摩托羅拉 (MSI) 2009 Q3 法說會逐字稿

Good morning and thank you for holding.

Welcome to Motorola's third-quarter 2009 earnings conference call.

Today's call is being recorded.

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

The presentation material and additional financial tables are currently posted on Motorola's Investor Relations website.

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

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

At this time all participants have been placed in a listen-only mode, and the floor will be open for 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 to Motorola's third-quarter results conference call.

Today's call will include prepared remarks by Greg Brown, co-Chief Executive Officer of Motorola and CEO of Broadband Mobility Solutions; Sanjay Jha, co-Chief Executive Officer of Motorola and CEO of Mobile Devices; and Ed Fitzpatrick, Motorola's Chief Financial Officer.

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

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

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

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

Information about factors that could cause and in some cases have cause such differences can be found in this morning's press release on pages 18 through 30 in Item 1A of Motorola's 2008 annual report on Form 10-K and in Motorola's other SEC filings.

This presentation is being made on 29 October, 2009.

Contents 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 revealing or updating material that is contained herein.

I will now turn the call over to Greg.

Thanks, Dean, and good morning, and thanks for joining us.

Sanjay, Ed, Dean and I are originating our call this morning from New York City, following a very exciting day yesterday with Mobile Devices second smartphone product launch.

As most of you probably know, Sanjay was here in New York to launch our DROID smartphone with Verizon Wireless.

The device has received a terrific reception, and later in this call Sanjay will have a lot more to say about both of our new smartphones, as well as provide an update on Mobile Devices.

This morning we announced that we have appointed Ed Fitzpatrick as Chief Financial Officer for Motorola effective immediately.

Ed has been with the company for nine years and has served as the Company's acting CFO since February.

Previously he served as Corporate Controller and was CFO for the Home and Networks Mobility business.

Sanjay and I are thrilled to have someone of Ed's caliber take on this role, and we look forward to his continuing contributions to the Company.

Turning to the third-quarter results, this morning Motorola reported sales of $5.5 billion.

Net earnings excluding highlighted items of $0.02 per share exceeded the top end of our guidance.

Across the Company we continue to execute well and improve our operating and financial performance.

On a sequential basis in Broadband Mobility Solutions, we improved operating margin on slightly higher sales.

Mobile Devices significantly reduced its operating loss and, as I just mentioned, has announced new smartphone devices for the fourth quarter holiday season.

In all of our businesses, we continue to place significant focus on cost management, working capital, cash flow and the introduction of innovative new products.

We now expect to achieve $1.9 billion in operating expense reductions compared to 2008, up $100 million from what we indicated on our last earnings call.

Sequentially we further reduced inventory by over $130 million and improved our cash position by $700 million, ending the quarter with total cash of $7.2 billion.

Continuation of these efforts will drive further earnings improvement and positive operating cash flow in the fourth quarter.

I now want to turn the call over to Ed to cover the financial results in more detail.

Following that, I will be back to discuss Broadband Mobility Solutions, and then Sanjay will review Mobile Devices.

Ed?

In the quarter total sales were $5.5 billion and on a GAAP basis reported net earnings of $0.01 per share.

This includes net charges of $0.01 per share for highlighted items.

Highlighted items relate to an environmental reserve and costs associated with our ongoing efforts to prepare for separation into two independent public companies.

Details on these items can be found on our website.

Our remaining financial comments will exclude highlighted items.

Third-quarter earnings of $0.02 per share compared to a loss of $0.01 per share in the second quarter.

The increase in earnings was driven by an improvement in the gross margin percentage and a reduction in operating expenses.

Gross margin percentage was sequentially higher in Mobile Devices, largely due to product mix and further supply chain efficiencies.

The Enterprise Mobility Solutions segment gross margin percentage was up also sequentially due to a favorable product mix, and gross margin percentage in Home and Networks Mobility business was essentially flat.

With respect to operating expenses, we continue to maintain tight control on costs.

Compared to the end of 2008, we have reduced our headcount by approximately 9700 and also significantly reduced contract and temporary staffing levels.

In the quarter operating expenses declined by $486 million, a 23% reduction compared to the third quarter of last year.

And, as Greg noted, for the full year, we now anticipate an overall annual operating expense reduction of $1.9 billion with Mobile Devices realizing a reduction in excess of $1.4 billion.

Finally, our ongoing tax rate in the quarter was approximately 33%, and we expect a full year ongoing tax rate of between 34% and 35%.

Moving now to the balance sheet.

In the quarter we reduced inventory by $137 million, driven by a reduction in each of the business segments.

On a turns basis, we sequentially improved overall turns from 9.1 to 9.6 with Mobile Devices now achieving over 10 turns.

Total accounts receivable were also lower by over $280 million with DSOs declining sequentially from 61 to 57 days.

As a result of improved working capital efficiency and overall higher earnings, we generated operating cash flow of over $600 million and ended the quarter with total cash of $7.2 billion compared to $6.5 billion at the end of the second quarter.

During the quarter we repatriated over $300 million and increased our US cash position to $2.4 billion.

Turning now to our outlook.

Excluding items of the variety typically highly highlighted in our quarterly earnings releases, we expect fourth-quarter earnings to be in the range of $0.07 to $0.09 per share.

From a cash perspective, we anticipate our year-end balance cash position to be above current levels.

With that, I will pass the call back to Greg to discuss Broadband Mobility Solutions.

Thanks.

Broadband Mobility Solutions performed well in the third quarter and delivered sequentially higher sales, solid operating margins and reduced inventory.

We continue to focus on engaging with and satisfying our customers' evolving needs across all of our markets, and it is the economic conditions that are slowly improving.

As always, we remain vigilant on cost management and continue to direct our R&D efforts towards innovations to secure new opportunities and strengthen our market position.

Turning first to Home and Networks Mobility, third-quarter sales were $2 billion, comparable to the second quarter.

Operating margin, excluding highlighted items, was 9.9% compared to 10.2% in the second quarter.

As we communicated on our last call, the anticipated decline in operating margin was due to product and region mix in networks.

Home sales were approximately $900 million, including shipments of 3.3 million digital entertainment devices.

The addressable market continues to be adversely impacted by the macroeconomic environment, primarily related to the conditions in the US housing market.

So demand was below our expectations, and operators continue to manage their inventory levels very tightly.

We also continue to see some operators postpone video infrastructure purchases that carry longer return on investment time horizons.

Near term we anticipate continued pressure on the addressable market for home.

That said, we will continue to keep a tight rein on costs while not compromising the competitiveness of our portfolio or support to our customers.

As economic conditions improve, particularly in housing, we expect recovery in demand for HD, DVR and in home network solutions.

This, in turn, will further drive demand for more personalized consumer viewing experiences and advanced services that will require operators to reinvest in their networks.

Furthermore, competition in the industry will drive the need for higher broadband speeds, leading to network upgrades and increased demand for deep fiber architectures and DOCSIS 3.0 solutions.

We are well positioned to address these opportunities and will continue to target our R&D efforts on innovative end-to-end solutions and video and network infrastructure, as well as in consumer premise equipment.

During the quarter, for example, we launched our next-generation video platform for dynamically managing bandwidth, format and resolution to enable higher-quality consumer viewing experiences in emerging services such as 3-D television and multiformat output.

We also announced our IPTV open application software platform that enables operators to bring Web applications and user generated content to the TV.

As one of our green initiatives, we have a series of innovative IP settops that surpass new US and EU initiatives for low power consumption devices in the home.

And finally, yesterday we announced our plans to broaden our portfolio with a new low-end HD digital entertainment device.

In networks sales in the third quarter were approximately $1.1 billion.

The sequential sales increase was primarily in WiMAX and GSM.

In WiMAX we secured additional wins, launched two new devices, shipped our 1 millionth CPE device, and are incorporating emerging 802.16m standards into our product roadmap, establishing us and reinforcing us as a clear leader in this market.

For the full year, we now expect to achieve approximately $600 million in total WiMAX sales.

While sales in 2G and 3G technologies are declining, on a year-over-year basis, we continue to drive very strong operating margins.

That said, voice demand continues to be resilient, and some of our customers have seen strong demand for data-enabled devices.

This trend is lengthening the tail on our 2G and 3G businesses, businesses which will continue to generate solid operating margin and cash returns.

In LTE we continue to pursue a very targeted strategy, one that is centered around our radio access network solution and existing wireless network customers.

As you know, KDDI has selected us for development and implementation of their LTE mobile broadband network.

We also continue to work closely with other operators on their LTE trials.

Recently we successfully deployed the first live mobile demonstration of a TD-LTE network for China Mobile, our OFDM-based solution leverages our WiMAX R&D investment and expertise in the provisioning of commercial high-speed broadband networks.

This allows us to efficiently deploy capital and deliver innovative broadband solutions to our customers.

Turning now to the outlook for fourth quarter.

For our Home and Networks Mobility business on a sequential net basis, we expect sales to be flat to slightly down compared to the third quarter.

This reflects higher sales in home, offset by a decline in networks due to the impact of WiMAX revenue recognition in the third quarter.

Operating margin for the segment is expected to be comparable sequentially.

In the Enterprise Mobility Solutions business, third-quarter sales were approximately $1.8 billion, up 5% compared to the second quarter.

This was primarily due to an increase in government and public safety markets.

Sequentially enterprise markets were up slightly as we saw a modest increase in demand from our channel partners, an indication that conditions are beginning to improve.

Excluding highlighted items, operating margin for the segment was 17.3% compared to 13.9% in the second quarter.

The increase in operating margin was due primarily to the higher sales levels and product mix.

Sales in North America in the third quarter accounted for 59% of total sales.

Sales were higher sequentially driven by government and public safety markets, including improved traction in our indirect channel business.

During the quarter, which was marked by the 20th anniversary of the P25 standard, we secured significant awards from Pima County, Arizona and the cities of Philadelphia and Virginia Beach.

In EMEA and Asia-Pac, segment sales were essentially flat sequentially and accounted for approximately 23% and 13% of sales respectively.

In the quarter we saw good momentum in TETRA solutions with key orders in the Middle East, China, India and Germany.

In terms of innovation in the product portfolio, our new multiband APX 7000 portable radio platform provides system operability and eliminates the need to carry multiple devices.

We began shipping APX in the third quarter, and customer reception has been strong with Nebraska becoming the first state in the US to deploy APX in a statewide VHF P25 trunk network.

To complement the APX portable, we will begin shipping the APX mobile radio later this quarter.

We have also announced a line of APX control heads, which reduces the amount of equipment required in first responder vehicles and provides simplified one touch operational control.

Leveraging our industry-leading MC9000 with over 1.5 million units deployed, we also announced the new MC9500.

This is Motorola's most rugged mobile computer and is the first to provide 3.5G WAN with support for GSM HSDPA and EV-DO Rev.

A wireless broadband connectivity.

It delivers business-critical applications and data to mobile workers in the transportation and logistics, field service and public safety markets.

We also introduced the MT2000 series of rugged handheld barcode scanners that incorporates the benefits of a mobile computer.

A first in the industry, these devices are quickly and easily deployed and are intended for small and medium-sized enterprise customers.

We also expanded our portfolio in areas such as MOTOTRBO two-way radios, AirDefense Wireless Vulnerability solutions, and MESH networks.

As we look ahead at our markets in government and public safety, we expect demand to be up sequentially, including continued gradual recovery in the indirect channel.

Outside the US we continue to see solid near-term opportunities, particularly in the Middle East, parts of Asia and Latin America.

Regarding stimulus programs that have been implemented in the US and other countries, our go to market teams continue to work with customers who may be eligible for funding.

In the US, while we are beginning to see stimulus monies flow through to recipients, we expect these funds will largely offset other sources of revenue that have eroded in the current economic climate.

In the enterprise market, we believe the overall environment has stabilized, and demand trends from some of our largest channel partners are encouraging.

We anticipate that opportunities in these markets will continue to improve as economic conditions, especially in retail, store to recover.

Turning to our outlook for the Enterprise Mobility Solutions segment, in the fourth quarter on a sequential basis, we expect sales and operating margin to be higher with operating margin approaching the level of fourth quarter of last year.

In closing, Broadband Mobility Solutions will remain focused on strengthening our market positions, prioritizing our R&D investments on customer-driven solutions and innovations.

We will also continue to proactively manage our cost structure for competitive advantage and improve financial performance.

When market growth returns, we will be well positioned to take advantage of our investments and a more streamlined cost structure.

And with that, I will now pass the call over to Sanjay to discuss Mobile Devices.

Thanks, Greg, and good morning.

It is great to be here in New York today for our earnings call following yesterday's launch of our second smartphone in the US.

Back in April I said we would have Android-based smartphones in stores in time for fourth-quarter holiday season.

We have delivered on that commitment.

In September we announced CLIQ with our MOTOBLUR software solution.

Offered in the US through T-Mobile this device was launched as DEXT with several carriers in Europe and Latin America.

And just yesterday we announced our DROID device with Verizon Wireless.

But before I get into product details, I want to first discuss our third-quarter financial performance.

In the third quarter, Mobile Devices sales were approximately $1.7 billion on shipments of 13.6 million units.

From a regional perspective, our sales mix was similar to recent quarters.

Overall ASP was $124, comparable with the second quarter.

Other units declined.

We reduced our operating loss to $183 million, excluding highlighted items, comparable to compared to $238 million in the second quarter.

This improvement reflected the second consecutive quarter in which we sequentially increased gross margin percentage due to a more favorable product mix and further supply chain efficiencies.

In addition, the sequential reduction in both operating loss and inventory drove further meaningful improvement in our overall operating cash flow results.

Turning back now to our product portfolio, with the launch of our new smartphones, we have taken the first steps towards positioning ourselves to address the mobilization of the Internet and the growing demand for modern smartphones.

Our CLIQ device features MOTOBLUR, a Motorola-developed proprietary software solution that syncs contacts, posts messages, photos, e-mails, and delivers it to the home screen.

It comes with a built-in light widget -- it comes with built-in light widgets and allows users to prioritize their content and customize their user experience.

From the home screen, MOTOBLUR provides one tap access to a variety of destinations, including social networking sites and messaging accounts.

The remote wide feature provides security and peace of mind and is a major consumer satisfier.

The real power of this experience is evident when it's in the consumers' hands, and the user feedback that we have received thus far has been excellent.

CLIQ also features a full HTML browser, 5 megapixel camera, capacity of touch, and slideout QWERTY keyboard.

Outside the US CLIQ is known as DEXT and is shipping to Orange in UK and France, Telefonica in Spain, and American Mobile in Latin America.

Our DROID device is the first smartphone in the market to feature Android 2.0.

It delivers an ultrafast connection, unmatched browsing experience, voice search, multitasking functionality and access to thousands of our apps, all packaged in the finished QWERTY slider available today.

It features the 3.7 inch wide display, widescreen high resolution display, full HTML browser, video at 24 frames per second, 16 GB including memory and 5 megapixel camera.

These devices incorporate what is required in today's modern smartphones, including a large high-resolution display, over the air software update and upgrade capability, and a multithreaded multitasking graphical operating system.

The Android operating system is now the fastest-growing platform in smartphones.

Our new devices reflect our close working relationship with Google, and I wanted to thank the Android team for their support.

We look forward to continuing that collaboration as we deliver more devices to the marketplace.

In the fourth quarter, we will begin to expand our smartphone portfolio as we ship new devices to additional carriers and markets.

Our portfolio will be targeted at consumers, prosumers and other active social messaging conferred users.

These market segments, as you probably know, are growing at a high double-digit rate and faster than the enterprise market.

With our devices, we will continue to deliver differentiated functionality, especially in the area of integrated contacts and message management, multimedia and social collaboration.

The majority of our devices next year will feature our MOTOBLUR solution.

MOTOBLUR's robust functionality will be updated periodically and over time will be enhanced to solve other consumer problems.

Other devices such as DROID will deliver deeply integrated experience and will appeal to users seeking fast PC-like mobile Internet browsing and a vast array of apps and services.

The ecosystem around our smartphone devices is the second largest and fastest growing in the industry.

Today there are over 12,000 apps at a very early point in the Android platform lifecycle.

The ecosystem is supported by one of the largest development communities through MOTODEV, our global program for developers and independent software vendors.

Just a few weeks ago we hosted a MOTODEV Summit that drew over 800 participants, all working on innovative applications to deliver signature experiences to mobile consumers.

From an operational perspective, we continue to make progress.

We now expect operating expenses to be at least $1.4 billion lower than 2008 levels.

In supply chain we continue to drive simplicity, platforming and operational process improvement that will result in lower component pricing, improved inventory turnover and higher gross margins.

Moving now to our outlook, we expect fourth-quarter sales to be sequentially higher.

Overall units will be lower due to lower levels of feature phone shipments.

This will be partially offset by the ramp of our new smartphone devices.

With continuing improvements in mix and further supply chain efficiencies, we expect a sequential improvement in gross margin percentage and further reduction in the operating loss.

In 2010 we will launch a variety of new devices as we expand our smartphone portfolio across additional price tiers and carriers.

In iDEN we will continue to refresh the portfolio as we have this year.

In feature phones we anticipate a decline in profit fold due to some cannibalization by smartphones.

That said, our strategy in feature phone will center on reducing the number of devices, supporting the Motorola brand, utilizing ODM partners and minimizing supply chain risk.

In closing, I am very satisfied with the reception to our first smartphone devices and our differentiated MOTOBLUR experience.

I want to thank all of the Mobile Devices' employees for their focused execution in meeting our commitment to launch these devices in time for the holiday season.

I'm also pleased with where we are with respect to implementing our strategy.

Throughout next year we will continue to shift our product mix as we focus on addressing the smartphone opportunity and reduce our reliance on feature phones.

As a result, with increasing ASP and gross margin levels, together with a competitive cost structure, we expect to deliver significantly better financial results in 2010.

Now I will turn the call back over to Dean to start the question and answer.

Thanks, Sanjay.

Before we begin taking questions, we would 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 instructions on how to ask a question.

(Operator Instructions).

Ittai Kidron, Oppenheimer.

Thank you and congratulations, gentlemen, on a good quarter and guidance.

I guess this is a question for everyone.

I was trying to dig a little bit deeper into the gross margins performance.

Great progress on that front.

But, Ed and Sanjay, could you be a little bit more specific on the progress you have made in the third quarter within handsets just from a back of an envelope I am getting to around 3 to 4 points of sequential improvement in gross margin in that unit?

Can you comment if that is about right, and if so, what are the key drivers there?

And Sanjay, going forward into the next quarter, is it at this point less so about cost efficiencies, and now it is more about the product mix in your smartphones that is going to drive that going forward?

A couple of things.

On the margin improvement, you are in the right ballpark there.

The favorability and the margins were driven by a few different things.

Mix driving a piece of it, as well as supply chain efficiencies as Sanjay had mentioned.

So improvements in the sales and operations planning process leading to less excess and obsolete inventory and other savings driving these results.

I think those comments apply to Mobile Devices also.

I think mix, as we go from feature phones to smartphones, makes a big difference.

We have really focused on supply chain efficiency in Mobile Devices and our cash turn and managing our cash supply as well -- cash flow rather.

With respect to going forward, I think you are right that while we will definitely focus on further cost reductions, most likely we will look to reassign those savings in such a way that we drive our product portfolio in high -- our smartphone revenue.

So from here on, I think you're right in saying that our smartphone traction is the critical driver of our financial performance.

Mark Sue, RBC.

Sanjay, can we get a sense of when we might celebrate mobile devices turning breakeven?

Will it be mid next year, or will it be later?

And if for some unseeable reason we don't get the reception of the subsequent units for the DROID phones next year, will you consider further rightsizing the business?

Mark, let me maybe lay out a framework for thinking about this business in 2010.

I think about our portfolio in three segments.

There is the smartphone segment.

Then what I would call the feature phone segment in mature marketplaces, and then I would call feature phone or phone devices in emerging marketplaces.

Smartphone success for us in 2010 will drive almost singularly our financial performance in 2010.

The feature phone segment in mature markets, United States being a large part of it for us, but in mature markets in general, we see the volume as well as the profit pool declining.

And our strategy there would be to bring down our smartphone portfolio to address a larger segment of that marketplace.

And, as you look at both that feature phone segment and mature, as well as in emerging marketplaces, our work strategy is to address that with ODM collaboration.

And our objective there is to keep ourselves relevant with our carrier partners, as well as retail and extend our brand.

We will make modest profit there, but our expectation there and the strategy is to keep ourselves relevant and keep a full portfolio.

So, as you think about this, what I have said earlier is that I would be surprised if I don't breakeven in at least one quarter in 2010.

And I think that we continue to be committed to that objective.

To this last part of your question, if we don't get the reception, will we further rightsize?

Look, I think we have a very good portfolio.

We have already locked in our first-half 2010 portfolio with a large number of carriers, and I'm very much making progress in the second-half 2010 portfolio.

You guys know that this will be a very competitive marketplace, and the technology in this smartphone segment is evolving faster today than ever before.

And actually I think that Android and Google is playing a very meaningful role in that.

It will be a competitive marketplace, but we are getting very good traction.

But to your point I think we will -- we have shown in 2009 that we will address the financial circumstances that face us aggressively, and we are committed to the objective of delivering at least one breakeven quarter in 2010.

Maynard Um, UBS.

Sanjay, sorry if I missed this, can you just talk about operating margins for Mobile Devices next quarter?

I understand revenue is going to be higher on lower units and higher ASP.

But it looks like there's a big push here by Verizon Wireless for the DROID from advertising.

Can you talk about the sales and marketing and the operating margin impact and any color on corresponding demand whether you can fulfill it, component shortages and things like that?

If you could just clarify what that $19 million separation-related costs were?

I will take the first part of the question, and Ed will take the separation cost part.

In terms of operating margin, what I said in my prepared remarks that we will sequentially improve operating margin from third quarter to fourth quarter for Mobile Devices.

The second part of your question about any component shortages, I feel extremely good that we have done very, very good planning in working with Verizon Wireless.

But unless there is a rip roaring success of the quality that we have not planned for, we have good access to components and supply and planning to take care of good upside from our base case, and so I think I feel pretty good that we will be able to meet our demand.

On the separation costs, those costs relate to longer lead time items to effectuate the separation transaction.

So we've encouraged those in the third quarter.

Samuel Wilson, JMP Securities.

A question for Sanjay.

As you look just simply at the smartphone segment that you highlighted, in 2010 would you expect every new device to be launched on the Android platform, or would you expect any diversity in your operating systems?

At the moment a majority, the vast majority of our devices will be launched on Android platform.

But we are very open to other options here, and we are engaged in exploring other options.

But the vast majority, the vast majority will be Android.

Mark McKechnie, Broadpoint AmTech.

Sanjay, I know this is an optimistic type question for your Android platform, but can you give me a sense for your planning assumptions, and do you feel like you can scale if you get some unexpected high levels of demand, and are there any tight components that you need to be concerned about?

And then also I wanted to ask you about your opportunities in China.

Mark, I feel very good about our ability to meet demand.

We have spent a lot of time studying what has happened in the market when brand-new products, very successful new products, have been introduced and what has been that range.

We have worked with Verizon.

We have worked with their channels, and we feel very comfortable that we can meet the upsides that may come along.

Now there are always circumstances when the upside is too large.

I look forward to facing those challenges if they do arise.

But really I think I wanted to give you comfort that we have done very, very good planning around it.

On China, China is a very, very important market for us.

We continue to be very engaged, and we're working with all three operators.

We see China as a growth opportunity for us.

And we will -- we have very strong brand position in China, and we will make announcements regarding China as we get ready to deliver products there.

Edward Snyder, Charter Equity.

Sanjay, MOTOBLUR does not appear to be showing up on Verizon.

Is that just a launch issue?

Meaning are you pacing yourselves to get it all straightened out with T-Mobile first, and should we expect to see it at Verizon later?

And how far down in the portfolio do you expect Android to go in terms of your market?

I know you are talking about feature phones going off to ODMs to improve your profitability, but would they -- would we expect to see Android in any of those phones?

I'm just trying to get an idea of how far down you are propagating it.

Ed, MOTOBLUR will not be on DROID.

DROID is what we call a Google experience device, and that won't have MOTOBLUR.

As you know, DROID does have very good integration of social networking anyway.

But we will have MOTOBLUR capable devices on Verizon's network in 2010, and MOTOBLUR will be on the vast majority of our devices.

And, as I mentioned earlier, we are working to evolve MOTOBLUR to address other experiences, which will deliver similar aggregations, similar solving of the problems, similar push to the home screen, and our testing so far has indicated there has been a very good consumer response to our new experiences also.

I think that was all the question that I had.

How far down in their portfolio do we go with Android?

The feature phones I think I almost define as the tier that does not have Androids, but I would say that we will drive Androids in the price points we are very aggressively working to drive Android down to lower price points.

But I would then say that those were low-end smartphones as opposed to feature phones.

Tal Liani, Bank of America.

It is [Victor Carrion] on Tal's behalf.

A clarification and a question.

On the clarification, your OpEx reduction goals suggest over $100 million sequential growth in the fourth-quarter OpEx.

Is that reasonable, or do you think you're being a little conservative there?

And second on the question, Sanjay, perhaps you could give us a rough ballpark of what level of smartphone shipments -- you know, 5 million, 10 million, 15 million, whatever -- that you need next year to get to operating breakeven in the handset segment.

And also how you plan to stay ahead of the other Android players -- HD, CE, LG, Samsung, etc.?

So I will take the operating expense question that was asked sequentially.

I think the expenses we do expect to see related to the cost reductions, we will see some small reduction of the expenses on that part of it.

However, we do plan to ramp up the selling and marketing expenses, as Sanjay had mentioned, as well ahead of and in line with the rollout of the DROID and other smartphone products in Q4.

So that part of it will offset the reduced level of expenses from the cost reduction actions that we take.

On the Android competition, I think the number one thing that I would tell you is that I think that we will dramatically improve our execution.

We will deliver products.

We will leverage our platforms.

We will leverage the work that we are doing on one platform to deliver a number of SKUs and address a broader segment of the marketplace.

We will, as I say, I think we will deliver different segments and more geographies in 2010.

I think our brand name is going to be an important place that we make investments and make sure that we make that matter in marketplace.

I think our brand recognition in China, in US, and in Latin America is still one of the best of any brands.

I think we are more focused on Android, and I believe that we're putting more resources on Android than anybody else.

We have shown to you that we can differentiate by our own end-to-end solution MOTOBLUR, and we will continue to invest and evolve MOTOBLUR.

I think our design ID has always been a differentiator, and I believe that we have very good distribution relationships.

If you package all of that up, I think that we will become a much more efficient execution engine.

I think our supply chain we have spent a lot of time in 2009 making that more efficient.

I think the combination of these things really is what will make us more competitive.

In terms of the exact number of units that we need to breakeven, I have not guided you to that and I won't today.

But all I would say is that we are not expecting a dramatic increase in our market share to be able to get to a rational breakeven point.

Kulbinder Garcha, Credit Suisse.

I just have a clarification question.

The clarification is, Sanjay, you mentioned is it going to be new devices as opposed to on top of the DROID and CLIQ that are going to be launched this year, or is it various of these devices are going to be launched with other carriers?

That is my first question.

And secondly, just going forward on the OpEx side, going forward as you try to expand into new markets and new geographies, are you still comfortable going into 2010 as you keep OpEx in this business broadly flat, or do you think you have to start increasing it as you address new territories?

Okay.

The first part, I just want to make sure that in my prepared remarks I did not misspeak.

When I said that we will expand our smartphone portfolio in this shipment of new devices to additional carriers and markets, I meant for that to refer to first-quarter 2010 as opposed to fourth-quarter 09.

For fourth-quarter '09, I have guided two devices, and we have launched both the devices.

So I just wanted to clarify that if that makes sense.

In terms of OpEx --

On the OpEx I'm not sure if that was Mobile Devices specific.

We could talk it out.

Yes, that was Mobile Devices specific.

I think there it is going to be case-by-case basis.

As we see demand picking up, we will obviously unjust our cost structure as appropriate.

Right now we are going to take it --

I mean I think the commitment I would make to you is that we will manage our OpEx extremely aggressively, and we will invest in our brands and our distribution only if we see near-term returns from so doing.

Matt Hoffman, Cowen & Co.

Sanjay, it seems as though you are signaling with your lower sequential units commentary that despite all the Android smartphone launches, Mobile Devices may be leaving or substantially deemphasizing some segments of the handset market.

I was hoping you could supply some details there.

For example, will you still be in low-end GSM, or are you going to leave that market to Nokia and the Asian OEMs as you push Motorola's ASPs higher?

I think you are right.

I'm signaling that I'm not leaving that market.

Some of the products that we have today, the existing products, clearly the volumes on those are tailing off, and we have introduced our ODM strategy to address this marketplace.

And there is clearly a transition there that will happen while the existing products tail off in volume and the new ones ramp up.

But our strategy there is to have a full portfolio.

We don't see a large amount of profit pool in that tier, but it is important for us to play in that tier so that we can be relevant.

So we fulfill the needs of the carriers in the retail channels.

That is really the core part of our strategy.

The way to think about the financial performance of this division is to understand our smartphone success.

Richard Kramer, Arete Research.

Since most of the questions have been for Sanjay, I will ask one for Greg and also a brief clarification one for Ed.

For Greg, on balance when we look across broadband mobility for 2010, it seems you have outlined a bunch of puts and takes about potential growth opportunities.

Can we expect broadband mobility broadly to be a growth business in 2010?

And if so, can you just highlight the couple of areas where you think there might be substantial upticks in sales volumes?

And just for Ed, it seemed that a lot of the cash flow this quarter came from a very sharp working capital squeeze, and you suggested that you would have flat sales or sorry flat net/gross cash in fourth quarter.

Can you please lay out for us whether that means you think working capital is going to inflate again if sales come back, and also whether you have any plans for a change around the financing structure?

So, Richard, on broadband mobility, I think we are in a very good position across a number of segments.

I look at the P&L, and obviously we are not going to guide for 2010.

But I look at the P&L and the individual P&Ls as highly leveraged.

So we have rightsized the cost structure, and we will continually evaluate that.

But we are in a good position.

I think as the economy returns so returns or improves BMS.

Now there are some individual instances.

I think Home is more structural around housing.

I think Enterprise Mobility Solutions, both government and public safety and the traditional Enterprise Mobility business, or formerly Symbol, are very well positioned and have a great operating leverage P&L.

We talked about the operating margins in Q4 for this year approaching comparability to Q4 of last year, which was quite healthy.

The other nice thing is in EMB the Enterprise Mobility business nonpublic safety, it had a double-digit operating margin contribution in Q3.

So that team has done a really nice job and then continually refreshing product portfolio, etc.

Overall when I think going forward, we are well positioned in video.

We lead in IPTV.

I think video infrastructure spending should increase.

I think fiber architectures and passive optical networking will push further into the network.

Obviously WiMAX represents a steady contributor for us in the networks business, while 2G will continue to decline.

But networks is all about earnings and operating cash yield; not about assets.

And EMS, I think, is well positioned for growth.

On the cash flow question, I think I had mentioned that cash would be above where we are at the end of the third quarter.

So it will be up.

Your comment on working capital was appropriate, though.

I think the team has done a nice job of really accelerating the working capital improvements, and I talked about the inventory turns improving in each of the businesses and Mobile Devices growing over 10 in the third quarter, which is terrific.

So I think that piece of it kind of accelerated where we actually thought we would be by the end of the third quarter, and we were very pleased with the results for the quarter.

I do expect the fourth quarter working capital to be relatively flat to where we are as we continue to improve the metrics on turns and day sales outstanding.

But with the uptick in the business, as you know, working capital typically does follow, but I think we are pretty efficient in the cash conversion cycle metrics there.

On the financing structure, no plans at the current time, but, of course, we will continue to monitor it and be opportunistic as appropriate.

Simona Jankowski, Goldman Sachs.

Another question for Sanjay.

You had mentioned before that you are planning on launching about 20 smartphones next year.

Can you give us a rough sense of how many non-smartphones do you think you might launch with your ODM strategy?

And then I heard you saying that it is going to be a diminishing profit pool, but nonetheless you think you will still be profitable even at a low level.

Can you just outline how you think you can achieve that given that as you mentioned it is a shrinking market, you have lower volumes.

And clearly even this year, after all the cost cuts in that segment, it is still tough to achieve profitability.

In the ODM pool, I would say that we expect similar scale of additional product portfolio to the smartphone product portfolio.

That is the first thing.

The second thing to your point of how we would achieve profitability, I think that the way to think about it is that our gross margins will increase.

Our ASPs will increase in the smartphone segment.

And the feature phone segment in the US, I think some people would say that today over -- the fourth quarter this year, over 50% of the shipments in the United States will be smartphones, and that represents potentially as a large 70% of the profit pool in the United States.

So I think that you would see the profit pool, and particularly actually as we bring the tier down to 2010 and 2011, I really think that the growth in smartphone segment is faster than people I think may be recognized.

My sense is that there is not a huge amount of profit pool in feature phones, especially in emerging marketplaces.

Certainly in China that is different, and we will participate in China differently.

Latin America that is different, and we will participate in Latin America with feature phones differently and, of course, use our ODM strategy.

But I feel comfortable with the strategy that we are on for the financial objectives that we have set for ourselves.

Sanjay, just to clarify actually, the question was not on on how you will reach overall profitability in Mobile Devices, because I think I understand that strategy pretty well.

It was just specific to your comment that you think you can be profitable even just within the feature phone segment.

That is what I was wondering, how you are thinking you can achieve that on a lower scale?

So yes, on that one it is somewhat -- look, the first thing, today we are not.

I can tell you that in the feature phone scale today we are not profitable obviously.

The reason is that the supply chain has been very difficult to manage there, and the demand and the supply variation is what really causes us not to have profitability in that segment.

We will structure our deals in such a way to manage that risk extremely aggressively.

I think that is probably the best way to say it.

The scale there will not obviously be as large as some of the other players.

But I think if we choose our partners carefully and choose one or two partners, we believe that we can have very modest amount of profitability there.

Peter Misek, Canaccord Adams.

Just a question on carriers in Europe and how they look at their portfolios.

Sanjay, when you think about marketshare positions at some of these larger carriers, can you help us understand your strategy for gaining hero status at some of these European ones?

We have seen you do that here with Verizon.

What is sort of the strategy to entice these carriers to give you Hero status in Europe?

Peter, as I have said before, my focus for at least the first half 2010 is very much US, China, Latin America, and depending on how we perform there, we will go to Europe for Hero status.

But your point is very well taken.

Those Hero status decisions are kind of sort of getting made right now.

For those decisions, for us to get Hero status, in some ways we have to participate in a different way with them.

I think in Europe there are three to five large carriers.

We have very good relationships with some of them.

We have to deliver products, which are very compelling.

But some of them have their own services and own operating systems, and we have to very carefully evaluate if we want to participate.

And if we do, I think there is the possibility of getting that Hero status.

Also, I think there is additional brand investment that we would have to make in Europe, and we would have to make that judgment depending on whether we get Hero status and commitment from our carriers or not.

So there are two or three things, which are somewhat intertwined together.

Will we have to do new services and new operating systems, and will that get us Hero status?

And then will that allow us the revenue that then we would reinvest to build our brand name in Europe?

I think those are the kind of things to work through for us.

Tavis McCourt, Morgan Keegan.

Just one for Sanjay on the iDEN business.

Looking at Sprint's results this morning, it looks like the postpaid iDEN business is pretty weak there, but the prepaid continues to grow.

From a handset perspective for you guys, how are you viewing that business?

Is that still stable, or is that a declining business for you?

And then for Greg, I was wondering if you could just comment on WiMAX specifically?

Obviously a good quarter in recognizing revenue this quarter and about $600 million this year I think you said.

How should we view that next year?

Obviously I know you don't want to give guidance, but in terms of should it be somewhere around flattish with that, or should we expect it to be down a bit or up a bit just in terms of the rollouts that you see right now?

On iDEN, we see stable to modest declines in iDEN business next year.

Remember that our iDEN business involves Sprint, it involves NII, and some other business in the rest of the world.

And when we aggregate all three of them, we see relative amount of stability though probably a slight decline.

Yes, on the WiMAX side, we recognized $314 million of infrastructure -- WiMAX infrastructure revenue in Q3.

That is part of the reason why we are guiding revenues down slightly in networks because it was up as a result of previous periods.

It is revenue recognition from a longer sales cycle.

It is a little too early on [Tabis] for 2010, but for now I would say perhaps roughly comparable.

But recognize the timing of WiMAX revenues in 2010 and for that matter '09 are not necessarily linear.

They are a bit lumpy.

So we have to actually get a little bit more detail on the timing of the implementation, the acceptances and so on.

But broadly speaking I think you should target it in the comparable range, and I will update it on the next earnings call.

Jeff Kvaal, Barclays.

One question for Greg and a quick one for Sanjay as well.

Greg, could you talk a little bit about the 4G IP embedded in the networks business, and to what extent the bidding for the Nortel unit has changed any of your thought process there?

And then for Sanjay, you talked about the importance of smartphones for financial performance.

Could you give us some metrics about what kinds of unit volumes, etc.

the smartphone portfolio independently is generating?

Yes on 4G IP we feel pretty good overall about our competitive position.

In Motorola specifically we started investing in WiMAX several years ago.

You know on the infrastructure side, Motorola was not competitive on 3G UMTS.

So we made a conscious decision to partner with Huawei and redeploy and redirect R&D spending to 4G, specifically at the time several years ago WiMAX.

In the meantime WiMAX has grown as a business for us.

The addressable market will grow next year, but won't be of the size probably that we thought it was a few years ago.

But the portability or fungibility of the R&D spend on WiMAX to OFD and LTE we are taking of advantage of.

So we won KDDI.

We feel good about being one of two Rand vendors selected for trial with China Mobile.

So overall we feel pretty solid about our 4G IPR.

And Sanjay and I worked very closely because the IPR is not just on 4G, it is not restricted to infrastructure handsets.

It is both.

So we do things very collaboratively.

While we are focusing on our areas, we are very inclusive and as a team focused on maximizing the value of the IPR around 4G.

Jeff, could you just repeat the second part of the question for Sanjay if you would?

Sure.

Given the importance of the Android performance, I was wondering if you would be providing metrics separately for that number of units or ASPs or what have you?

As you know, Jeff, we have not provided that to use so far.

It is a thought that we will certainly consider.

Well, we have got you penciled in for 1 million units in the fourth quarter, Sanjay.

So we will have to figure out if you hit that or not.

Well, I've read your report.

Brian Modoff, Deutsche Bank.

Sanjay, a question around you keep talking about taking Android into the feature phone kind of category.

Are we talking having Android smartphones below $200 in 2010 as a wholesale ASP?

And then a question for Greg around the SMR business.

How do you see that business shaking out in 2010?

Do you think you can start to see a recovery in growth in that business next year?

Sorry, Brian.

On the ASP, to the question of whether Android could be taken below $200 for wholesale, without being specific about the negotiation and pricing and so on and so forth, but it is that kind of a range of pricing that will enable us to go address the feature phone marketplace with Android.

And we have various different strategies for doing that, but without saying whether it is 2010, 2011, whether it is $200 or $150 or $250.

But it is that kind of a range that we need to deliver to really expand the scope of where Android can play, and that is the scope of our strategy.

And, Brian, around SMR, if you are referring to basically or broadly government and public safety --

Yes, I am.

Yes.

We think we should be able to grow that business in 2010.

So I think that with the product portfolio refresh specifically around the APX portable that I referenced, we are starting to sell that into some .

That will get more traction in 2010.

That is a positive.

I think that there will still be opportunities around the stimulus money, although we are not counting or banking on that as any kind of hockey stick reward to drive the financials.

But we think it will be reasonably steady and balanced in 2010, and that will be a positive contributor.

And, quite frankly, on the lower end professional and commercial radio business, low-end walkie-talkie non-trunk business, which has been hit hard with the economy, there is no reason to think that cannot stabilize and begin to grow in 2010 as

Thanks.

And operator, we will take our last question.

Mike Walkley, Piper Jaffray.

Greg, just another question for you.

One, can you share maybe some market share trends in the cable business for you?

And then two, just wanted to flush out a little clarity as you talked about a longer tail for your GSM and CDMA businesses.

With the macro getting better and maybe some projects coming back, should we think of the rate of growth slowing in 2010 of your GSM and CDMA businesses?

So on the cable side, broadly I think we held share.

As I have said before, though, the exception to that is Comcast where we did not have a low-end HD set-top box.

We just announced that yesterday out in Denver.

So we are going to get back in the game there, and that is a positive trend.

We also lost some share at Comcast all-in when you count the DTAs, the digital terminal adapters on the very, very low end.

There are three different sources that supply that.

We are one of the three.

So when you calculate the overall share mix, it declines for Motorola.

That said, overall domestically as well as internationally I think we have held share very well.

We are investing in the long term, and there is no question that longer-term the trends still are there solidly for that business to recover.

On the 2G side, I think what is happening it is really positive actually.

But, first of all, you should expect the 2G business to continue to decline all-in.

I think the rate of decline perhaps will be a little less than what we thought maybe a year ago.

But with all the sophisticated mobile Internet devices and smartphone devices coming on to these respective networks, they are taking more and more bandwidth.

So people that have 2G are spending more on 2G and expansion.

3G, the same.

And obviously on LTE with carriers like Verizon and KDDI leading, those are positive trends for our infrastructure business.

So I think 2G does have a longer tail, but I still expect it overall to decline next year.

But again, we are going to be very conscious of it.

I think we have been pretty well versed in predicting the rates of decline and managing the P&L accordingly for earnings and cash maximization.

Thank you.

I would like to remind everyone that details outlining highlighted items, our GAAP to non-GAAP P&L reconciliations, and other financial information can be found on our Investor Relations website.

An audio replay, along with today's slides, will also be available shortly after this call.

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.

Expected timing for the announcement and launch and shipment of new products; expected operating expense reductions from the Company's ongoing reorganization activities; expectations for cash flow and total cash, levels and working capital in the fourth quarter of 2009; our expected ongoing tax rate for the full year of 2009; guidance for Motorola's earnings per share in the fourth quarter of 2009; expected capital expenditures by network operators and the size of the total addressable market in our home business, guidance for future sales, operating expenses, margins, profitability, ASPs or market share for each of Motorola's businesses; expected WiMAX sales in 2010, as well as 2009; plans for repatriation of funds from other jurisdictions; potential separation of Motorola's businesses into two publicly traded companies; strategy for Mobile Devices in 2010 around smartphones, including operating systems, availability of components for new products, plans for MOTOBLUR, strategy for Android-based phones in multiple tiers, feature phone and ODM strategies, smartphone segment growth, European strategy, iDEN business in 2010 and 4G strategy.

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 factors that could cause such differences can be found in this morning's press release on pages 18 through 30 in Item 1A of Motorola's 2008 annual report on Form 10-K and in Motorola's other SEC filings.

Thank you for joining us today.

This now concludes our conference call.

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