think we did that in the year past, and I think that is not wise anymore.

We like the May 15 announcements, and we are able to ship in 30 to 60 days is what we're doing.

Our customers certainly are seeing under nondisclosure some of our product plans for this year and next year.

Hopefully we keep some of the initial momentum here with some of these newer products continuing through Q3, Q4 and into 2008.

James Faucette, Pacific Crest.

I just wanted to follow-up a little bit on your outlook for the second half of the year and the improvement that you're expecting over the first half in Mobile Devices.

I am just wondering how much at least in your thought process right now is that dependent -- is that improvement dependent on new devices launches, or do you think you can hit kind of the targets that you have in mind just through the operational changes that are already underway?

I think it is a combination, but it is absolutely driven largely by the acceptance of our new products.

I think it always, since I have been here, it has been about new products.

This is a short cycle business.

There are refreshes in the market.

Certainly things like the RAZR, but even the RAZR in all of its success of 100 million units, needed about 20 refreshes throughout the two to three-year period.

I mean the RAZR shipping today is dramatically different than the RAZR a few years ago.

And what we need to do is to get new products out there.

In some cases there are still good products, and as I said, as Greg said in his thing, RAZR continues to sell well with its new 3G capabilities.

But RAZR2s and Z8s and some of the W-series and some of the ROKR series and some of the other products aimed at different geographies are going to start to generate the top line.

But we as a management team certainly in the last few months have been working on cost structure, expenses and gross margin and refreshing the portfolio.

But this management team really is getting back to or wants to get back to top line growth.

That is what it is all about.

And in Mobile Devices, it is about the top line; it is about market share; it is about growing in some of these geographies.

So we're focusing on that.

I think that is what Stu is looking at, but we needed to get the cost basis lower, and we needed pricing rationalization into our product strategies, which I think we have made some progress on.

So Q3, Q4 we're looking at still operational efficiencies, but also looking at new products in top line.

Great.

And then just one question in slightly different areas, that over the past couple of years, Motorola has been pretty acquisitive of at least tuck-in acquisitions and the like.

That seems to have continued at least through the first half of the year.

Should we expect you to continue to do at least some smaller technology-related acquisitions on an ongoing basis, or is that activity, should we think about being slowing down now?

Well, you know, make no mistake about it.

The management team is focused on the financial performance of the Company day in and day out, and that's what we have to go do from myself on down.

And most of all as I said in Mobile Devices, we have as you know just even in the past couple of weeks done some small acquisitions.

That is probably where we will be.

I think we could continue to see some acquisitions in some of the key IP and technology spaces and some of the areas we are doing such as Modulus, Terayon and Leapstone.

But I think that is where we're going to probably stay with right now, small acquisitions.

Lawrence Harris, Oppenheimer.

I was wondering if you could provide maybe a little bit more granularity in terms of where we stand relative to the transition from the C-series to the W-series?

And in terms of RIZR Z8 and the RAZR2 when can we anticipate those models being available in most geographies?

Well, the C to W transition is this year.

W-series actually are starting to ship.

I think I don't have it with me, maybe Greg knows, but I think it is during the course of this summer and especially in Q4 where we get some of the new W-series products with our AJAR TTP kind of software platform.

So I think there is a number of W products that we talked about a few months ago that will ship this year.

I think the other question was the RAZR2.

The RAZR2, RIZR Z8, when will those be available in most geographies?

The Z8, first of all, let's take that one first.

That is being qualified throughout Europe.

I think there are a number of countries coming online this summer and into the fall.

The RAZR2 is now in Korea and I believe just reached Hong Kong and will appear here in the United States this quarter as well as in Europe.

The Q-series products are appearing now in selected countries in Europe.

Will also appear in a GSM version in the emerging markets, as well as the 3G product here in the US this quarter and early next quarter.

And the last one was RIZR, which I don't know where the distribution of that product is, but the ROKR series is being distributed now in Latin America and other places, and we can get you off-line, and we can get you some of the details on where those products are going.

Scott Coleman, Morgan Stanley.

Forgive me if this has been asked already because I had to hop off for a minute.

Can you give us a better understanding of what is going on in the low-end of the market?

Back at your product launch earlier this year, you did highlight some of the W-series phones.

It seems like there are some issues maybe with the AJAR operating platform or getting these phones off of the line, getting them into emerging markets and selling them profitably.

Is there a change in strategy, whether go to market or from a manufacturing perspective?

Or is this an area that we should expect to be weak through the rest of '07 and maybe into early 2008?

Well, I think that on the very low-end we're challenged on the very low tier in this business.

You referenced several quarters ago in our announced plans.

I think it is fair to say that MOTOFONE plain and simple did not meet what we expected it to meet at the very low tier.

I think it is a question not whether it is an attractive market or not, because it is.

It is not where but it is how.

So we will aggressively attack our design product design cost structure.

We will continue to work on low-end ODM product to make sure it has the resonating value proposition, and you're absolutely right, Scott, we have to make sure that we are profitable and it has contributory gross margin.

So I think even if you look at Q2 when we had the continued pressure on the overall units in share, it is in Asia, sub-Sahara Africa, India and the very low tier markets where we don't have the ideal product design cost model to optimize profitability there yet.

We just don't.

On the W-series, actually the W-series is a solid product line.

We also to the earlier question by Larry I think we will transition the C-series to the W-series and aggressively work that cost structure as well.

Yes, I think our approach and our strategy, and I think we talked about this in May, we were going after back in Q4 I think business in the low-end that, frankly, was just not where the profit targets were.

I think chasing low profit business or no profit business was not prudent, and that is one of the corrections that we made in February and March.

The W-series is a -- if there is such a thing as the high-end or the low-end, that is where it is.

It is a great looking set of products.

It has color.

It has camera.

There is a couple of features on it, and we think there's a lot of individuals in these emerging markets that would like these products.

We are shipping some W now.

The inflection point probably for W versus C is Q3, Q4.

The AJAR platform has slipped a little bit.

I think we did talk about that earlier in the year.

Expect that in the I think it is late Q3, Q4 timeframe.

But there are W-series shipping on the current platform with our ODMs, and it is an attractive product line aimed at a market segment that is a little bit above the very, very low-end that Greg talked about.

Richard Windsor, Nomura.

Just a general question about your platform strategy.

You have mentioned commitment to three platforms, but yet one of the products that you're expecting to deliver results from is actually based on Symbian and UIQ.

I was wondering if you could tell us how does Symbian fit into your general overall product platform strategy, and is it a one-off wonder or what is going to happen?

So I think in terms of UIQ/Symbian, which obviously the Z8 is based on, as you know we remain challenged in Europe, and Europe is primarily a 3G marketplace.

Quite frankly, we have got to move the needle from design and form factor in some of the other feature fashion areas which we remain strong in up the value stack to rich experiences.

The fact of the matter is in Europe and with our product team and our local engineering team based in London, they have done a fantastic job coming out with a very compelling product in the Z8.

Obviously UIQ/Symbian today versus the other platform choices we have affords us to capitalize on a profit pool now, enter into an attractive tier and drive margins higher and get us into a segment that is quite important for us strategically.

And one of the jobs that Alain who has joined us, his platforms is to rationalize what you're getting at, which is the software architecture mostly from an application framework point of view as opposed to an operating system point of view.

So what we are doing and probably will update you at the analyst meeting in September is where we're going on our software architecture from the developer application ecosystem point of view.

A good thing about the Z8 and some of the other products you will be seeing over the next six to nine months in that space is it is rich multimedia.

It allows us to attract developers.

It allows us to track ecosystem partners that can deliver compelling systems to consumers.

We have plans to continue on that platform to generate these value-added products to capture the profit pool that Greg talked about.

I think, operator, we will take our last question, please.

Mike Ounjian, Credit Suisse.

Just looking into the second half, just to get into a little more detail on the outlook in the US I guess in two different businesses.

First, in the Devices business, just how you see any changes you see in the competitive landscape and your share outlook as I think someone else referenced on Sony Ericsson getting more aggressive.

Obviously we now have Apple on the market.

And then in the Connected Home business, you have talked for some time about a weaker second half.

Is that entirely coming from the low-end set-top boxes so that we should expect some mix shift towards the higher end, or are there other elements to that as well as we look into Q3?

So in regards to Connected Home, we have been pretty consistent projecting a second half being a little bit softer than the first half.

As we have mentioned, it is primarily driven by the FCC separable security mandate.

If you want to think about it, perhaps our best guess we're thinking about this and looking at the numbers in the overall trends, we think and it is our best guess that approximately $150 million in revenue was pulled from the second half of fiscal '07 into the first half due to some of the regulatory mandates that have been going on in the US.

Having said that, the overall trends for the business remain very good with HD DDR and IPTV and not just the existing cable MSOs doing capital upgrades and infrastructure buildout but also Verizon and AT&T as they get into this business.

You know, I was going to add to that that this is an area that only three years ago was a cable box business.

And today it is, next to the mobile business, is probably one of the more exciting areas I have seen around the world.

Video-to-the-Home not only here in the United States but if you go to Europe and what we are seeing in the cable industry over there and what the wireline companies are thinking about and doing.

And also in places even like China, which is looking at cable in a big way and some of the other areas in Japan and other places, this is just an exciting growth opportunity to participate.

And why we have added the acquisitions to Dan's area is to further flesh out the end-to-end architecture in video distribution.

And today with some of the acquisitions we have made, it is not anymore a set-top box business.

It is a video distribution business with lots of added value.

I expect this thing for the next several years to be just on fire as more and more people around the world experience HD quality TV and video and other things.

As far as the US market share, it is certainly competitive and more competitive.

We have great positions today in the CDN players in the marketplace.

We also are doing some good business with some of the GSM spaces.

We have some work to do with 3G in the United States, and you will see some movement in that in the second half of this year.

We feel good about our portfolio here in the US, and we expect to continue to deliver the results here and actually turn it up in some of the other geographies where we have not been doing that well.

So I think we will have to just wait and see how the products pan out over here over the next several quarters.

Great.

Thanks and just to clarify in Connected Home, how much of that business is international today?

I think it is roughly two-thirds or 60% approximately is -- (multiple speakers)

It is more than 60.

I think it is -- I would take it up to 75%.

But the international business is a growing business and pretty exciting when you go over to Europe and see what is happening over there.

I just got back a few weeks ago.

During this call we have made a number of forward-looking statements.

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.

Such forward-looking statements include, but are not limited to, our comments and answers relating to the following topics -- guidance for Motorola's earnings per share in the third quarter of 2007; guidance for future sales, channel inventory, profitability, operating earnings, operating margins, ASPs or market share for each of Motorola's segments; benefits to be realized from improvements in our cash conversion cycle; the impact of Motorola's performance and financial results from strategic acquisitions and divestitures, including those that are recently completed, those that are pending and those that may occur in the future; expectations for expenses, workforce reductions and cost savings related to the Company's ongoing reorganization activities; expected timing for the announcement, launch and shipment of new products; the sales impact and pricing of new products.

Because forward-looking statements involve risks and uncertainties, Motorola's actual results could differ materially from those stated in the forward-looking statements.

Information about the factors that could cause such differences can be found in Motorola's -- from this morning's press release on pages 16 through 24 Item 1A of Motorola's 2006 annual report on Form 10-K and in Motorola's other SEC filings.

This now concludes our call.

Thank you.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference.

A replay of this call will be available over the Internet through Motorola's Investor Relations website at www.Motorola.com/investors in approximately two hours.

We thank you for your participation and ask that you please disconnect your lines at this time and have a wonderful day.