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Motorola (MOT)

Q3 2010 Earnings Call

October 28, 2010 8:00 am ET

Executives

Gregory Brown - Co-Chief Executive Officer, Executive Director, Co-Chairman of Executive Committee and Chief Executive Officer of Motorola Solutions

Daniel Moloney - President of Motorola Mobility Business

Edward Fitzpatrick - Chief Financial Officer and Senior Vice President

Dean Lindroth - Corporate Vice President of Investor Relations

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Previous Statements by MOT
» Motorola Q2 2010 Earnings Call Transcript
» Motorola Q1 2010 Earnings Call Transcript
» Motorola, Inc. Q4 2009 Earnings Call Transcript

Sanjay Jha - Co-Chief Executive Officer, Director, Co-Chairman of Executive Committee and Chief Executive Officer of Mobile Devices and Home Businesses

Analysts

Tal Liani - BofA Merrill Lynch

Maynard Um - UBS Investment Bank

Mark McKechnie - Gleacher & Company, Inc.

Tavis McCourt - Morgan Keegan & Company, Inc.

Jim Suva - Citigroup Inc

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Ehud Gelblum - Morgan Stanley

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Kulbinder Garcha - Crédit Suisse AG

Simona Jankowski - Goldman Sachs Group Inc.

Presentation

Operator

Good morning, and thank you for holding. Welcome to Motorola's Third Quarter 2010 Earnings Conference Call. [Operator Instructions] The presentation material and additional financial tables are currently 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. [Operator Instructions] I would now like to introduce Mr. Dean Lindroth, Corporate Vice President of Investor Relations. Mr. Lindroth, you may begin your conference.

Dean Lindroth

Thank you, and good morning. Welcome to Motorola's Third Quarter Results Conference Call. Today's call will include prepared remarks by Greg Brown, co-Chief Executive Officer of Motorola and CEO of Motorola Solutions; Sanjay Jha, co-Chief Executive Officer of Motorola and CEO of Motorola Mobility; and Ed Fitzpatrick, Motorola's Chief Financial Officer. Dan Moloney, President of Motorola Mobility will join for the Q&A portion of the call.

A number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola, and we can give no assurance that any future results or events discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon representing our views as of any subsequent date. Forward-looking statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this presentation.

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 17 through 29 and Item 1A of Motorola's 2009 Annual Report on Form 10-K and Motorola's other SEC filings available for free on the SEC's website at www.sec.gov and Motorola Mobility Inc.'s Form 10 filing as amended and our Motorola's website at www.motorola.com.

This presentation is being made on the 28th of October 2010. The content of this presentation contains time-sensitive information that is accurate only as of the time hereof. If any portion of this presentation is rebroadcast, retransmitted or redistributed at a later date, Motorola will not be reviewing or updating the material that is contained herein.

I'll now turn the call over to Greg.

Gregory Brown

Thanks, Dean. Good morning, and thank you for joining us. Motorola had a very good third quarter across all of our businesses. On a year-over-year basis, overall sales, earnings and total cash are all higher. Additionally, we also continue to make excellent progress on our planned separation.

Our reported sales were $4.9 billion, up nearly 13% over the same period a year ago. This excludes the portion of the Networks business to be acquired by Nokia Siemens Networks, which is classified as discontinued operations. If we were to include sales from discontinued operations, sales would have been $5.8 billion, up 6% over the year-ago quarter. This is the first top line growth quarter for Motorola since the fourth quarter of 2006, and was driven by growth in Mobile Devices, Home and Enterprise Mobility Solutions.

Non-GAAP earnings, including both continuing and discontinued operations were $0.16 a share. This exceeded our guidance of $0.10 to $0.12 per share that we provided on the last earnings call. Ed will comment further on the reporting changes associated with our planned sale to NSN and our third quarter results in a few moments.

In the quarter, Mobile Devices increased smartphone shipments to 3.8 million units and achieved operating profitability on a non-GAAP basis. In Home, sales were up sequentially and operating margin was higher. In EMS, sales grew 9% year-over-year driven by strong demand in the Enterprise markets. Operating margin and cash generation were very strong as well. In Networks, financial performance also continued to be very strong, again, in the third quarter. Solid operating profitability, combined with continued balance sheet management resulted in $502 million of operating cash flow. As a result, total cash at the end of the quarter increased to $9 billion.

During the quarter, we made further progress in our plan to create two independent public companies, which included finalizing various company agreements and completing further updates to Motorola Mobility's Form 10 Registration Statement filed with the SEC. Separation of Motorola Mobility and Motorola Solutions remains targeted for some time in the first quarter of 2011.

I'll now turn the call over to Ed to provide additional details on the financial results for the quarter. I'll then come back to review Motorola Solutions and then Sanjay will discuss Motorola Mobility. Ed?

Edward Fitzpatrick

Thanks, Greg. I'll begin today by outlining the changes we have made in our financial reporting. First, financial results related to the portion of the Networks business to be acquired by NSN are now classified as discontinued operations. As such, they are not included in the Motorola reported sales or in earnings from continuing operations. Second, the results of operations for previously disposed businesses, which were deemed to be immaterial at the time of the disposition, have now been reclassified from the Enterprise Mobility Solutions segment as discontinued operations. These businesses include an Israel-based wireless network operator, the biometrics business and good technology.

The assets and liabilities of the portion of the Networks business to be acquired by NSN and the assets and liabilities of previously disposed businesses prior to the disposal are now reported assets and liabilities held for sale in the applicable reporting periods. Third, the iDen Infrastructure business and certain licensing activities formally related to the Networks business are now reported as part of the Enterprise Mobility Solutions segment. Finally, certain operating costs, which historically have been allocated to Networks are now allocated to EMS segment since the underlying activities will not be transferred to NSN. This is an understanding of these changes on a historical basis a revised presentation in the results of Motorola and EMS segment for 2007 to the first half of 2010 we recently filed in 8-K and can be found on our website. Previously reported segment results for Mobile Devices and Home are unchanged. With that, I'll turn to our financial results for the quarter.

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