Motorola 2006 Annual Report Download - page 43

35
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
‚Gains on Sales of Investments and Businesses Decreased by $1.8 Billion: In 2005, we recognized
$1.8 billion of net gains relating to our equity investments in other companies, primarily from gains on our
shares of Sprint Nextel Corporation (""Sprint Nextel''), and its predecessors. In 2006, net gains from the
sale of equity investments were $41 million, a decrease of $1.8 billion.
‚171.7 Million Shares of Motorola Common Stock Repurchased for $3.8 Billion: During 2006, the
Company repurchased 171.7 million of its common shares for an aggregate cost of $3.8 billion. In 2005,
when the Company initiated the first stock repurchase program in its history, it repurchased 41.7 million
common shares at a cost of $874 million.
What were the financial highlights for our three operating businesses in 2006?
‚In Our Mobile Devices Business: Net sales increased by $6.9 billion, or 32%, to $28.4 billion and
operating earnings increased by 23% to $2.7 billion. As the second largest worldwide supplier of wireless
handsets, we shipped 217.4 million handsets in 2006, up 49% from 2005, and gained more than
four percentage points of global market share to an estimated 22%. The gain in market share reflected
strong demand for our products, particularly our products for GSM and CDMA technologies. The segment
had higher net sales in High Growth markets (defined as countries in the Middle East, Africa, Southeast
Asia and India), North Asia, North America and Latin America, as a result of an improved product
portfolio, strong market growth in emerging markets, and high replacement sales in more mature markets.
Average selling price (""ASP'') decreased approximately 11% compared to 2005, driven primarily by an
unfavorable geographic and product-tier mix.
‚In Our Networks and Enterprise Business: Net sales increased by $43 million to $11.2 billion and
operating earnings were down 22% to $1.5 billion. The business had higher net sales in the Europe, Middle
East and Africa region (""EMEA'') and Latin America, largely offset by lower net sales in North America
and Asia. The business' slight increase in net sales reflected higher net sales in the private networks market,
offset by lower net sales in the public networks market. The decrease in operating earnings was primarily
due to: (i) a decrease in gross margin, due to an unfavorable product/regional mix and competitive pricing
in the public networks market, and (ii) an increase in reorganization of business charges, primarily related
to employee severance costs.
‚In Our Connected Home Solutions Business: Net sales increased by $456 million, or 16%, to $3.3 billion
and operating earnings increased by 46% to $224 million. The business had higher net sales in all regions.
Net sales of digital entertainment devices increased by 24%, driven by a product-mix shift towards higher-
end products, particularly HD/DVR set-top boxes. The segment continued to be the worldwide leader in
market share for digital entertainment devices. Net sales of cable modems increased 18%, primarily due to
increases in: (i) cable modem unit shipments, and (ii) ASPs, reflecting increased demand for voice-enabled
modems. The business retained its leading worldwide market share in cable modems.
What were our major accomplishments and challenges in 2006?
In 2006, Motorola continued to focus on increasing profitable sales and growing market share by building on
our vision of seamless mobility. We continued our expansion into developing markets, enhanced Motorola's
product portfolio with innovative and exciting new devices and solutions and built on the leadership position of
our three business segments through strategic transactions. Although we did not meet our operating earnings target
in our Mobile Devices business during the fourth quarter of 2006, we believe that Motorola remains well
positioned in our markets.
‚In Our Mobile Devices Business: During the year, Motorola's unit shipments grew faster than the total
market and faster than our top competitors. As a result, Motorola believes it expanded its global market
share in mobile handsets to approximately 22%, up more than 4 percentage points compared to 2005
market share.
The growth in unit sales was fueled by continued demand for the iconic MOTORAZR and new
additions to our product portfolio. Motorola shipped 50 new devices in 2006, including the MOTO Q, for
the customer who multi-tasks and wants flexibility in today's fast-paced business environment, and the
MOTOKRZR, for the customer eager to have the industry's newest ultra-slim and ultra-stylish handset.
Motorola also introduced the MOTORAZR (RED) and MOTOSLVR (RED), new wireless phones