Motorola, Inc. (MOT)
Financial Analyst Meeting
November 15, 2010 9:00 AM ET
Dean Lindroth – IR
Greg Brown – Co-CEO, Motorola & CEO, Motorola Solutions
Gene Delaney – EVP, Product & Business Operations, Motorola Solutions
Mark Moon – SVP, Government and Commercial Markets, Motorola
Ed Fitzpatrick – SVP and CFO, Motorola
Eduardo Conrado – Chief Marketing Officer, Broadband Mobility Solutions, Motorola
Please welcome to the stage Dean Lindroth, Vice President of Investor Relations.
Previous Statements by MOT
» Motorola Solutions Financial Analyst Meeting – Question-and-Answer Session Transcript
» Motorola Management Discusses Q3 2010 Results - Earnings Call Transcript
» Motorola Q2 2010 Earnings Call Transcript
Good morning everyone. Welcome to Motorola Solutions 2010 Financial Analyst Conference. For those of us here in New York with us today, you’ll find on your table, agenda for today’s meeting as well as the copy of today’s slides. We’ve also provided a survey, we value your feedback and would appreciate you completing that at the end of today’s meeting. For those of you on our webcast, also welcome. We will be short break about mid-morning at which time we’ll put the webcast on music hold, so you don’t need to login again. An audio replay of today’s event and the accompanying slides will also be posted on our website later today or first thing tomorrow morning.
A number of forward-looking statements will be made during today’s 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 these expectations 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 and in some cases have caused our results to differ materially.
You can consult these risks in our SEC filings. I hope you find today a very informative day. I’d like to now it turn it over to Greg Brown, CEO of Motorola Solutions. Greg?
Good morning and thank you for coming to the launch of Financial Analyst Meeting for Motorola Solutions. As you know we’ve been working pretty tirelessly for a long period of time towards separating the businesses. We announced it back in March of 2008. We didn’t think it would take this long but along the way we hit front and center one of the worst economic recessions in our time. So we have deferred but obviously continued along the path of separating Motorola into two businesses in Q1 of next year.
This morning we’re updating that, and now announcing that we are targeting separation for January, for some time in January of 2011. This is an exciting time for this business. I couldn’t be more pleased. We’ve got a leadership of both businesses. Mobility will be spun to the shareholders in January and as you remember the rational, they’re very different businesses. So one is Enterprise, one is consumer. Ours has solutions orientation. Mobility is more a device centric.
We’ve always believed and I’ve always believed that this bifurcation will unlock and unleash shareholder value. So the fact that it’s upon us and it’s happening in January is pretty exciting. It will afford both businesses increased strategic flexibility. For us in Motorola Solutions, appropriately sell, over the last few years, we’ve been redirecting capital towards the recovery and the turnaround of mobile devices. That was the right decision in terms of capital allocation and usage. Sanjay in Q3 announced a profit which is substantial, the first profit in 3.5 years you know the story on that end. Over 22 smartphones, great position, standardizing on Android, combining with the mobile – the connected home business for set-top box video. So it has great strength to launch as a consumer oriented organization.
Motorola Solutions is extremely well positioned. I think it gives us the opportunity to focus on this part of the portfolio with clarity, purpose and management focus. I think it’s also worth reminding you of a couple of things, Motorola Solutions, we are targeting to be solid investment grade at separation and also both companies will utilize the Motorola brand. Now Mobility will be the owner of the brand, but Motorola Solutions will have exclusivity, royalty free to the fields of use in Government, Public Safety, Military and the Enterprise which we think is very, very important.
I also point to you in terms of clarity and purpose, because I think that a lot of what we’re doing here, and I’ll talk about it in a minute with Eduardo Conrado, our Marketing Lead. This gives us renewed energy to define what Motorola Solutions is about. Both businesses will have the clarity and purpose to do the respective missions of what they’re set out to do. We in Motorola Solutions are defining what we call moments that matter. So on either side of the Enterprise, we are innovating to mobilize and connect people in critical moments that matter. It’s really truly a pretty exciting definition of the portfolio.
So what we’ll have post separation is an $8 billion company, worldwide leader in public safety, enterprise mobile computing, automated data capture, scanning, bar coding, RFDI. But it’s a business with a solutions orientation. It has an end-to-end set of characteristics where we are delivering infrastructure devices, software and vertically specific applications. So this isn’t a business that’s led by point transactions. It has the industrial grade, reliability, hardened characteristics for mission critical and business critical that distinguish and differentiate us in the portfolio and we’re clearly uniquely positioned and better positioned than anyone to pursue this.
If you take a look at the distribution of revenue, we will report in two segments, Government and Enterprise. Government will be about 65% of the revenue. Enterprise is 35%. I think the important thing to call out here is that there is growth in both segments. There will be growth in Government, robust growth and clearly robust growth in Enterprise as well. I think the other takeaway is that this is a global business that’s well diversified. We’ve had double-digit growth internationally in Q3, but most importantly it’s North America while it is our largest percentage of revenue. We also will see, and you’ll see some of the speakers reinforce the fact that North America represents an outstanding growth opportunity for us as well.
So as we move closer and closer towards separation, it’s that clarity of purpose. It’s the singularity and galvanization of all the associates of what we do. We have rolled this out, this marketing framework. This is not a tagline. This is the sole of what we do. This will permeate everything we do in our communications, in our customer engagements, in our discussions internally and externally and it is proven to be pretty inspirational with associates. It’s also universal in its appeal and international in scope. It says that in a crisis, in a moment that matters, with a critical shipment, or a critical transaction, it is the core of what Motorola Solutions does in situational awareness unparalleled reliability and delivery, uptime and when its needed, we are there in the moments that matter. Take a quick look at this and then I’ll reinforce more about what that means.
Just to reinforce and give you a quick compositive other examples both on the Government side and on the Enterprise side. We’re constructing these communications for internal consumption to rally associates around the world, but obviously they also tell the external real world story of what we did for customers. So you all are very familiar with miners in Chile and 33 guys, 69 days trapped, whatever it was, 3,000 feet below the ground and we had Motorola PRO professional and commercial 5150 radios that provided the critical response in moments that matter that allowed for successful evacuation and survivability there. Here this is just an example of our TETRA Network in Germany last year in G8.
Again unparalleled security requirement, mission critical availability and reliability, 170,000 conversations over a TETRA Networks for the G8 conference. And on the Enterprise side, again whether it’s a critical shipment, a package, a moment that matters to the enterprise to a retail customer, to logistics, to warehousing, we deliver that as well. So as we launch forward, and I think about the characteristics that make us successful and strong for a sustainable business financially going forward. We clearly have a Bluechip customer base. We are the number one market leader in virtually all of the remaining segments that we serve. We have worldwide scale. We will get into with presentations by Gene Delaney on the product and business operations side to give you a flavor of the width and breadth of the product portfolio that I think is unmatched in both Government and Enterprise and the areas that we compete.
The other thing to remember is that even though we take Motorola and there has been a lot that’s going on with the portfolio. And we’re spinning out Motorola Mobility and Motorola Solutions effectively launches today in our identity and characterization and then get separated in September. It’s the nucleus. It’s the core of Motorola Solutions that has often invented and or commercialized the products for what’s defined Motorola. Cellular was commercialized in Solutions. iDEN, P25 public safety, TETRA public safety, paging.
The point is that the core group of R&D people and the innovation and labs folks that are in Solutions at their very core have often defined technologies and/or launched their commercialized product that has defined multiple Motorola businesses and/or divisions that have been spawned from that point. I think you’re also going to find that we are in very attractive markets but even in the markets that we’re in, the addressable markets are expanding both core and growth and I’ll articulate what the differences between both, and we have many opportunities in front of us to pursue growth opportunities organically to drive top line and bottom line growth on the portfolio. And of course Ed Fitzpatrick will reinforce even more so the financial strength in the balance sheet that we expect to have at separation.
So you think of this, and this isn’t just a large install base. It’s international in scope. We’ve got 1,700 direct sales people worldwide, 25,000 indirect channel partners. The other important think is under Mark Moon, who you’ll hear from later this morning. We have taken the opportunity to integrate much of the go-to-market sales force and indirect channels. So whether it’s Government or Enterprise, there is opportunities for enhanced revenue synergies with both the Enterprise and the Government portfolio to be pumped through one go-to-market channel.
I think the other important takeaway here aside from the power of the go-to-market, we have an extensive relationship with value-added resellers, ISVs. So in addition to the power of the portfolio and the solutions that we have, they are being customized within these verticals, interconnecting to back-office functionality whether it be for Wal-Mart, or Home Depot or FedEx.
So it’s not just point product, it is hardware, software, applications and services customized through third-party partners and deployed vertically specific with software applications into the respective verticals. I think it’s also important to understand these aren’t point transaction relationships, these are multiyear client relationships. And while we have a great presence, the opportunity for deepening and expanding the relationships in the installed base of equipment that we have in terms of increased share of wallet, whether it be for a public safety installation, or a mobile computing or wireless LAN deployment for Home Depot, Gene Delaney and Mark Moon will highlight the opportunities that are in front of us to do that requisite expansion.
This is how we’ll look in terms of the scale and presence. We’ll have primary R&D in six countries, manufacturing in four, I would call primary manufacturing Reynosa, Mexico and Penang Malaysia, the US and Berlin, Germany are more assembly manufacturing. Employees in 65 countries, and a sales presence in over a 100 countries. This is not just a byproduct of separating the company. This is not just a residual of what we have. We worked three years to optimize and get to this structure. So if we were starting with a clean sheet of paper, would we look like this? Pretty much so yes. And we’ve taken the opportunities to optimize and rebalance manufacturing, integrate the supply chains of the respective organization, and also balance the engineering between high cost and low cost that takes advantages of the cost economies of low cost but also has the requirements around high cost in some of the higher value-add development that we do in the R&D engineering for public safety in the requisite engineering areas.