Q4 2004 Motorola Inc. Earnings Conference Call Presentation

Q4 2004 Earnings Release – January 18, 2005MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. .

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Motorola Q4 2004 Earnings Release Conference Call

January 18, 2005


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Ed Gams

Senior Vice Presidentof Investor Relations

Motorola Inc.

Q4 Earnings Release – January 18, 2005MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office.

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Safe Harbor StatementA number of forward-looking statements will be made during this conference call. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, Motorola’s actual results could differ materially from these statements. Information about factors that could cause, and in some cases have caused, such differences can be found in this afternoon’s earnings press release, on pages 76 through 85 of Motorola’s 2003 Annual Report on Form 10-K and in Motorola’s other SEC filings.

This presentation is being made on the afternoon of January 18, 2005. 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.

MOTOROLA and the Stylized M Logo are registered in the US Patent & Trademark Office. All other product or service names are the property of their respective owners. © Motorola, Inc. 2004


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Ed Zander

Chief Executive OfficerChairman of the Board of Directors

Motorola Inc.


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1/18, 2004 Conference CallFull-Year 2004 PrioritiesEarnings Improvement

Revenue/Market Share

New Product Execution

Key Customer Relationships

Strengthen Brand

Prioritize Key IP Investments/Rationalize Strategy

vv

vv

vv

vv

vv

vv


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David Devonshire

Chief Financial OfficerExecutive Vice President

Motorola Inc.


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Motorola Inc. Q4 Financial Results

56%$0.18$0.28Earnings Per Share From Continuing Operations

27%$6,935$8,842Sales $M

Fav (Unfav)Q4’04/Q4’03

Q4 2003

Q4 2004


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Motorola Inc. Annual Financial Results

0.9 ppts.32.7%33.6%Gross Margin %

133%$0.39$0.91Earnings Per Share From Continuing Operations

35%$23,155$31,323Sales $M

Fav (Unfav)Q4’04/Q4’03

Annual 2003

Annual 2004


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Gross Margin From Continuing Operations

% of Sales

31.8%

33.6%

30%

35%

Q4'03 Q4'04


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Research & Development Expenses From Continuing Operations

$ in Millions

27.5%

9.2%10.1%

31.7%

$500

$700

$900

Q4'03 Q4'048.0%

16.0%

24.0%

32.0%

R&D $ R&D % to Sales R&D % GM


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Selling, General and Administrative Expenses From Continuing Operations

$ in Millions

14.5%

12.4%

$750

$1,000

$1,250

Q4'03 Q4'0410.0%

15.0%

20.0%

% NSAD


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Operating Margin % From Continuing Operations% of Sales

0.9%

1.6%

0.3%

6.7%8.6%

11.7%

0%

2%

4%

6%

8%

10%

12%

Q4'03 Q3'04 Q4'04

GAAP

Excluding Reorg./GoodwillImpairment

7.6%

10.2%

12.0%


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Cash Flow and Debt From Continuing Operations

$0.6$0.22

$0.7$0.29

Q4 2004

$2.6$1.07

$3.1$1.27

Annual 2004

($ in Billions)

Free Cash FlowPer Share

Operating Cash FlowPer Share

($0.1)$5.4Net Cash/ (Net Debt)

($5.3)

($4.6)

($0.7)

$10.7

Year-End2004

($8.1)TOTAL DEBT

($7.2)Long Term Debt/TOPrS

($0.9)Short Term/Current Debt

$ 7.9Cash/Equiv/Mkt Sec

Year-End 2003

Cash Flow Cash & Debt

($ in Billions)


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Q1 2005 Outlook

$0.17-$0.20Earnings Per ShareContinuing Operations

$7.5B-$7.9B

Q1 2005

Sales


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Personal Communications Segment – Q4

Up 3.2 pts.Up 2.9 pts vs. Q3’04Up 1.6 pts vs. FY’03

16.6%

15.2%

Market Share – Q4

Market Share Full Year 2004

Up 6.7 ppts10.6%Operating Margin

Up 42%Up 39%

31.8M104M

Units Q4Units Full Year 2004

Up 314%$526Operating Earnings $M

Up 51%$4,947Sales $M

Q4’04 vs. Q4’03Q4 2004


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Q4 2004: Motorola “Must Haves”

V710 CDMA

Motorola V3 / Razr E1000 3G/UMTS


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Q4 2004: Sampling of New Handsets

V975 3G/UMTS

V980 3G/UMTS

A1000 3G/UMTS

MPx220 –GSM and Windows Mobile OS

i265 iDEN

MPx – WiFi andWindows Mobile OS

C975 3G/UMTS

C980 3G/UMTS

i833 iDENBaby Phat


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Q4 2004: Sampling of New Handsets

V551 Edge

V620 GSM

C381p PoC - GSM

V260 - CDMA V510 - CDMA

A630 - GSM

V550 GSM

C215 - CDMAV265 - CDMA

A668 GSM


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Personal Communications Segment – Q4

• #1 in North America, Now # 3 in Europe• Shipped 20 New Handsets in Q4• 50% Cameras, 70% Color • 55% Increase in Java/Linux Handsets vs. Q3• 1.7M UMTS/3G Handsets; 3M in 2004• Low Channel Inventory• Push-To-Talk Leadership• MotoPro For Windows Mobile Users


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Mobile Device Summary


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Global Telecom Solutions Segment


Up For FY 2004Market Share

104%$281Operating Earnings $M

Up 2%Up 24%, FY ‘04

$1,389Sales $M

Q4’04 vs. Q4’03Q4 2004


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n Three-Year Extension of Supply Agreement With Nextel.

n Executed Next Generation IP Based PTT Development Contract With Nextel.

n Extended Infrastructure Agreement With Sprint -Upgrade To EV-DO.

n China Unicom – CDMA2000 1X Expansion.

n New Contracts With Push-to-Talk Over Cellular -Now Have 23 Contracts in 27 Countries.

Global Telecom Solutions Segment – Q4


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New “Networks” Organization

• Next Generation IP Networks• Wireless and Fiber Broadband Access• Standards Based Cellular Infrastructure• Embedded Communication Infrastructure

Computing Platform• Application and Content-Managed Services


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Commercial Govt. and Industrial Solutions Segment

(3.2 ppts)16.2%Operating Margin

(14%)$207Operating Earnings $M

Up 3%$1,280Sales $M

Q4’04 vs. Q4’03Q4 2004


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Commercial, Government, and Industrial Segment – Q4

• U.S. Postal Service Award - $294M

• Austrian Ministry Interior Award, Country-Wide TETRA Network

• Statewide Awards - New Jersey, Wyoming, and North Dakota

• York County, SC Award For High-Speed Private Data System

• New Softswitch Technology, MOTOBRIDGE IP, To Be Deployed By State of Florida

• MeshNetworks, Inc. and CRISNET Acquisitions


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New “Government and Enterprise Mobility Solutions” Organization

• Government

• Enterprise

• Automotive


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Integrated Electronic Systems Segment

(3.9 ppts)6.0%Operating Margin

(33%)$42Operating Earnings $M

Up 5%$703Sales $M

Q4’04 vs. Q4’03Q4 2004

• Received $1.1B in Multi-Year Awards – NA, Asia, Europe

• Force Integration Complete - #1 in Embedded Communication Computing Market


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Broadband Communications Segment


Profit vs. Loss$47Operating Earnings (Loss) $M

Up 25%$691Sales $M

Q4’04 vs. Q4’03Q4 2004


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Broadband Communications Segment – Q4

• HD/DVR Units Up 29% Versus Q3’04• Shipped 1.6M Digital Entertainment Devices –

Best Quarter in 3 Years• CMTS Revenue Up 65% Sequentially• Taiwan Broadband Communications Contract• New Verizon Contract To Provide Digital Voice

Network Infrastructure and Premise Equipment In Support of Their FTTP Network

• Acquired Ucentric Systems, a Leading Provider of Home Media Networking Software


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New “Connected Home” Organization

• Cable• Video Over Fiber• Next Generation STB’s• Connected Home Solution

– Media Gateway – Home Monitoring– Home Security


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Connected Home Solutions

Motorola OjoPersonal Video Phone

HD/DVR Dual Tuner Set-top

Home Monitoring and Control


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New Organizational Structure

Mobile Devices

Networks

Government and Enterprise Mobile Solutions

Connected Home Solutions

Technology

Strategy / Business Development

Corporate Marketing

Supply Chain

Information Technology

Finance

Legal

Human Resources

Functional Functional LeadershipLeadership

Competencies / Competencies / Thought LeadershipThought Leadership

Product Product BusinessesBusinesses

MotorolaMotorola

Quality / Customer SatisfactionQuality / Customer Satisfaction


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2005 Priorities

• Execution

• Improve Financial Performance

• Customer “Delight’/Quality

• Market Share/Thought Leadership

• “WOW” Products/End-to End Solutions

• Organizational Efficiency

• Refine and Execute On Strategic Direction


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Chief Executive OfficerChairman of the Board of Directors

Ed Ed ZanderZander

Motorola Q&A Participants

David DevonshireDavid Devonshire

Ed GamsEd Gams

Executive Vice President Chief Financial Officer

Senior Vice PresidentInvestor Relations

Ron Ron GarriquesGarriquesExecutive Vice President

President, Mobile Devices Business


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Use of Non-GAAP MeasurementsIn addition to the GAAP results provided during this conference call, non-GAAP measurements, which present operating earnings on a basis excluding charges relating to the separation of FreescaleSemiconductor, Inc, goodwill impairment, and severance charges have been provided.

Motorola has provided these non-GAAP measurements as a measure to help investors better understand its core operating performance, enhance comparisons of Motorola’s core operating performance from period to period and to allow better comparisons of Motorola’s operating performance to that of its competitors. Among other things, the Company’s management uses these operating results, excluding the identified items, to evaluate the performance of its businesses and to evaluate results relative to incentive compensation targets. Management uses operating results excluding these items because they believe this measure enables them to make better period-to-period evaluations of the financial performance of its core business operations. There are inherent limitations in the use of operating results excluding these items because the company's GAAP results do include the impact of these items. The non-GAAP measures are intended only as a supplement to the comparable GAAP measures and the company compensates for the limitations inherent in the use of non-GAAP measures by using GAAP measures in conjunction with the non-GAAP measures. As a result, investors should consider these non-GAAP measures in addition to, and not in substitution for, or as superior to, measures of financial performance prepared in accordance with GAAP.

Details of the these items and reconciliations of the non-GAAP measurements provided during this call to GAAP measurements can be found: (i) in the Form 8-K filed by Motorola on January 18, 2005 (which attached this afternoon’s earnings press release), and (ii) within the text of the slides that accompany this webcast. Each of these items can be found on Motorola’s website at www.motorola.com/investor


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Safe Harbor Statement

During this call we have made a number of forward-looking statements that are based on current expectations and involve risks and uncertainties. Such forward-looking statements include, but are not limited to, our comments and answers relating to the following topics: (1) expectations for Motorola sales and earnings per share for Q1 2005; (2) expectations for sales, profitability, operating earnings, operating margin and market share for each of Motorola’s segments; (3) the timing, sales impact and pricing of new products; and (4) potential benefits from Motorola’s process optimization activities.

Motorola’s actual results could differ materially from those stated in the forward looking statements and information about factors that could cause such differences can be found in this afternoon's press release, on pages 76 through 85 in Motorola’s 2003 Annual Report on Form 10-K and in Motorola’s other SEC filings.


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Reconciliation of Non-GAAP items discussed during this callFull Year 2004 earnings from continuing operations, excluding items highlighted in quarterlyearnings press releases:

Q4 2004 PBT Tax PAT EPS ImpactGain on Sale of Investments 93$ 36$ 57$ Goodwill Impairment (58)$ -$ (58)$ Reorg Reversals 28$ 10$ 18$ Loan Reserve Reversals 23$ 9$ 14$ IPR&D (17)$ -$ (17)$

14$ 0.006$

Q3, 2004 PBT Tax PAT EPS ImpactGain on Sale of Investments 195$ 73$ 122$ Debt Retirement Fees (81)$ (31)$ (50)$ Goodwill Impairment (67)$ -$ (67)$ Reorg Charges (55)$ (20)$ (35)$ Tax Audit Settlement -$ (39)$ 39$

9$ 0.004$

Q2, 2004 PBT Tax PAT EPS ImpactTax Benefit -$ (197)$ 197$ Reorg Reversals* 21$ 9$ 12$ Loan Reserve Reversals 21$ 8$ 13$ Deferred Gain 20$ 8$ 12$ Recovery of Impaired Invst 20$ 20$ IPR&D (15)$ (15)$

239$ 0.099$

Q1, 2004 PBT Tax PAT EPS ImpactGain on Sale of Investments* 130$ 50$ 80$ Reorg Reversals* 12$ 4$ 8$

88$ 0.036$

Total EPS Impact 0.14$ Reported EPS 0.91$ EPS Excluding Highlighted Items 0.77$

* Indicated items have been adjusted to exclude portions attributable to Freescale Semiconductor, Inc.

Full Year 2003 earnings from continuing operations, excluding special items

2003 Full Year Net Earnings Per Share 0.38$ 2003 Full Year Net Earnings Per Share Excluding Special Items 0.25$ 2003 Full Year Special Items Per Share Attributable to Freescale Semiconductor, Inc. (0.02)$

0.27$

Economy & Finance

Q4 2004 Motorola Inc. Earnings Conference Call Presentation