Motorola 2008 Annual Report Download - page 73

The segment had operating earnings of $709 million in 2007, compared to operating earnings of $787 million
in 2006. The decrease in operating earnings was primarily due to a decrease in gross margin, driven by: (i) lower
net sales of iDEN infrastructure equipment, and (ii) continued competitive pricing pressure in the market for GSM
infrastructure equipment, partially offset by: (i) increased net sales of digital entertainment devices, and (ii) the
reversal of reorganization of business accruals recorded in 2006 relating to employee severance which were no
longer needed. SG&A expenses increased primarily due to the expenses from recently acquired businesses, partially
offset by savings from cost-reduction initiatives. R&D expenditures decreased primarily due to savings from cost-
reduction initiatives, partially offset by expenditures by recently acquired businesses and continued investment in
digital entertainment devices and WiMAX. As a percentage of net sales in 2007 as compared to 2006, gross
margin, SG&A expenses, R&D expenditures and operating margin all decreased.
In 2007, sales to the segment’s top five customers represented approximately 43% of the segment’s net sales.
The segment’s backlog was $2.6 billion at December 31, 2007, compared to $3.2 billion at December 31, 2006.
In the home business, demand for the segment’s products depends primarily on the level of capital spending by
broadband operators for constructing, rebuilding or upgrading their communications systems, and for offering
advanced services. During the second quarter of 2007, the segment began shipping digital set-tops that support the
Federal Communications Commission (“FCC”) — mandated separable security requirement. FCC regulations
mandating the separation of security functionality from set-tops went into effect on July 1, 2007. As a result of
these regulations, many cable service providers accelerated their purchases of set-tops in the first half of 2007.
Additionally, in 2007, our digital video customers significantly increased their purchases of the segment’s products
and services, primarily due to increased demand for digital entertainment devices, particularly HD/DVR devices.
During 2007, the segment completed the acquisitions of: (i) Netopia, Inc., a broadband equipment provider
for DSL customers, which allows for phone, TV and fast Internet connections, (ii) Tut Systems, Inc., a leading
developer of edge routing and video encoders, (iii) Modulus Video, Inc., a provider of MPEG-4 Advanced Coding
compression systems designed for delivery of high-value video content in IP set-top devices for the digital video,
broadcast and satellite marketplaces, (iv) Terayon Communication Systems, Inc., a provider of real-time digital
video networking applications to cable, satellite and telecommunication service providers worldwide, and
(v) Leapstone Systems, Inc., a provider of intelligent multimedia service delivery and content management
applications to networks operators. These acquisitions enhance our ability to provide complete end-to-end systems
for the delivery of advanced video, voice and data services. In December 2007, Motorola completed the sale of
ECC to Emerson for $346 million in cash.
Enterprise Mobility Solutions Segment
The Enterprise Mobility Solutions segment designs, manufactures, sells, installs and services analog and digital
two-way radio, voice and data communications products and systems for private networks, wireless broadband
systems and end-to-end enterprise mobility solutions to a wide range of enterprise markets, including government
and public safety agencies (which, together with all sales to distributors of two-way communication products, are
referred to as the “government and public safety market”), as well as retail, energy and utilities, transportation,
manufacturing, healthcare and other commercial customers (which, collectively, are referred to as the “commercial
enterprise market”). In 2008, the segment’s net sales represented 27% of the Company’s consolidated net sales,
compared to 21% in 2007 and 13% in 2006.
(Dollars in millions) 2008 2007 2006 2008—2007 2007—2006
Years Ended December 31 Percent Change
Segment net sales $8,093 $7,729 $5,400 5% 43%
Operating earnings 1,496 1,213 958 23% 27%
Segment Results—2008 Compared to 2007
In 2008, the segment’s net sales increased 5% to $8.1 billion, compared to $7.7 billion in 2007. The 5%
increase in net sales reflects an 8% increase in net sales to the government and public safety market, partially
offset by a 2% decrease in net sales to the commercial enterprise market. The increase in net sales to the
government and public safety market was primarily driven by: (i) increased net sales outside of North America,
and (ii) the net sales generated by Vertex Standard Co., Ltd., a business the Company acquired a controlling
interest of in January 2008, partially offset by lower net sales in North America. On a geographic basis, the
segment’s net sales were higher in EMEA, Asia and Latin America and lower in North America.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS