Motorola 2008 Annual Report Download - page 71

products and software, as well as ongoing investment in next-generation technologies, partially offset by savings
from cost-reduction initiatives. Reorganization of business charges increased due to employee severance costs and
expenses related to the exit of a facility. SG&A expenses decreased, primarily due to lower marketing expenses and
savings from cost-reduction initiatives, partially offset by increased expenditures on information technology
upgrades. As a percentage of net sales in 2007 as compared to 2006, gross margin and operating margin decreased,
and SG&A expenses and R&D expenditures increased.
The segment’s backlog was $647 million at December 31, 2007, compared to $1.4 billion at December 31,
2006. This decrease in backlog was primarily due to a decline in customer demand driven by the segment’s limited
product portfolio.
The segment shipped 159.1 million units in 2007, a 27% decrease compared to shipments of 217.4 million
units in 2006. The overall decrease reflects decreased unit shipments of products for all technologies. For the full
year 2007, unit shipments: (i) decreased substantially in Asia and EMEA, (ii) decreased in North America, and
(iii) increased in Latin America. Although unit shipments by the segment decreased in 2007, total unit shipments in
the worldwide handset market increased by approximately 16%. The segment estimates its worldwide market
share was approximately 14% for the full year 2007, a decrease of approximately 8 percentage points versus full
year 2006.
In 2007, ASP decreased approximately 9% compared to 2006. The overall decrease in ASP was driven
primarily by changes in the product-tier and geographic mix of sales. By comparison, ASP decreased approximately
11% in 2006 and 10% in 2005.
The segment has several large customers located throughout the world. In 2007, aggregate net sales to the
segment’s five largest customers accounted for approximately 42% of the segment’s net sales. Besides selling
directly to carriers and operators, the segment also sells products through a variety of third-party distributors and
retailers, which account for approximately 33% of the segment’s net sales. The largest of these distributors was
Brightstar Corporation.
Although the U.S. market continued to be the segment’s largest individual market, many of our customers, and
more than 54% of our segment’s 2007 net sales, were outside the U.S. The largest of these international markets
were Brazil, China and Mexico.
Home and Networks Mobility Segment
The Home and Networks Mobility segment designs, manufactures, sells, installs and services: (i) digital video,
Internet Protocol video and broadcast network interactive set-tops, end-to-end video delivery systems, broadband
access infrastructure platforms, and associated data and voice customer premise equipment to cable television and
telecom service providers (collectively, referred to as the “home business”), and (ii) wireless access systems,
including cellular infrastructure systems and wireless broadband systems, to wireless service providers (collectively,
referred to as the “network business”). In 2008, the segment’s net sales represented 33% of the Company’s
consolidated net sales, compared to 27% in 2007 and 21% in 2006.
(Dollars in millions) 2008 2007 2006 2008—2007 2007—2006
Years Ended December 31 Percent Change
Segment net sales $10,086 $10,014 $9,164 1% 9%
Operating earnings 918 709 787 29% (10)%
Segment Results—2008 Compared to 2007
In 2008, the segment’s net sales increased 1% to $10.1 billion, compared to $10.0 billion in 2007. The 1%
increase in net sales primarily reflects a 16% increase in net sales in the home business, partially offset by an 11%
decrease in net sales in the networks business. The 16% increase in net sales in the home business is primarily
driven by a 17% increase in net sales of digital entertainment devices, reflecting a 19% increase in unit shipments
to 18.0 million units, partially offset by lower ASP due to product mix shift and pricing pressure. The 11%
decrease in net sales in the networks business was primarily driven by: (i) the absence of net sales by the embedded
communication computing group (“ECC”) that was divested at the end of 2007, and (ii) lower net sales of iDEN,
GSM and CDMA infrastructure equipment, partially offset by higher net sales of UMTS infrastructure equipment.
On a geographic basis, the 1% increase in net sales was primarily driven by higher net sales in Latin America
and Asia, partially offset by lower net sales in North America. The increase in net sales in Latin America was
63
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS