摩托羅拉 (MSI) 2008 Q2 法說會逐字稿

Welcome to Motorola's second quarter 2008 earnings conference call.

Today's call is being recorded.

If you have any objections, please disconnect at this time.

After this teleconference, the presentation material and additional financial tables will be posted on Motorola's Investor Relations website.

In addition, a replay of this call will be available approximately three hours after the conclusion of this call over the Internet, through Motorola's Investor Relations website.

The website address is www.Motorola.com/investor.

At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation.

I would now like to introduce Mr.

Dean Lindroth, Corporate Vice President of Investor Relations.

Mr.

Lindroth, you may begin your conference.

Thank you and good morning.

Welcome to Motorola's second quarter results conference call.

With me today are Greg Brown, President and Chief Executive Officer; and Paul Liska, Chief Financial Officer.

A number of forward-looking statements will be made during this presentation.

Forward-looking statements are any statements that are not historical facts.

These forward-looking statements are based on the current expectations of Motorola and there can be no assurance that such expectations will prove to be correct.

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

Information about factors that could cause, and in some cases have caused, such differences can be found in this morning's press release on pages 8 through 27, and Item 1-A of Motorola's 2007 annual report on Form 10-K and in Motorola's other SEC filings.

This presentation is being made on the 31st of July, 2008.

The content of this presentation contains time-sensitive information and is accurate only as of the time hereof.

If any portion of this presentation is rebroadcast, retransmitted or redistributed at a later date, Motorola will not be reviewing or updating the material that is contained herein.

Before we begin, I want to remind everyone again that details outlining our highlighted items, our GAAP to non-GAAP P&L reconciliations and other financial information can be found on our website and today's slides.

An audio replay will be posted after this call.

I will now turn call over to Greg.

Good morning and thank you for joining us.

I'll begin today with a few brief opening comments about the quarter, after which Paul will discuss the detailed financial results and update you on our planned separation.

I will then come back to review the individual businesses and provide some perspective on the third quarter and the year.

With respect to financials, we reported second-quarter sales of $8.1 billion.

On a GAAP basis, net earnings from continuing operations were breakeven compared to the loss of $0.02 per share reported in the second quarter of last year.

Excluding highlighted items, earnings were $0.02 per share, flat with the second quarter of last year and favorable to the guidance we've provided of a loss of $0.02 to $0.04 per share.

In the quarter we generated over $200 million in operating cash and finished the quarter with net cash of approximately $100 million higher than at the end of the first quarter.

We made further progress toward our objective of improving the results in Mobile Devices.

In this regard we enhanced the product portfolio, established new leaders in key roles, engaged customers with a renewed commitment and further reduced our cost structure.

We also remain very focused on continuing to improve our performance in Home and Networks Mobility and Enterprise Mobility Solutions.

I want to emphasize that these businesses continue to get the resources that they need to grow, compete and succeed in the marketplace.

So far this year we have held or increased our leadership position in several key markets, [roamed] the top line and expanded operating margin.

This is reflective of outstanding leadership teams in those respective businesses, consistent execution and an ongoing commitment to our customers.

During the quarter we also made progress on our plan to separate into two independent public companies with different addressable markets, sales cycles and competitive characteristics.

We continue to believe that this is the appropriate course of action and will result in two successful, globally competitive companies.

In Mobile Devices our investment in the product portfolio for the second half and next year reflects an emphasis on 3G devices, improved platforms, experiences such as messaging and touch and lower costs.

This, along with the benefits of greater speed and agility as an independent company, will further enable Mobile Devices to compete more successfully.

As a separate entity, Home and Networks Mobility and Enterprise Mobility Solutions will be a leading provider of products, solutions and services to a growing and converging wireless and wireline industry.

These businesses have complementary technology and capability characteristics, including data, video and mobility, and serve an increasingly common set of customers and markets.

Now I will pass the call over to Paul Liska and come back in a bit.

In the quarter sales were approximately 8.1 billion dollars, down approximately 7% compared to the second quarter of last year.

The year-on-year sales decline is attributable to lower sale in Mobile Devices, partially offset by higher sales in Home and Networks Mobility and Enterprise Mobility Solutions.

The breakeven net earnings on a GAAP basis include a net charge of highlighted items of $0.02 per share related to charges associated with an impairment of an investment, a legal settlement, costs associated with our planned separation into two public companies and charges associated with [walk] workforce reductions offset partially by an income tax benefit and the gain on the sale of investment.

More details on these items can be found on our website.

My remaining comments will exclude highlighted items.

Earnings were $0.02 per share, well ahead of the guidance we provided on our last earnings call.

This was due to an improved overall gross margin percentage and lower operating expenses as well as higher non-operating income.

Compared to last year, earnings per share were essentially flat.

Operating expenses were lower by $264 million compared to the second quarter of last year and have declined by $469 million compared to the first half of last year.

That said, we are on track to achieve the $1 billion in overall cost structure reduction in 2008 that I outlined on our last call.

Of this reduction, we expect at least 60% to be in Mobile Devices.

Compared to the year-ago quarter, a higher gross margin percentage and the reduction in operating expenses more than offset the impact of lower sales.

This resulted in an operating profit of $82 million, an increase of $114 million compared to the second quarter of last year.

Total other income and expense was a net expense of $2 million compared to net income of $54 million in the second quarter of last year.

The year-over-year decline was due primarily to lower net interest income resulting from lower average cash balances and lower interest rates.

The ongoing income tax rate remained at 34%.

Our overall cash inflow was $204 million compared to a $343 million cash outflow last quarter.

The cash flow results include sequentially in Mobile Devices and were strong in both Home and Networks Mobility and Enterprise Mobility Solutions.

In the quarter there were no additional stock repurchases.

We ended the quarter with total cash of $7.8 billion.

Our net cash balance was $3.6 billion, up from $3.5 billion at the end of the first quarter.

For the second half, we expect continued strong cash flow generation from both Home and Networks Mobility and Enterprise Mobility Solutions and some improvement in Mobile Devices.

So I will repeat what I said on our last earnings call.

We expect to end the year with a net cash level comparable to the $4.3 billion that we had at the end of 2007.

With regard to our outlook, excluding items of the variety highlighted in our quarterly earnings releases, we expect third-quarter earnings to be in the range of $0.00 to $0.02 per share, and for the full year we expect earnings of $0.06 to $0.08 per share.

With respect to the separation, I will share with you the following.

First, over the past several months we have spent a significant amount of time working on many aspects of the separation, including intellectual property, tax and capital structure.

These and other factors will influence the decision as to which part of the business should be separated to yield the most economically favorable transaction.

While we are making good progress, our analyses are not yet complete.

All of these areas are extraordinarily complex for a number of reasons, including having thousands of patents and multiple tax and legal jurisdictions in which we operate around the world, to name a few.

Second, planning activities are in progress for the centralized functional organizations including finance, IT, human resources, marketing and supply chain.

To give you an idea of the scope of this effort, we have over 150 shared facilities, operations in over 100 countries and numerous common IT systems, all of which are in the process of being evaluated.

Third, we are reviewing our cost structure.

Our goal is to identify further operating efficiencies and process improvements that can be implemented to optimize the future cost structure of the two businesses.

Finally, with respect to timing, we expect the actual separation and distribution of shares to occur in the third quarter of next year.

Now I'll pass the call back to Greg, who will discuss the business operations in more detail and provide more color on our expectations for the rest of the year.

In Mobile Devices, sales for the second quarter were approximately $3.3 billion, up slightly from the first quarter.

Unit shipments were 28.1 million, and our estimated market share was unchanged from the first quarter at approximately 9.5%.

Additionally, stock in channel at the end of the quarter was down sequentially.

Overall, ASP was down slightly to $118 compared to the first quarter, due primarily to mix.

North America was still our largest region and accounted for 48% of total Mobile Devices sales.

Latin America accounted for 27% of sales, while Asia-Pacific and EMEA made up the remaining 14% and 11%, respectively.

Excluding highlighted items, the operating loss in the quarter was $340 million compared to a $347 million operating loss in the first quarter and a $264 million operating loss in the second quarter of last year.

The operating loss increased over last year as a result of lower sales, which was partially offset by lower operating expenses.

Operating expenses were also lower sequentially.

With regard to the Mobile Devices product portfolio, top sellers in the quarter included over 12 million W-Series devices, over 3 million RAZRs, over 1 million ROKR series and over 1 million RAZR2s.

We began shipping 10 new products in the quarter, including the CDMA W755, which is doing very well in the US.

The UMTS Z8m in Korea and three touchscreen smart phones, the A1800, A1600 and AA10 that refresh our popular MING series in China.

These and other recent additions to the portfolio represented a higher proportion of our units and gross margin in the quarter as compared to the contribution from new products last quarter.

This is a trend that we expect to continue in the second half of the year.

Also during the quarter we announced the MOTOZINE ZN5, in which we combined Motorola's ModeShift technology, Kodak's Perfect Touch technology and ultrafast camera and one-click photo sharing, resulting in a superior mobile imaging experience.

The ZN5 is currently shipping into China and will roll out to other markets in the coming months.

We will continue to focus on leveraging our talented employees, intellectual property and design leadership to enable a product-led recovery in the Mobile Devices business.

To his end, we plan to launch more new products in the second half of the year as compared to the first half.

This will result in us approximately introducing 50 new devices this year, up from around 40 last year, and we expect that number to go up again next year.

Our roadmap for 2009 reflects a broader, richer portfolio with nearly half of the new handset introductions being UMTS devices.

This year, approximately 15% of our new devices will be UMTS.

The overall portfolio will demonstrate innovation in UI, messaging, touch, navigation and form factor.

We will leverage our open OS investments and utilize newer chipset platforms, as well as make continued use of our ODM partners to enhance experiences and reduce costs.

Feedback from a many of our customers continues to be very positive.

We're confident that an enhanced product portfolio combined with our strong brand and distribution resources will better position Mobile Devices to compete and succeed in the marketplace.

Looking ahead to the third quarter in Mobile Devices, we anticipate sales to be down slightly with an improvement in the operating loss as compared to the second quarter.

We expect sales growth to trend back upward in the fourth quarter, resulting in a further sequential improvement in the operating loss.

Turning now to Home and Networks Mobility, sales were approximately $2.7 billion, up nearly 7% compared to the second quarter of last year.

Excluding highlighted items, operating margin improved to 9.1% compared to 8.1% in the second quarter of last year.

In home, we had record sales in the second quarter of nearly $1.4 billion, up 22% year over year.

This was driven by continued solid demand from both traditional cable operators and telcos for HD, HD DDR and IPTV set-tops, as well as end-to-end video solutions.

The solid operating margin for home was comparable to last year and up sequentially.

Looking regionally compared to the second quarter of last year, home sales in North America grew 21% and accounted for approximately 81% of home sales.

Sales outside North America also remained strong and were up 28%.

From a product perspective in digital video solutions, we shipped 4.9 million digital entertainment devices and video infrastructure equipment, resulting in an increase of 30% in sales compared to the second quarter of last year.

So far in the first half of year, we have gained market share and we remain the global market leader.

In the second quarter and much like last year, we had very strong demand and some accelerated purchases.

As a result, we expect a sequential decline in digital entertainment device unit volume, but not to the same extent as we experienced last year.

On a year-on-year basis unit growth for both the third and fourth quarters is expected to remain strong.

Sales of broadband gateway devices were down slightly from a year ago on shipments of 2.8 million devices.

Finally, network access sales, a small but growing part of the other business, were higher year on year.

We have a leading market division in GPON and gained additional traction with fiber-to-the-home solution awards from multiple fixed-line operators who selected Motorola for their GPON deployments.

Turning to Networks, sales in the quarter were nearly $1.4 billion.

Sales in CDMA and iDEN were lower, partially offset by higher GSM sales and approximately $130 million of revenue recognized on a UMTS project.

iDEN now represents less than 10% of our overall network sales.

The operating margin in Networks increased as compared to recent quarterly trends.

We continue to aggressively manage the cost structure supporting 2G and 3G, and we've reduced manufacturing costs in GSM to largely offset pricing pressures.

As a result, we maintain very solid operating margins in each of these technologies while we continue our 4G mobile broadband investments in both WiMAX and LTV.

In mobile broadband, we secured additional awards in Taiwan and France and now have 80-plus engagements, giving us a leading market position.

We expect to continue our ramp of our WiMAX shipments through the rest of '08 and anticipate significant sales opportunities next year and beyond.

And as you know, we are participating in the Verizon and Vodafone LTE trials, and we are pleased with the results so far.

Looking to the third quarter for the Home and Networks Mobility segment, we expect slightly higher sales and higher operating margin year on year.

In Home, while we expect continued year-over-year sales growth, sales will be lower sequentially, due to the strong demand in the second quarter.

In Networks, we expect lower sales year on year, largely due to the divestiture of the embedded communications computing group and the decline in iDEN.

For the full year for Home and Networks Mobility, we anticipate single-digit year-on-year sales growth, reflecting 20% plus growth in Home, partially offset by lower Network sales.

Operating margin is expected to improve year on year in Home as well as in Networks.

In Enterprise Mobility Solutions, sales were slightly over $2 billion, up 6% compared to the second quarter of last year.

Sales of government and public safety equipment and services were nearly $1.5 billion for the quarter, an increase of approximately 7% compared to the year-ago quarter.

In the Enterprise market, sales of mobile computing, scanning and wireless LAN were over $585 million, up nearly 5% from the year-ago quarter.

Excluding highlighted items, operating margin results were outstanding, increasing to 18.6% compared to 15.7% for the second quarter of last year.

The improvement reflects the impact of higher sales, a favorable product mix from subscriber radio sales and margin improvement in Enterprise.

Compared to the second quarter of last year, North America sales for the segment declined approximately 2%.

The decline, however, was due to a large initial system contract with the US Postal Service that we implemented during the first nine months of last year.

Excluding this from last year's results and despite a challenging economic environment, North America sales increased by approximately 5%.

The team has done a great job in diversifying our sales mix across verticals and regions.

Sales outside North America grew approximately 21% compared to the second quarter of last year and accounted for approximately 43% of total sales, up from 37% a year ago.

In EMEA, sales grew by 19% compared to the second quarter of last year and accounted for 27% of sales.

Key growth drivers included TETRA systems and our MOTOTRBO product line.

In addition, we are experiencing strong demand across the Enterprise Mobility product portfolio.

In Asia-Pac sales increased by 46% compared to the year-ago quarter and accounted for 10% of total sales.

The growth is due largely to sales from Vertex as well as sales related to the Beijing Olympics for both two-way radio systems as well as wireless LANs.

From a product perspective we hold industry-leading positions in mission-critical equipment and solutions, enterprise digital assistance, rugged mobile computing and handheld and wearable scanning.

In the quarter we made our portfolios even stronger with the introduction of two TETRA radios and the MC75.

The TETRA products truly exemplify our technology as second-nature objective, where our customers can focus on the mission and not the technology.

They include a user-optimized concealable radio for high-security applications and a radio developed for highly challenging industrial environments.

In mobile computing we began shipping the MC75, an enterprise digital assistant with 3G, wide area network, GPS and document imaging targeted at the mobile workforce.

Finally, as we continue to focus on growing in enterprise wireless LAN, we announced on Monday our intent to acquire AirDefense, a leading provider of premium software applications which enable enterprises to secure their networks against wireless security threats.

As we look ahead for the overall Enterprise Mobility Solutions segment, while the third quarter typically has some seasonal weakness, we expect year-on-year growth in sales and operating margin improvement.

For the full year, we expect mid single-digit sales growth year on year with operating margin improvement compared to 2007.

In closing, our long-term success is dependent upon consistent execution against our key objectives and delivering products, services and solutions that meet the needs of our customers.

So, as we continue to pursue our plans to separate into two independent public companies, we will not be distracted from meeting the objectives of any of our businesses.

In Mobile Devices we remain focused on investing in and improving upon the product portfolio.

Our intellectual property and design, coupled with lower costs and consistent execution, will result in a broad-based, innovative and consumer-driven portfolio, especially in 3G.

In Home and Networks Mobility and Enterprise Mobility Solutions, which accounted for approximately 60% of our sales in the second quarter, we have leadership positions in several key markets.

Our teams are innovating, they're executing, growing and improving operating margins.

Finally, I want to emphasize that the results from the plans that I've discussed today, including the new plans and the roadmap for Mobile Devices, the growth and innovation in Home and Networks Mobility and Enterprise Mobility Solutions are the result of the hard work and dedication of our associates around the world.

And I want to say thank you, and I really appreciate all of your effort and ongoing commitment.

Now I will turn the call back over to Dean and start the Q&A.

Thanks.

Before we get into the Q&A, I just wanted to clarify my comments with regard to guidance.

Again, we expect third-quarter earnings to be in the range of [$0.00] (changed by the Company following the call] to $0.02 per share.

And for the full year, we expect earnings to be in the range of positive $0.06 to $0.08 per share.

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

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

(OPERATOR INSTRUCTIONS).

James Faucette, Pacific Crest.

This is Nathan Johnson calling for James.

I was wondering if you could talk a little bit about what your expectations for ASPs are going forward.

Some of your competitors have talked about increased competition at the high and mid end, and I just wanted to see if you guys were seeing that as well.

Well, I think that from a guidance standpoint in Q3 for Mobile Devices, as we said, we are expecting sales to be slightly down sequentially but also expect the improvement in the operating loss versus last quarter.

I do think that we expect newer products later in the quarter, in Q3, and would anticipate a higher margin and better mix overall.

What is you guys' view currently of the overall handset market?

Are there any geographies that you guys are seeing particular strength or weakness right now, especially with macroeconomics concerns?

I think we're going to continue to watch the macroeconomic concerns very closely, and we have to clearly keep an eye on that globally and by individual region.

From an overall TAM perspective for the year, we still expect approximately 10% unit growth in 2008.

So, we will watch the individual geographies closely.

From a North America perspective in Q2, I thought demand showed some resiliency, and we grew share there in North America a.

Having said that, to your point, we are going to watch the economic conditions in each geography very closely.

Ehud Gelblum, J.P.

Morgan.

A question on Networks and a question on Mobile Devices.

On Networks GSM, you said, was up.

If you can just give a little more detail on the strength in GSM and how long you expect it to sustain itself, because most people looking at GSM are seeing more of a cash cow declining business, and so how do you expect that to trend actually.

And the, on the handset side, can you give us a sense on the gross margin, [see what] the operating margin given Mobile Devices.

But has gross margin stayed constant where it is?

And, as you look to operating margin to improve over the next few quarters, are you expecting gross margin to get better, and how?

Or, is it just volume layering on top of OpEx?

I think I understood both of your questions; you were a little muffled.

But in terms of Networks, we're profitable in CDMA and iDEN and GSM, in all three of those technologies.

And, we are profitable, by the way, overall in the segment, including, as you know, the investment in 4G and the investment in WiMAX and LTE.

I think that GSM showed some strength, due to some -- primarily driven by additions in the existing footprint that we serve, as well as by a large contract in EMEA.

I would expect GSM to perform reasonably solidly as well in Q3.

Having said that, from an annual standpoint from a Networks perspective excluding ECC, and embedded communications was about $550 million annualized, we would expect sales in Networks to decline year over year with a sequential decline in Q3.

On Mobile Devices, your question was -- ?

Gross margin and how that's going to trend going forward.

As Mobile Device and operating margin improves, like you are suggesting, is that based on an improving gross margin, or is that based on an improving operating leverage, and gross margin is not improving?

We would expect both.

With newer products, more new products in the second half of this year and a growing contribution to gross margin of our new product introductions, we would anticipate it to drive higher margins in some of the future months.

In addition to that, with the continued improvement of cost structure, that's another driver that we would expect to drive improvement in narrowing the operating loss in Q3 sequentially.

Finally, do you have a goal of hitting breakeven or such when (inaudible) happens in Q3 of next year?

No, we haven't put out any breakeven goal at this point.

Maynard Um, UBS.

Just first a clarification on your mobile device guidance for revenue next quarter.

I guess, from an industry perspective, are you expecting that to be up sequentially in your outlook?

And then just on your other business, can you talk about the sustainability of the margins in Home and Networks and Enterprise segments, and more specifically, about the competitive environment and how that might or might not impact your revenue and margins there?

Yes.

So from a guidance standpoint in Q3 for Mobile Devices, we're guiding slightly down sequentially with an improvement in the operating loss versus last quarter.

In terms of the other businesses, I think that the overall trends both in Home and Networks as well as, obviously, 4G broadband as well as Enterprise Mobility Solutions overall maintain strong long-term objectives and trends.

I think that for the year, in Home and Networks, we do expect operating margin improvement year on year in both Home as well as in both Networks.

From an Enterprise Mobility standpoint for the year, annually, mid-single year-over-year digit sales growth and operating margin in that business as well.

On the handset side, I guess the question was more on the industry outlook for the third quarter.

Are you expecting the industry to be up in the third quarter, hence, your guidance is implying that your market shares will be down?

We're anticipating a TAM of about 317 million units in Q3, up from 295 million units in Q2.

So yes, we expect the TAM to grow sequentially Q3 over Q2.

I think that growth will, from a percentage growth standpoint, will be largely in Asia and EMEA.

Those are two regions where our portfolio is currently challenged, but we're making progress and we expect new products to address that between now and the end of the year.

And, we do expect a rebound in Q4, and we will remain strong in North America and Latin American.

Ittai Kidron, Oppenheimer.

On the operating loss in your handsets unit, it's still just really not going anywhere.

On a year-over-year basis, actually, your losses are greater in dollar terms on a year-over-year basis.

It looks like you are getting close to the tail end of the operating expense step-downs on a quarterly basis.

So it seems like much of the progress going forward is going to have to be much more gross margin-driven than operating expenses, unless you're going to announce another big round of operating expense efficiencies.

So, with that being the case, when do you think your portfolio really changes such that your gross margin can move?

Last year as well, you had an improvement in operating margin in the third quarter nicely in the handset unit, but then it completely fell apart in the fourth.

I'm just trying to get a sense of your level of confidence and comfort in what you're seeing out there in the marketplace, especially given the fact that most of your handset business is focused in -- well, at least 50% of it -- in North America, and you've got close to little to no exposure and APAC and EMEA are the only growing markets right now.

So any way you can reconcile all of this?

The guidance looks good; it's just, how do we really get there?

It seems really tough.

Let me try to help you frame this a little bit to give you additional context.

So first of all, the operating loss improvement in Mobile Devices will continue to be a reflection that's twofold -- growth in gross margin due to new product introduction, as well as continued operating expense reductions and commensurate efficiencies that flow through to the bottom line on an improved leverage P&L.

From a new product introduction standpoint, we introduced 16 new products in the first half of this year.

We are still targeting approximately 50 for the full year of 2008, so 34, approximately, new products in the second half.

I think we're making progress in that regard.

And as a result it is reasonable to expect the new product introduction gross margin to have a greater contribution to the financial improvement in the second half of the year.

We will also continue to drive operating efficiencies accordingly.

Secondly, we did grow market share in North America, and we remain strong in Latin American as well.

And as I mentioned, stock and channel inventory was down, and we continue to make improvements in that regard as well.

So one other data point is 15% of our product portfolio in 2008 is UMTS, 15%, and we would expect approximately half of our new product in 2009 to be UMTS.

So it allows us to play in a marketplace where we've had a challenged portfolio and get at some of the revenue and margin opportunities in that addressable TAM.

Are the product introductions, the 34 that you mentioned in the second half, any of them geared more towards the entry-level?

Can you just give us a perspective on the mix of those 34, how do you see that?

And are any of those really geared towards trying to reverse the massive share losses you've had in APAC and EMEA over the last year?

So I think they spread across tiers and across experiences, and technologies.

So we expect to have more smart phones and QWERTY devices.

We expect to have additional announcements around touch and messaging and music and navigation and to strengthen the overall product portfolio in different geographies and tiers to make the overall spectrum of products more robust.

Richard Kramer, Arete Research.

Quick clarification maybe from Paul and then a question for Greg.

Paul, could you help us understand why cash flow might not have been a good that higher, given that working capital seemed to decline by about $600 million?

And also, maybe clarify if there was any currency impact of the very weak US dollar helping the sales, given the strength in EMEA, for example, mentioned in the Enterprise Mobility segment?

And for Greg, can you give us some thoughts, when you are thinking about the separation of devices, as to the sort of funding and balance sheet that devices might need to be a viable company on a stand-alone basis and, indeed, how the search for the CEO is progressing and whether we can expect an announcement anytime soon?

With regard to foreign exchange, let me take that one first.

Foreign exchange really has relatively little impact on our quarter.

Just to set some parameters up here, our sales mix at the total Motorola level is about 50-50 US to non-US.

Outside of the US, we still do a lot of business in US dollars or in currencies that we have not had much volatility to the dollar.

So I think that answers the foreign exchange.

I think the questions with regard to cash flow -- as I said, cash flow is a positive $204 million.

Mobile Devices improved sequentially, and as you recognized on the basis of receivables and inventory.

Home and Networks and EMS were particularly strong.

As I mentioned, we didn't repurchase any stock in the quarter.

And I think I want to reiterate again, for the full year, we expect net cash to be at a comparable level as the $4.3 billion in the fourth quarter of 2007.

In terms of the separation, as we talked about, we're preparing and planning to be ready in Q3 of next year, 2009.

I think it's fair to say that we need to make continued progress from an operating improvement and financial performance as well as continue with a level of predictability as well.

So think in terms of both progress and predictability, and we are committed to that course between now and Q3.

And just to add a little flavor for that, we took a charge.

The second-quarter charge related to third-party costs was $20 million.

In the next few quarters we expect it to be in the range of anywhere from $20 million to $30 million in charges.

With regard to the total cost of separation, it really is too early to comment.

Now I'll pass it back to Greg to talk about where we are on the search.

On the CEO search, I actually think we're making very good progress, and I will obviously keep you posted.

When we have something to announce, we will do so accordingly.

Edward Snyder, Charter Equity Research.

First, Greg, you pointed out how complex it would be to split out Mobile Devices from an IT, shared resources, a shared IT perspective.

Given that it is consuming so much of your cash flow, well over $1 billion a year, why do it?

What are the benefits that you would derive by spinning off Mobile Devices that are going to possibly offset costs, or more importantly, synergies (inaudible) Motorola?

And what is it going to do to make the division a better stand-alone business than it is already, in five months?

As I think we've said, I think that the industry has changed and Mobile Devices has changed as a segment.

So it's faster, it's more software oriented, it's more full and rich experience-driven.

And I think that a focused management team as well as recruiting a world-class CEO, which I think is increased from a recruiting standpoint, getting a world-class CEO at the prospect of running their own public independent company lends itself well to compete more effectively, to drive with greater speed and agility and also have a capital structure and an investment base that's more reflective of the markets that they serve.

I also believe that separation -- lots of folks focus on Mobile Devices.

I think it's very positive for the other businesses as well.

They have, in many cases, leading positions, very strong intellectual property there as well, strong distribution channels and, of course, the Motorola brand.

So I think that the bifurcation will do a good job of unlocking value and providing the requisite focus of the markets that they serve with the management teams and product portfolio.

To the last question you just addressed then, in terms of funding and capitalizing this, you indicated that you are going to have to improve things between now and the third quarter of next year, and that things are going to have to be more predictable, which suggests that we should probably see breakeven or something close to more reasonably funded losses in that division before it's reasonable to expect you to spin it out.

Or, are you dead set on a Q3 '09 spinout, irrespective of the actual performance?

So first of all, just to clarify, we are targeting Q3 of 2009 and preparing ourselves accordingly.

We know that we need to improve the profitability of Mobile Devices and maintain solid performance in the other businesses and have a level of predictability that's consistent with that performance.

So that is our target.

As Paul mentioned, from a cost standpoint we took a $20 million charge in Q2, and in Q3 expect that to be roughly in the range of $20 million to $30 million related to separation.

Mark Sue, RBC Capital Markets.

Greg, any thoughts on which niches you would like to focus on in Mobile Devices late this year and into next, understanding a lot of the new products will be UMTS?

Any more granular data would be appreciated, for example, the number of smart phones, any further segmentation.

And also, whether you are looking at a strategy to provide more consumer stickiness that you don't have to rely on rapid product cycle changes?

Sorry, Mark; your last part of the question was -- what?

Consumer stickiness, so that you don't have to rely on rapid product cycles, how you are going to keep consumers and customers so they don't (multiple speakers) quarter to quarter?

So, a couple of thoughts.

Yes, I believe that we will expand our smart phone portfolio.

I think that will be in QWERTY devices, as well as touch.

I think a good example of that is China this past quarter, in Q2, we have three smart phone touch products that refresh the MING portfolio.

There's a lot of different form factors that are driving improved messaging and smart phone, and I think that you'll see us participate in many of those, accordingly.

I think, from a stickiness standpoint, as you know, we acquired Soundbuzz in Asia.

From a music download experience, it has had pretty solid success.

And, I think that it's reasonable to see us target individual experiences that could enhance the utilization of the device both in software UI as well as Web access to certain repositories, and we'll continue to evaluate those opportunities accordingly.

Jim Suva, Citigroup.

A quick clarification point, and then my question.

The clarification point is, doing the math on the 34 launches in the second half, I just want to make sure that that's basically twice what you did in the first half.

And, those are new enhanced and new form factors rather than simple colors, as I'm getting a few e-mails saying they're just going to do a bunch of new colors.

But the main question then is, with all the restructuring, when do we get to the point -- is it Q4 when there's a step down in cost from some of the closing of your facilities and fixed cost overhead?

Isn't there coming a point when we'll actually see a step down even more in your cost structure from all these efforts?

Yes, the second half product launches in quantity will be approximately twice that in the first half.

And yes, I think it will be -- it's not just color spin, it's substantive, differentiated form factor devices on different technologies.

In terms of cost reduction, as I think Paul mentioned in his remarks, we targeted $1 billion of cost savings for 2008 with $220 million expected to come out of cost of goods and the rest out of below gross margin.

We are tracking to that and expect to achieve that.

For the first half of the year, we had $469 million of operating expense decline with about $300 million of that in Mobile Devices, approximately.

And we will continue to get at, between now and the second half of the year, the remaining reductions that reflect achieving that overall $1 billion.

And just with regard to the manufacturing footprint, we've already done a lot of work in that regard, and that's reflected in our numbers.

Having said that, we're always looking for opportunities to improve our cost structure going forward.

Jeffrey Kvaal, Lehman Brothers.

It seems that you've chosen to give out a lot of detail this quarter and go a little further out in guidance.

So I'm wondering if there's been an uptick in visibility.

Secondly, would you mind clarifying the ASP trajectory that we should be thinking about?

So, in terms of Q3, you know we've guided from breakeven to $0.02 positive excluding highlighted items on an operating basis, and $0.06 to $0.08 for the year, excluding highlighted items.

We just felt it was appropriate to provide that, given the current disposition and reflection of the businesses as we took another look in midpoint, and we think that that is reasonably reflective of our expectations at this point in time.

In terms of ASPs, we do forecast it going forward.

We did have a slight decline in Q2, as I mentioned, to $118.

But overall, we would expect gross margin dollars and anticipate that to expand Q3 over Q2 sequentially.

Again, I think that's primarily driven by new product introductions and the launches that we have planned.

So, just on the guidance extension out one further quarter, you guys have done a media review and feel a little bit more comfortable going out an extra quarter than you have in the past?

I just think that it was appropriate -- and Paul and I discussed this at length.

We thought it was appropriate to chalk the field in terms of our expectations for the second half of the year and then take that into account, obviously our strong Q2 performance, and guide accordingly for the full year vis-a-vis $0.06 to $0.08, which we believe is an annual reflection at this point in time.

Kulbinder Garcha, Credit Suisse.

Just one question, both on margins.

First of all, on Home and Networks Mobility and Enterprise Mobility, it seems that the margin that you are producing is much higher than we've seen for awhile.

I'm just wondering what specifically caused that margin to be higher?

[Was it just a top-line driven thing] in Q2?

And what's the sustainability of like a 9% Home and Networks margin going forward and the Enterprise Mobility margin of almost 19%?

Is that something going forward not only in Q3 but (inaudible) 12 to 18 is sustainable, or should it come down?

And on Mobile Devices, again, on margins and losses, did I hear you correctly?

You said that you had taken $300 million of cost out of Mobile Devices, but your operating losses aren't shrinking.

So are we to assume your gross margin is still declining in the Mobile Device business to as you consider the first half of '08?

Operator, we're having a lot of difficulty with that question on this end.

Is there anything you can do to improve the line, or we'll need to either have the question repeated or move on.

We could not understand the question on this end.

Sir, will you please pick up your handset and bring up the volume on your handset, as you say your question?

Okay, I'll try that again.

On the Home and Networks Mobility margin of 9%, and the Enterprise Mobility margin of 19%, what was the sustainability of that near-term and long-term, because it's higher than it has been for some time?

And second of all, on Mobile Devices, did I hear you correctly?

You said that there was a $300 million reduction in costs there in the first half of this year?

And so therefore, are we to assume from the fact that losses aren't shrinking that your gross margin is still declining in the Mobile Device business?

So, from a Home and Network standpoint, we do expect operating margin improvement year on year in both Home and in both Networks.

So, disaggregating those two as well.

From an Enterprise Mobility standpoint, we also expect operating margin improvement year over year.

So we are anticipating sales growth in Home and Networks Mobility and Enterprise Mobility.

And yes, we are also expecting operating margin expansion year on year in Home and in Networks and in Enterprise Mobility Solutions.

In terms of the operating loss that you referenced in Mobile Devices, it did narrow and improve Q2 over Q1.

And yes, we're also anticipating continued operating margin improvement in a narrowing and improving the operating loss in Q3 sequentially.

That will be a reflection of both OpEx savings that we referenced, which we anticipate to be about $600 million in Mobile Devices for the year, as well as gross margin improvement in Q3 to and a rebound in Q4.

Thank you.

And I would ask others to use the handset.

It would improve the audio on this end, so I would appreciate that.

David Wong, Wachovia.

Can you tell us what your channel inventory for handsets are looking like and how you expect this to trend in the second half as you ramp your new products?

Stock in channel inventory improved again.

It improved Q2 over Q1, and it improved again sequentially, which we feel pretty good about.

So we don't predict or give guidance around stock in channel, but we're pleased with the fact that we shipped 28.1 million units while also reducing absolute inventory levels and stock in channel.

And just a clarification to one of your earlier answers.

You held your handset share about constant in the June quarter.

You are expecting to lose some share in September.

Is this purely a matter of different geographic mixes for the markets in the two quarters, or is there something Motorola-specific that helps June quarter shipments?

Could you repeat the question one more time?

And I apologize, it's a little muffled.

You guys held share in handsets in the June quarter.

You guidance for September suggests some market share losses.

Was there something special in June where your June shipments were boosted, or is this purely a matter of what geographies things sell into in each of the quarters?

Yes, Q2 was strong, particularly in North America.

We gained share in North America.

One of the strong highlights of that was a new product introduced, the W755 and EVDO handset that's priced very competitively and appealing.

It comes in multiple product and color SKUs, and it's gotten very good traction in Verizon.

Brian Modoff, Deutsche Bank.

Going back to Ed's question on splitting up the company, none of the major handset vendors are stand-alone companies.

They're all part of another organization.

Product cycles have a lot to do with that.

So, again, why are you splitting that off?

How do you plan to fund it?

Do you plan to fund it all with internal resources, or are you going to just bring a third party in when you do break it up?

And, you said something earlier about the non-handset business having the Motorola brand.

Does that mean that the handsets will not have the Motorola brand when it's spun out?

First of all, on a clarification, we have made no decisions on brand and we will continue to evaluate in terms of the overall separation requirements, IP and legal and tax and capital structure.

But in brand, we have made no decisions at this point in time, and we'll update you accordingly when we do.

And then, with regard to what the separation will look like, it's too early to say what exactly part of the business is going to be separated.

So that's something we will announce later.

And then I'd just reiterate what Greg said.

We believe that by separating the businesses, the handset businesses, that it will unlock value for our shareholders, and that's what we plan on doing.

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 and guidance for the performance of its business segments; expectations for cost savings from the Company's ongoing reorganization activities; guidance for future sales, margins, profitability, ASP's or marketshare for each of Motorola segments and the total handset market TAM; expected time line of the separation of the Company into two independent companies and the expected costs associated with that; benefits expected from the additions to Mobile Devices' product portfolio; the impact on Motorola's performance and the financial results from strategic acquisitions and divestitures, including those that are reasonably completed, those that are pending and those that may occur in the future; expected timing for the announcement, launch and shipment of new products; cash generation and future cash balances.

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

Information about factors that could cause such differences can be found in this morning's press release on pages 18 through 27 and Item 1-A of Motorola's 2007 annual report on Form 10-K and in Motorola's other SEC filings.

This now concludes our call.

Thank you.

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

The presentation material and additional financial tables will soon be posted on Motorola's Investor Relations web site.

In addition, a replay of this call will be available over the Internet in approximately three hours.

The web site address is www.Motorola.com/investor.

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

Have a wonderful day.