Motorola Inc. CEO JHA SANJAY K bought 200000 shares on 2-05-2009 at $3.67
We provide technologies, products and services that make a broad range of mobile experiences possible. Our portfolio includes wireless handsets, wireless accessories, digital entertainment devices, wireless access systems, voice and data communications systems, and enterprise mobility products. With the rapid convergence of fixed and mobile broadband Internet and the growing demand for next-generation mobile communications solutions by people, businesses and governments, we are focused on high-quality, innovative products that meet the expanding needs of our customers around the world.
Motorola is a market leader in the following businesses:
â˘ The Mobile Devices business designs, manufactures, sells and services wireless handsets with integrated software and accessory products, and licenses intellectual property.
â˘ The Home and Networks Mobility business designs, manufactures, sells, installs and services: (i) digital video, Internet Protocol (âIPâ) video and broadcast network interactive set-tops (âdigital entertainment devicesâ), end-to-end video delivery solutions, broadband access infrastructure systems, and associated data and voice customer premise equipment (âbroadband gatewaysâ) to cable television and telecom service providers, and (ii) wireless access systems (âwireless networksâ), including cellular infrastructure systems and wireless broadband systems, to wireless service providers.
â˘ The Enterprise Mobility Solutions business 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, as well as retail, utility, transportation, manufacturing, healthcare and other commercial customers.
Motorola is a corporation organized under the laws of the State of Delaware as the successor to an Illinois corporation organized in 1928. Motorolaâs principal executive offices are located at 1303 East Algonquin Road, Schaumburg, Illinois 60196.
Motorola reports financial results for the following three operating business segments:
Mobile Devices Segment
The Mobile Devices segment (âMobile Devicesâ or the âsegmentâ) designs, manufactures, sells and services wireless handsets with integrated software and accessory products, and licenses intellectual property. In 2007, the segmentâs net sales represented 52% of the Companyâs consolidated net sales.
Principal Products and Services
Our wireless subscriber products include wireless handsets with related software and accessory products. We also sell and license our intellectual property. We market our products worldwide to carriers and consumers through direct sales, distributors, dealers, retailers and, in certain markets, through licensees.
The overall wireless handset industry remains strong. Total industry shipments of wireless handsets (also referred to as industry âsell-inâ) increased to approximately 1.14 billion units in 2007, an increase of approximately 16% compared to 2006. Demand from new subscribers was strong in emerging markets, led by India and China. Replacement sales in highly-penetrated markets were also strong due to generally favorable economic conditions, as well as compelling new handset designs, attractive handset features and the increased roll-out of high-speed data networks, all creating greater demand.
Industry forecasters predict that the wireless handset industry will continue to grow over the next several years, although the annual rate of growth is expected to be in the 10% range as opposed to the approximately 20% average annual growth the industry experienced from 2003 through 2007. Continued growth is expected to be driven primarily by demand from new subscribers in emerging markets and replacement sales from the current subscriber base.
Motorola seeks to be a leading supplier of wireless handsets and mobile experiences to customers globally. To accomplish this objective, our strategy is focused on improving our product portfolio to meet consumer demands and improving our financial performance. This includes transitioning to silicon and software platforms that enable us to lower costs, get to market faster and offer richer consumer experiences.
We have structured our mobile device product portfolio and development into four primary product segments: Mass Market, Feature, Multimedia and Productivity. Our strategy is to offer a broad array of products in each of these product segments.
The Mass Market product segment focuses on voice-centric devices with targeted features. While this segment is maturing in North America, Europe and parts of Asia, it is growing significantly in developing regions. To address this market, we are expanding our handset offerings around our new W Series of handsets. These handsets satisfy everyday communications needs, include targeted features and are offered at affordable price points across all regions and in both CDMA and GSM technologies. The key to our success in the Mass Market product segment is offering products at competitive price points.
The Feature product segment focuses on delivering iconic, fashionable phones with high-end features. During 2007, we refreshed our flagship RAZR franchise with the RAZR2, the luxurious RAZR2 V8, and a RAZR classic with video playback and a digital audio processor music player. We are focused on building an enhanced portfolio of Feature phone devices that deliver compelling 2G and 3G mobile experiences.
The Multimedia product segment is focused on the convergence of voice capabilities with multimedia experiences on a single mobile device. In the recent past, many of our customers have purchased and used different devices from multiple consumer electronics segments to meet their lifestyle needs. In addition to mobile phones, they use devices such as cameras, mobile music and video players, mobile gaming devices and portable navigation devices. Increasingly, these experiences will be delivered through compelling applications and services on a single device. We are developing handsets designed to strengthen our Multimedia product offerings, such as the MOTOROKR Z6 and the S9 headset, a 2008 mobile music offering. We are particularly focused on developing a broader offering of 3G products for the Multimedia product segment.
The Productivity product segment is growing as workforces around the world continue to demand increasingly robust wireless handsets and consumers want their email âon the go.â In 2007, we expanded our Q franchise across all regions and major technologies with the launch of the GSM Q8 and UMTS Q9h. We are planning to capitalize on new opportunities in this growing product segment.
Throughout each of these product segments, we have increased our focus in our accessories portfolio to deliver complete mobile experiences and to complement the features and functionalities of the wireless handsets.
Additionally, we are expanding our accessory compatibility across all brands of wireless handsets and Bluetooth-enabled devices.
We are investing in next-generation technologies, such as WiMAX, HSDPA and Long Term Evolution (âLTEâ). We believe a strong intellectual property portfolio is critical to our long-term success and to ensuring that we maintain a favorable strategic position in these technologies. We will continue to identify opportunities to generate licensing revenue from these investments. We also believe that innovation is critical to offering devices that demonstrate unique experiences and value propositions for consumers. As an example, in 2007 we began shipping our flagship RAZR2 devices with Crystal Talk, a proprietary technology that automatically adjusts audio quality based on ambient noise conditions to provide the optimal conversational experience. In application services, we continue to work with third parties to improve upon and develop our services and applications, which will deliver rich experiences to the customer. Motorola is committed to investing in evolving technologies to ensure that we continue to deliver enhanced and differentiated wireless handset experiences to consumers.
In January 2008, we announced that we are evaluating alternatives for the structural and strategic realignment of our Mobile Devices business to better equip it to recapture global market leadership and to enhance shareholder value. This may include the separation of the Mobile Devices business from Motorolaâs other businesses to permit each to grow and better serve their customers.
We continue to focus on strengthening our relationships with our customers. The segment has several large customers worldwide, the loss of one or more of which could have a material adverse effect on the segmentâs business. The largest of the segmentâs end customers (including sales through distributors) are Sprint Nextel, AT&T, Verizon, China Mobile and America Movil. In 2007, aggregate net sales to these five customers represented approximately 42% of the segmentâs net sales.
In addition to selling directly to carriers and operators, our Mobile Devices business also sells products through a variety of third-party distributors and retailers, which account for approximately 33% of the segmentâs net sales. The largest of these distributors is Brightstar Corporation.
The U.S. market continued to be the segmentâs largest individual market, accounting for approximately 46% of the segmentâs net sales in 2007, compared to approximately 35% of the segmentâs net sales in 2006. Approximately 54% of the segmentâs net sales in 2007 were to markets outside the U.S., the largest of which were Brazil, China and Mexico. Compared to 2006, the segment experienced sales declines in each of its four major sales regions: Asia, the Europe, Middle East and Africa region (âEMEAâ), North America and Latin America.
The segment believes its overall market share for the full year 2007 was approximately 14%, making it the third-largest worldwide supplier of wireless handsets. The segment experiences intense competition in worldwide markets from numerous global competitors, including some of the worldâs largest companies, such as Nokia, Samsung, Sony-Ericsson and LG. In 2007, consolidation in the wireless handset industry slowed compared to previous years, and the five largest vendors together held an aggregate market share of approximately 83%, compared to 84% at the end of 2006. During 2007, regulatory changes in China precipitated a substantial increase in the number of manufacturers producing handsets in that market. The increased competition, primarily in the very low tier of the Mass Market product segment, has impacted shipment volumes in China for global vendors, as local vendors gained market share in the fourth quarter of 2007.
Major competitors in the industry are moving to applications and services as key sources of value and are increasing their focus and investments in these areas. In response, Motorola has created a global applications and services team within the Mobile Devices segment to focus on building the applications and services business.
General competitive factors in the market for the segmentâs products include: design; time-to-market; brand awareness; technology offered; price; product proposition, performance, quality, delivery and warranty; the quality and availability of service; and relationships with key customers.
The segmentâs customers and distributors buy from us regularly with payment terms that are competitive with current industry practices. These terms vary globally and generally range from cash-with-order to 60 days. Extended payment terms beyond 60 days are provided to customers on a limited basis. A customerâs outstanding credit at any point in time is limited to a predetermined amount as established by the Company.
Radio frequencies are required to provide wireless services. The allocation of frequencies is regulated in the U.S. and other countries, and limited spectrum space is allocated to wireless services. The growth of the wireless and personal communications industry may be affected if adequate frequencies are not allocated or, alternatively, if new technologies are not developed to better utilize the frequencies currently allocated for such use. Industry growth may also be affected by the cost of the new licenses required to use frequencies and any related frequency relocation costs.
The U.S. leads the world in spectrum deregulation, allowing new wireless communications technologies to be developed and offered for sale. Examples include wireless local area network systems, such as WiFi, and wide area network systems, such as WiMAX and LTE. Other countries have also deregulated portions of their available spectrum to allow deployment of these and other new technologies, which can be offered without spectrum license costs. Deregulation may introduce new competition and new opportunities for Motorola and our customers. In addition, Mobile WiMAX was recently approved as a global IMT (International Mobile Telecommunications) standard. This action lays the foundation to further expand mobile WiMAX in key bands, making additional spectrum available globally.
In January 2008, the Federal Communications Commission (âFCCâ) began its auction of 700 MHz band spectrum licenses in the United States. This spectrum can carry large amounts of data across long distances and penetrate walls easier than higher frequencies, enhancing in-building coverage. The open-access conditions are intended to help foster innovation in handsets and applications, however the actual impact of the new licenses is unclear. The open access provision applies to approximately one-third of the U.S. spectrum being auctioned and prevents the licensee from blocking devices or applications that are compatible with the network.
The segmentâs backlog was $647 million at December 31, 2007, compared to $1.4 billion at December 31, 2006. This decrease in backlog is primarily due to a decline in customer demand driven by gaps in the segmentâs product portfolio. The 2007 backlog is believed to be generally firm and 100% of that amount is expected to be recognized as revenue in 2008. The forward-looking estimate of the firmness of such orders is subject to future events that may cause the amount recognized to change.
Intellectual Property Matters
Patent protection is extremely important to the segmentâs operations. The segment has an extensive portfolio of patents relating to its products, technologies and manufacturing processes. The segment licenses certain of its patents to third parties and generates revenue from these licenses. Motorola is also licensed to use certain patents owned by others. Royalty and licensing fees vary from year to year and are subject to the terms of the agreements and sales volumes of the products subject to licenses. The protection of these licenses is also important to the segmentâs operations. Reference is made to the material under the heading âOther Informationâ for additional information relating to patents and trademarks and research and development activities with respect to this segment.
Inventory, Raw Materials, Right of Return and Seasonality
The segmentâs practice is to carry reasonable amounts of inventory in manufacturing and distribution centers in order to meet customer delivery requirements in a manner consistent with industry standards. At the end of 2007, the segment had a lower inventory balance than at the end of 2006. The decrease reflects the significant decline in sales volumes during 2007, as well as an ongoing emphasis on managing inventory levels.
Availability of materials and components required by the segment is relatively dependable, but fluctuations in supply and market demand could cause selective shortages and affect results. We currently source certain materials and components from single vendors. Any material disruption from a single-source vendor may have a material adverse impact on our results of operations.
Energy necessary for the segmentâs manufacturing facilities consists primarily of electricity and natural gas, which are currently in generally adequate supply for the segmentâs operations. In addition, the cost to operate our facilities and freight costs are dependent on world oil prices, which increased significantly during 2007 and increased our manufacturing and shipping costs. Labor is generally available in reasonable proximity to the segmentâs manufacturing facilities. However, difficulties in obtaining any of the aforementioned items or a significant cost increase could affect the segmentâs results.
The segment permits returns under limited circumstances to remain competitive with current industry practices.
The segment typically experiences higher sales in the fourth calendar quarter and lower sales in the first calendar quarter of each year due to seasonal trends in the wireless handset industry.
Our headquarters is located in Libertyville, Illinois. Our other major facilities are located in Plantation, Florida; Flensburg, Germany; Singapore; Beijing, Hangzhou and Tianjin, China; Jaguariuna, Brazil; Basingstoke, England; and Chennai, India. We have recently announced our intent to exit our Flensburg, Germany facility.
We also use several electronics manufacturing suppliers (âEMSâ) and original design manufacturers (âODMâ) to enhance our ability to lower our costs and/or deliver products that meet consumer demands in the rapidly-changing technological environment. A portion of our handsets are manufactured either completely or substantially by non-affiliated EMS and ODM manufacturers and the percentage of total manufactured unit volume with these manufacturers increased moderately from 2006 to 2007.
In 2007, our handsets were primarily manufactured in Asia and we expect this to continue in 2008. Our largest manufacturing facilities are located in China, Singapore and Brazil. Each of these facilities serves multiple countries and regions of the world.
Home and Networks Mobility Segment
The Home and Networks Mobility segment (âHome and Networks Mobilityâ or the âsegmentâ) designs, manufactures, sells, installs and services: (i) digital video, Internet Protocol (âIPâ) video and broadcast network interactive set-tops (âdigital entertainment devicesâ), end-to-end video delivery solutions, broadband access infrastructure systems, and associated data and voice customer premise equipment (âbroadband gatewaysâ) to cable television and telecom service providers (collectively, referred to as the âhome businessâ), and (ii) wireless access systems (âwireless networksâ), including cellular infrastructure systems and wireless broadband systems, to wireless service providers. In 2007, the segmentâs net sales represented 27% of the Companyâs consolidated net sales.
Principal Products and Services
In the home business, the segment is a leading provider of end-to-end networks used for the delivery of video, data and voice services over hybrid fiber coaxial (âHFCâ) networks, digital subscriber line (âDSLâ) and passive optical networks (âPONâ). Our portfolio includes: MPEG video encoding equipment for standard-definition and high-definition television (âHDTVâ or âHDâ); video processing and multiplexing systems; and video-on-demand, switched digital video and conditional access solutions used by network operators and programmers to deliver video programming. We provide a broad array of digital entertainment devices supporting analog, digital and IP video delivery including HD and digital video recording (âDVRâ) (together, âHD/DVRâ) applications. We support the delivery of high-speed data and voice services with head-end and central office equipment, along with data and voice modems and gateways for HFC and DSL networks and optical line terminals for PON networks.
In the wireless networks business, the segment provides end-to-end cellular networks, including radio base stations, base station controllers, associated software and services, application platforms and third-party switching for CDMA, GSM, iDEN ÂŽ and UMTS technologies. The segment also offers a portfolio of WiMAX products to create mobile IP broadband access. WiMAX has the potential to make mobile bandwidth more affordable and accessible for mainstream consumer adoption.
Our products are marketed primarily to cable television operators, television programmers, telecom operators, wireless service providers and other communications providers worldwide and are sold primarily by our skilled sales personnel.
The home market is evolving rapidly as cable and telecom network operators expand their video, data and voice services (commonly known as the âtriple playâ) to grow their subscriber base. The competition between cable and telecom service providers is increasing. Telecom operators are expanding their broadband networks and beginning to offer advanced video and data services using IPTV and PON technologies. Cable operators are responding by expanding their investment in HD programming, bundling voice-over-IP services, expanding their broadband data service through Data Over Cable Service Interface Specifications (âDOCSISâ) 3.0 channel bonding, and maximizing utilization of network bandwidth using switched digital video.
Our home business is subject to regulation by the FCC in the United States and other governmental communication regulators throughout the world. On July 1, 2007, regulations enacted by the FCC became effective, requiring separation of security functionality from cable set-tops. A full two-way security interface continues to be refined. Once developed and implemented, these changes are expected to increase competition and encourage the sale of set-tops and integrated devices, such as televisions and DVRs, that will allow retail customers direct access to programming. Traditionally, service providers have leased digital entertainment devices to their customers.
In the wireless networks market, the majority of installed cellular infrastructure systems are based on CDMA, GSM, UMTS and iDEN technologies. We supply systems based on each of these technologies and are the sole supplier of proprietary iDEN networks. Advanced infrastructure systems based on these technologies include GPRS, CDMA-1X and EDGE. In addition, some segments of the cellular infrastructure industry have installed, or are in the process of migrating to, 3G networks, which are high-capacity radio access wireless networks providing enhanced data services, improved Internet access and increased voice capacity. The primary 3G technologies are W-CDMA (based on either UMTS or Freedom of Mobile Multimedia Access (âFOMAâ) technologies) and CDMA2000 1xEVDO. We supply 3G systems based on UMTS and CDMA 2000 1xEVDO technologies. An additional 3G technology standard is TD-SCDMA, driven primarily by the Chinese government and local Chinese vendors. We expect 3G licenses to be awarded in China during 2008.
Industry standards bodies are in the process of defining the next generation of wireless broadband systems after 3G. The Institute of Electrical and Electronics Engineers (âIEEEâ) is currently developing fixed and mobile broadband standards (802.16d and 802.16e) based on orthogonal frequency division multiplexing (âOFDMâ) technology, which will utilize wider channels and enable triple play services (voice, data, video). Based upon developments in the 802.16e standard, we expect to see the WiMAX market begin to develop in 2008 as several WiMAX networks come on-line and devices utilizing these networks become widely available. We are an early leader in next-generation wireless broadband products, including WiMAX technology.
The International Telecommunications Union (âITUâ) is also adopting next-generation cellular wireless access standards (â4Gâ) for the cellular infrastructure industry, also based on OFDM technology and known commonly as Long Term Evolution (âLTEâ). LTE has widespread industry support, not only from current GSM/UMTS operators, but also from CDMA/EV-DO based carriers. Motorola has been chosen as a trial supplier for a joint Verizon/Vodafone LTE trial that is currently underway.
Licensing bodies of governments around the world are making spectrum available for advanced wireless technologies, including 4G, in recognition of growing demand for wireless broadband services. Currently, Motorola estimates that there are over 1,200 licenses available worldwide for advanced wireless technologies, such as 802.16e, with over 800 licenses outside North America.
Demand for our products depends primarily on: (i) capital spending by providers of cellular and broadband services for constructing, rebuilding or upgrading their communications systems, and (ii) the marketing of advanced communications services by those providers. The amount of spending by these providers, and therefore a majority of our sales and profitability, are affected by a variety of factors, including: (i) the continuing trend of consolidation within the cable, wireline and wireless industries, (ii) the financial condition of operators and alternative providers, including their access to financing, (iii) technological developments, (iv) standardization efforts that impact the deployment of new equipment, (v) new legislation and regulations affecting the equipment sold by the segment, and (vi) general economic conditions.
In 2007, the home business benefited from increased spending by operators on our products due to the increase in video and data subscribers and the deployment of advanced video platforms by cable operators for HD/DVR applications, as well as from spending by telecom operators upgrading their networks and adding video services. We expect this industry to continue to grow in 2008, driven by continued expansion of broadband network capacity and services.
In 2007, the overall market for traditional CDMA wireless networks was relatively flat and the overall markets for GSM and iDEN wireless networks were down. Forecasted industry trends point to a decline in the CDMA, GSM and iDEN markets in 2008 as next-generation 3G and WiMAX wireless networks are deployed. Sales in the overall wireless network market are expected to be flat, or up slightly, in 2008.
GREGORY Q. BROWN, Principal Occupation: President and Chief Executive Officer, Motorola, Inc.
Director since 2007 Ageâ47
Mr. Brown joined Motorola in 2003 and became President and Chief Executive Officer on January 1, 2008. From March 2007 through December 2007, Mr. Brown served as President and Chief Operating Officer. From January 2005 through March 2007, Mr. Brown served as Executive Vice President and President of the Networks and Enterprise business and from January 2003 through December 2004 he served as Executive Vice President and President of the Commercial Government and Industrial Solutions Sector. Prior to joining Motorola, Mr. Brown was Chairman and Chief Executive Officer of Micromuse, Inc., a network management software company. Before that, he was President of Ameritech Custom Business Services and Ameritech New Media, Inc. Mr. Brown serves on the Rutgers Board of Overseers and the boards of World Business Chicago, The US-China Business Council and Northwestern Memorial Hospital. Mr. Brown received a B.A. degree in Economics from Rutgers University.
DAVID W. DORMAN, Principal Occupation: Managing Director and Senior Advisor, Warburg Pincus (Chairman of the Board-Elect, Motorola, Inc.)
Director since 2006 Ageâ53
Mr. Dorman is Managing Director and Senior Advisor of Warburg Pincus, a global leader in private equity. Prior to holding that position, he was Chairman and Chief Executive Officer of AT&T, a provider of internet and transaction-based voice and data services, from November 2002 until his retirement in January 2006. Previously, Mr. Dorman was President of AT&T from 2000 to November 2002. He began his career in the telecommunications industry at Sprint Corp. in 1981, and ultimately served as President of Sprint Business Services. Mr. Dorman serves on the boards of CVS Corporation, YUM! Brands, Inc., Phorm, Inc., and the Georgia Tech Foundation. Mr. Dorman received a B.S. degree in Industrial Management from the Georgia Institute of Technology.
WILLIAM R. HAMBRECHT, Principal Occupation: Chairman and Chief Executive Officer of WR Hambrecht + Co
Mr. Hambrecht has been Founder, Chairman and Chief Executive Officer of WR Hambrecht + Co, a financial services firm, since December 1997. Mr. Hambrecht co-founded Hambrecht & Quist in 1968, from which he resigned in December 1997 to form WR Hambrecht + Co. Mr. Hambrecht currently serves on the Board of Trustees for The American University of Beirut and is on the Advisory Investment Committee to the Board of Regents of the University of California. He also serves on the Advisory Council to The J. David Gladstone Institutes. In October 2006, Mr. Hambrecht was inducted to the American Academy of Arts and Sciences. Mr. Hambrecht graduated from Princeton University.
JUDY C. LEWENT, Principal Occupation: Retired; Formerly Executive Vice President and Chief Financial Officer, Merck & Co., Inc.
Director since 1995 Ageâ58
Ms. Lewent was Chief Financial Officer of Merck & Co., Inc., a pharmaceutical company, from 1990 until her retirement in September 2007. She was also Executive Vice President of Merck from February 2001 through her retirement and had additional responsibilities as President, Human Health Asia from January 2003 until July 2005, when she assumed strategic planning responsibilities for Merck. Ms. Lewent is a director of Dell Inc. She also serves as a trustee of the Rockefeller Family Trust, is a life member of the Massachusetts Institute of Technology Corporation, and is a member of the American Academy of Arts & Sciences. Ms. Lewent received a B.S. degree from Goucher College and an M.S. degree from the MIT Sloan School of Management.
KEITH A. MEISTER, Principal Occupation: Vice Chairman of the Board of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P.
Director since 2008 Ageâ34
Mr. Meister, since August 2003, has served as Vice Chairman of the Board of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate and home fashion. From August 2003 through March 2006, Mr. Meister also served as Chief Executive Officer of Icahn Enterprises G.P. Inc., and since March 2006, Mr. Meister has served as Principal Executive Officer of Icahn Enterprises G.P. Inc. Since November 2004, Mr. Meister has been a Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages third-party private investment funds. Since June 2002, Mr. Meister has served as senior investment analyst of High River Limited Partnership, an entity primarily engaged in the business of holding and investing in securities. Mr. Meister also serves on the boards of directors of XO Holdings, Inc., WCI Communities, Inc., and Federal-Mogul Corporation. With respect to each company mentioned above, Mr. Icahn, directly or indirectly, either (i) controls such company or (ii) has an interest in such company through the ownership of securities. Mr. Meister received an A.B. in government, cum laude, from Harvard College in 1995.
THOMAS J. MEREDITH, Principal Occupation: General Partner and Co-Founder, Meritage Capital, L.P. and Chief Executive Officer, MFI Capital
Director since 2005 Ageâ57
Mr. Meredith served as Acting Chief Financial Officer and Executive Vice President of Motorola from April 1, 2007 until March 1, 2008 and remained an employee of the Company until March 31, 2008. He is a general partner of Meritage Capital, L.P., an investment management firm specializing in multi-manager hedge funds that he co-founded. He is also chief executive officer of MFI Capital. Previously, he was the Managing Director of Dell Ventures and Senior Vice President, Business Development and Strategy of Dell Inc., a computer manufacturer, from 2000 until 2001, and was Chief Financial Officer of Dell Inc. from 1992 until 2000. Mr. Meredith is a director of Motive, Inc. He is also an adjunct professor at the McCombs School of Business at the University of Texas, and serves on the advisory boards of both the Wharton School at the University of Pennsylvania and the LBJ School at the University of Texas. Mr. Meredith received a B.S. degree in Political Science from St. Francis University, a J.D. degree from Duquesne University and an LL.M. degree in Taxation from Georgetown University.
NICHOLAS NEGROPONTE, Principal Occupation: Founder and Chairman of the One Laptop Per Child Non-Profit Association
Director since 1996 Ageâ64
Mr. Negroponte is the founder and chairman of the One Laptop Per Child non-profit organization created to design, manufacture and distribute laptops that are sufficiently inexpensive to provide every child in the world access to knowledge and modern forms of education. Mr. Negroponte is currently on leave from the Massachusetts Institute of Technology where he was co-founder and chairman emeritus of the MIT Media Laboratory, an interdisciplinary, multi-million dollar research center focusing on the study and experimentation of future forms of human and machine communication. He founded MITâs pioneering Architecture Machine Group, a combination lab and think tank responsible for many radically new approaches to the human-computer interface. He joined the MIT faculty in 1966 and became a full professor in 1980. Mr. Negroponte received a B.A. and an M.A. in Architecture from MIT.
SAMUEL C. SCOTT III, Principal Occupation: Chairman, President and Chief Executive Officer, Corn Products International
Director since 1993 Ageâ63
Mr. Scott is Chairman, President and Chief Executive Officer of Corn Products International, a corn refining business. He was President of the Corn Refining Division of CPC International from 1995 through 1997, when CPC International spun off Corn Products International as a separate corporation. Mr. Scott serves on the Board of Directors of Bank of New York, Abbott Laboratories, Accion International and the Chicago Council on Global Affairs. He also serves as a Trustee of The Conference Board. Mr. Scott received a B.S. degree in Engineering and an M.B.A. from Fairleigh Dickinson University.
RON SOMMER, Principal Occupation: Retired; Formerly Chairman of the Board of Management, Deutsche Telekom AG
Director since 2004 Ageâ58
Mr. Sommer was Chairman of the Board of Management of Deutsche Telekom AG, a telecommunication company, from May 1995 until he retired in July 2002. He is a director of Muenchener Rueckversicherung, Celanese, AFK Sistema, Tata Consultancy Services and Weather Industries. Mr. Sommer is also a Member of the International Advisory Board of The Blackstone Group. Mr. Sommer received a Ph.D. degree in Mathematics from the University of Vienna, Austria.
JAMES R. STENGEL, Principal Occupation: Global Marketing Officer, Procter & Gamble Company
Director since 2005 Ageâ52
Mr. Stengel has been the Global Marketing Officer of Procter & Gamble Company, a consumer products company, since 2001. He joined Procter & Gamble in 1983. Mr. Stengel served as chairman of the Association of National Advertisers from 2004 through 2006. He is also on the National Underground Freedom Center Board of Directors. Mr. Stengel received a B.A. degree from Franklin & Marshall College and an M.B.A. from Pennsylvania State University.
ANTHONY J. VINCIQUERRA, President and Chief Executive Officer, Fox Networks Group
Director since 2007 Ageâ53
Mr. Vinciquerra was named President and Chief Executive Officer of Fox Networks Group, a primary operating unit of News Corporation that includes the Fox Television Network, Fox Cable Networks, FOX Sports and Fox Networks Engineering & Operations, in June 2002. Mr. Vinciquerra also oversees Fox Sports Enterprises, which comprises Foxâs interests in professional sports franchises like the Colorado Rockies, stadiums and leading statistical information provider STATS. Mr. Vinciquerra joined Fox in December 2001 as President of the Fox Television Network. Prior to joining Fox, he was Executive Vice President and Chief Operating Officer of Hearst-Argyle Television, a position he had held since 1999. A past Chairman of the National Association of Television Program Executives, he is also a director of the Boston-based Genesis Fund, the fund-raising organization of the National Birth Defects Institute, and a member of the Board of Trustees for Southern California Public Radio. Mr. Vinciquerra received a B.A. degree from the State University of New York.
DOUGLAS A. WARNER III, Principal Occupation: Retired; Formerly Chairman of the Board, J.P. Morgan Chase & Co.
Director since 2002 Ageâ61
Mr. Warner was Chairman of the Board and Co-Chairman of the Executive Committee of J.P. Morgan Chase & Co., an international commercial and investment banking firm, from December 2000 until he retired in November 2001. From 1995 to 2000, he was Chairman of the Board, President and Chief Executive Officer of J.P. Morgan & Co. He is a director of Anheuser-Busch Companies, Inc. and General Electric Company, is on the Board of Counselors of the Bechtel Group Inc. and is a senior advisor at the Carlyle Group, L.P. Mr. Warner is also Chairman of the Board of Managers and the Board of Overseers of Memorial Sloan-Kettering Cancer Center, and a member of the Yale Investment Committee. Mr. Warner received a B.A. degree from Yale University.
DR. JOHN A. WHITE, Principal Occupation: Chancellor, University of Arkansas
Director since 1995 Ageâ68
Dr. White has been Chancellor of the University of Arkansas since 1997. Dr. White served as Dean of Engineering at Georgia Institute of Technology from 1991 to early 1997, having been a member of the faculty since 1975. He is also a director of J.B. Hunt Transport Services, Inc. and Logility, Inc. Dr. White received a B.S.I.E. from the University of Arkansas, an M.S.I.E. from Virginia Polytechnic Institute and State University and a Ph.D. from The Ohio State University.
MILES D. WHITE, Principal Occupation: Chairman of the Board and Chief Executive Officer, Abbott Laboratories
Director since 2005 Ageâ52
Mr. White has been Chairman of the Board and Chief Executive Officer of Abbott Laboratories, a pharmaceuticals and biotechnology company, since 1999. Mr. White joined Abbott in 1984. Mr. White serves as Vice Chairman and Director of the Chicago 2016 Committee and also serves on the board of trustees of The Culver Educational Foundation, The Field Museum in Chicago and Northwestern University. Mr. White served as a director of Tribune Company until August of 2007 and was Chairman of the Board of the Federal Reserve Bank of Chicago from 2006 through 2007. Mr. White received a B.S. degree in Mechanical Engineering and an M.B.A. degree from Stanford University.
MANAGEMENT DISCUSSION FROM LATEST 10K
The following is a discussion and analysis of our financial position and results of operations for each of the three years in the period ended December 31, 2007. This commentary should be read in conjunction with our consolidated financial statements and the notes thereto which appear beginning under âItem 8: Financial Statements and Supplementary Data.â
What businesses are we in?
Motorola reports financial results for the following three operating business segments:
â˘ The Mobile Devices segment designs, manufactures, sells and services wireless handsets with integrated software and accessory products, and licenses intellectual property. The segmentâs net sales in 2007 were $19.0 billion, representing 52% of the Companyâs consolidated net sales.
â˘ The Home and Networks Mobility segment designs, manufactures, sells, installs and services: (i) digital video, Internet Protocol (âIPâ) video and broadcast network interactive set-tops (âdigital entertainment devicesâ), end-to-end video delivery solutions, broadband access infrastructure systems, and associated data and voice customer premise equipment (âbroadband gatewaysâ) to cable television and telecom service providers (collectively, referred to as the âhome businessâ), and (ii) wireless access systems (âwireless networksâ), including cellular infrastructure systems and wireless broadband systems, to wireless service providers. The segmentâs net sales in 2007 were $10.0 billion, representing 27% of the Companyâs consolidated net sales.
â˘ 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 for distributors of two-way communication products, are referred to as the âgovernment and public safety marketâ), as well as retail, utility, transportation, manufacturing, healthcare and other commercial customers (which, collectively, are referred to as the âcommercial enterprise marketâ). The segmentâs net sales in 2007 were $7.7 billion, representing 21% of the Companyâs consolidated net sales.
What were our 2007 financial results?
â˘ Net Sales were $36.6 Billion: Our net sales were $36.6 billion in 2007, down 15% compared to net sales of $42.8 billion in 2006. Net sales decreased 33% in the Mobile Devices segment, increased 9% in the Home and Networks Mobility segment and increased 43% in the Enterprise Mobility Solutions segment.
â˘ Operating Loss of $553 Million: We incurred an operating loss of $553 million in 2007, compared to operating earnings of $4.1 billion in 2006. Operating margin was (1.5)% of net sales in 2007, compared to 9.6% of net sales in 2006.
â˘ Loss from Continuing Operations of $105 Million, or $0.05 per Share: We incurred a loss from continuing operations of $105 million, or $0.05 per diluted common share, in 2007, compared to earnings from continuing operations of $3.3 billion, or $1.30 per diluted common share, in 2006.
â˘ Operating Cash Flow of $785 Million: We generated operating cash flow of $785 million in 2007, compared to operating cash flow of $3.5 billion in 2006.
â˘ 171.2 Million Shares of Motorola Common Stock Repurchased for $3.0 Billion: During 2007, the Company repurchased 171.2 million of its common shares for an aggregate cost of $3.0 billion. Since the inception of its first-ever share repurchase program in May 2005, the Company has repurchased 384.6 million of its common shares for an aggregate cost of $7.7 billion.
What were the financial results for our three operating business segments in 2007?
â˘ In Our Mobile Devices Business: Net sales were $19.0 billion in 2007, a decrease of 33% compared to net sales of $28.4 billion in 2006. The business incurred an operating loss of $1.2 billion in 2007, compared to operating earnings of $2.7 billion in 2006. The business had lower net sales in all regions. The decrease in net sales was primarily driven by: (i) a 27% decrease in unit shipments, (ii) a 9% decrease in average selling price (âASPâ), and (iii) decreased revenue from intellectual property and technology licensing. The operating loss was primarily due to a decrease in gross margin, driven by: (i) a 9% decrease in ASP, (ii) decreased income from intellectual property and technology licensing, (iii) a 27% decrease in unit shipments, and (iv) a $277 million charge for a legal settlement with Freescale Semiconductor, partially offset by savings from supply chain cost-reduction initiatives. Our global handset market share for the full year 2007 was approximately 14%, a decrease of approximately 8 percentage points versus full year 2006.
â˘ In Our Home and Networks Mobility Business: Net sales were $10.0 billion in 2007, an increase of 9% compared to net sales of $9.2 billion in 2006. Operating earnings were $709 million, a decrease of 10% compared to operating earnings of $787 million in 2006. The business had higher net sales in all regions. The increase in net sales reflected higher net sales in the home business, partially offset by lower net sales of wireless networks. 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 increased net sales of digital entertainment devices.
â˘ In Our Enterprise Mobility Solutions Business: Net sales were $7.7 billion in 2007, an increase of 43% compared to net sales of $5.4 billion in 2006. Operating earnings were $1.2 billion, an increase of 27% compared to operating earnings of $958 million in 2006. The increase in net sales reflects higher net sales in all regions and was primarily driven by sales from the Symbol business acquired in January 2007, as well as higher net sales in the government and public safety market due to strong demand in North America. The increase in operating earnings was primarily due to an increase in gross margin in both: (i) the commercial enterprise market, driven by net sales from the Symbol business, and (ii) the government and public safety market, driven by strong net sales in North America, partially offset by: (i) an inventory-related charge in connection with the acquisition of Symbol, and (ii) increases in SG&A and R&D expenses, primarily due to expenses of recently acquired businesses.
What were our major challenges and accomplishments in 2007?
â˘ In Our Mobile Devices Business: The Mobile Devices business faced significant challenges in 2007. While overall market demand remained strong during the year, demand for Motorolaâs wireless handsets slowed substantially. As a result, Mobile Devices net sales were down 33% compared to 2006 and the business incurred an operating loss of $1.2 billion.
Unit shipments in 2007 were 159.1 million, a 27% decrease compared to unit shipments of 217.4 million in 2006. The decrease in unit shipments resulted primarily from gaps in the segmentâs product portfolio, including limited offerings of 3G products and products for the Multimedia and Mass Market product segments, as well as an aging product portfolio. As a result, Motorola believes it lost 8 percentage points of market share and estimates its global market share to be approximately 14% for the full year 2007.
During 2007, the Mobile Devices business launched 41 new phones, including several devices based on its newer open software platforms. New devices included: the RAZR2 Feature Phone for GSM, CDMA and UMTS technologies; the ROKR Z6 family of music devices; the GSM Q8 and UMTS Q9h, for consumers who multi-task and want flexibility in todayâs business environment; and several handsets at affordable price points for consumers with everyday communications needs.
Progress was made on key initiatives to implement a multi-vendor silicon strategy and utilize improved software platforms. The business will use multiple silicon providers to aid in faster time to market and reduce costs. As an example, in 2007 the Mobile Devices business named Texas Instruments as one of its silicon suppliers for future UMTS devices. The business also continued its efforts to streamline and improve its software platforms, including rationalizing its R&D expenditures on legacy platforms and acquiring a 50% stake in UIQ Technology AB (âUIQâ). This investment will strengthen UIQ as an open application delivery platform for multimedia devices. MOTO DEV Studio, which includes multi-platform tools aimed at developers, was launched to enhance the ecosystem around its Linux wireless platform, MOTOMAGX.
The business implemented improved processes and discipline around product pricing, rationalized elements of its distribution network, reduced channel inventory and improved its cash conversion cycle in the second half of 2007 as compared to the first half of 2007.
â˘ In Our Home and Networks Mobility Business: The Home and Networks Mobility business remained the worldâs leading provider of digital entertainment devices. Motorola shipped over 15 million digital entertainment devices during the year, with nearly one-third of these shipments being HD/DVR capable. In 2007, Motorola shipped over 11 million modems and achieved the milestone of shipping its 50 millionth cable/voice modem. Sales in the home business grew by 27% in the year, and included significant business growth outside of the United States.
The business expanded its core portfolio by completing five significant acquisitions, including: (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 solutions to networks operators. With these acquisitions, Motorola improved its position with global operators by enhancing its capabilities in end-to-end video solutions.
Motorola also continued its investments in and focus on WiMAX, a next-generation wireless broadband technology based on the IEEE standard 802.16e. At the end of 2007, the business had won several commercial WiMAX contracts and was participating in over 40 WiMAX trials globally.
The business also had challenges during the year, as the GSM infrastructure market faced continuing pricing pressures and sales of iDEN infrastructure declined compared to 2006. Despite these and other challenges facing the wireless infrastructure industry, the wireless networks business remained profitable. Finally, the business concluded the sale of its embedded communications computing business to Emerson for $346 million, reflecting its continuing efforts to focus on its core businesses.
â˘ In our Enterprise Mobility Solutions Business: In 2007, the Enterprise Mobility Solutions business delivered solid results in a number of markets, largely due to the acquisition of Symbol Technologies, Inc. in January 2007, and strong government and public safety sales in North America. The business continued to maintain a leading market share position in a highly competitive market and also showed strong growth outside of the United States.
Within the government and public safety business, sales continued to grow worldwide as demand for integrated, interoperable public safety communications increased. As new and better spectrum utilization evolves, demand and sales have increased for high-speed data applications, such as video surveillance and other data-based products. In addition to its continued success in the United States, our largest market, the business was awarded several international contracts for significant country-wide system solutions, specifically in Europe. The new MOTOTRBO product line was also successfully launched and received very positive customer acceptance in all geographies.
During the year, the commercial enterprise business enhanced its product portfolio by launching several new mobile computing, wireless computing and advanced data capture products that put it in a strong position in the commercial enterprise marketplace for the future. The enhanced mobile computing offerings included the MC70 and the rugged MC9090 product lines which had very successful product launches and were well received in all regions.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
This commentary should be read in conjunction with the Companyâs condensed consolidated financial statements for the three and nine months ended September 27, 2008 and September 29, 2007, as well as the Companyâs consolidated financial statements and related notes thereto and managementâs discussion and analysis of financial condition and results of operations in the Companyâs Form 10-K for the year ended December 31, 2007.
We report financial results for the following business segments:
â˘ The Mobile Devices segment designs, manufactures, sells and services wireless handsets with integrated software and accessory products, and licenses intellectual property. In the third quarter of 2008, the segmentâs net sales represented 42% of the Companyâs consolidated net sales.
â˘ The Home and Networks Mobility segment designs, manufactures, sells, installs and services: (i) digital video, Internet Protocol (âIPâ) video and broadcast network interactive set-tops (âdigital entertainment devicesâ), end-to-end video delivery solutions, broadband access infrastructure systems, and associated data and voice customer premise equipment (âbroadband gatewaysâ) to cable television and telecom service providers (collectively, referred to as the âhome businessâ), and (ii) wireless access systems (âwireless networksâ), including cellular infrastructure systems and wireless broadband systems, to wireless service providers. In the third quarter of 2008, the segmentâs net sales represented 32% of the Companyâs consolidated net sales.
â˘ 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 âgovernment and public safety marketâ), as well as retail, utility, transportation, manufacturing, health care and other commercial customers (which, collectively, are referred to as the âcommercial enterprise marketâ). In the third quarter of 2008, the segmentâs net sales represented 27% of the Companyâs consolidated net sales.
â˘ Net Sales were $7.5 Billion: Our net sales were $7.5 billion in the third quarter of 2008, down 15% compared to net sales of $8.8 billion in the third quarter of 2007. Net sales decreased 31% in the Mobile Devices segment, decreased 1% in the Home and Networks Mobility segment and increased 4% in the Enterprise Mobility Solutions segment.
â˘ Operating Loss was $452 Million: We incurred an operating loss of $452 million in the third quarter of 2008, compared to an operating loss of $10 million in the third quarter of 2007. Contributing to the operating loss were: (i) excess inventory and other related charges of $370 million due to a decision to consolidate software and silicon platforms in the Mobile Devices segment, (ii) a $150 million charge related to settlement of the Freescale Semiconductor purchase commitment, (iii) $128 million of asset impairment charges, and (iv) $57 million of net charges for other reorganization and separation-related transaction costs.
â˘ Loss from Continuing Operations was $397 Million, or $0.18 per Share: We incurred a loss from continuing operations of $397 million, or $0.18 per diluted common share, in the third quarter of 2008, compared to earnings from continuing operations of $40 million, or $0.02 per diluted common share, in the third quarter of 2007.
â˘ Handset Shipments were 25.4 Million Units: We shipped 25.4 million handsets in the third quarter of 2008, a 32% decrease compared to shipments of 37.2 million handsets in the third quarter of 2007 and a 10% decrease sequentially compared to shipments of 28.1 million handsets in the second quarter of 2008.
â˘ Global Handset Market Share Estimated at 8.4%: We estimate our share of the global handset market in the third quarter of 2008 to be 8.4%, a decrease of approximately 5 percentage points versus the third quarter of 2007 and a sequential decrease of approximately 1 percentage point versus the second quarter of 2008.
â˘ Digital Entertainment Device Shipments were 4.1 million: We shipped 4.1 million digital entertainment devices in the third quarter of 2008, an increase of 52% compared to shipments of 2.7 million units in the third quarter of 2007 and a 20% decrease sequentially compared to shipments of 5.1 million units in the second quarter of 2008.
â˘ Operating Cash Flow was $180 Million: We generated $180 million of operating cash flow in the third quarter of 2008, compared to $342 million of operating cash flow in the third quarter of 2007.
Net sales for each of our business segments were as follows:
â˘ In Mobile Devices: Net sales were $3.1 billion in the third quarter of 2008, a decrease of $1.4 billion, or 31%, compared to the third quarter of 2007, primarily driven by a 32% decrease in unit shipments. The decrease in unit shipments resulted primarily from product portfolio gaps in critical market segments, especially 3G, including smartphones, and very low-tier products.
â˘ In Home and Networks Mobility: Net sales were $2.4 billion in the third quarter of 2008, a decrease of $20 million, or 1%, compared to the third quarter of 2007. This decrease reflects lower net sales of wireless networks, partially offset by higher net sales of digital entertainment devices, driven by a 52% increase in unit shipments, partially offset by lower ASP due to a shift in product mix and pricing pressure.
â˘ In Enterprise Mobility Solutions: Net sales were $2.0 billion in the third quarter of 2008, an increase of $76 million, or 4%, compared to the third quarter of 2007, reflecting a 9% increase in net sales to the government and public safety market, primarily driven by: (i) increased net sales outside of North America, and (ii) the net sales generated by Vertex Standard Co., Ltd. (âVertex Standardâ), a business the Company acquired a controlling interest of in January 2008, partially offset by an 8% decrease in net sales to the commercial enterprise market.
Earlier in the year, the Company announced that it was pursuing the creation of two independent, publicly traded companies: one comprised of our Mobile Devices business and the other comprised of our Home and Networks Mobility and Enterprise Mobility Solutions businesses. The Company remains committed to the separation of the businesses. However, due to the weakened global economic environment and dislocation in the financial markets, as well as changes underway in the Mobile Devices business, the Company is no longer targeting the third quarter of 2009 for the separation of our businesses. The Company has made progress on various elements of the separation plan and will continue efforts to prepare for a potential transaction. We will continue to assess market and business conditions to determine the appropriate timeframe for separation that serves the best interests of the Company and its shareholders.
Given the macroeconomic environment, the Company will also take additional actions to reduce its cost structure. These actions will be global in nature and impact all of our businesses, as well as our supply chain organization and corporate functions. For more information on specific actions taken, see the discussion under âCost-Reduction Initiatives Announced on October 30, 2008â later herein. We will continue to take the necessary strategic actions and invest in product innovation as we position Motorola to take advantage of opportunities for future growth and profitability.
In our Mobile Devices business, we expect the overall global handset market to remain intensely competitive with slowing demand. Our primary focus is on enhancing our product portfolio, especially in 3G and the low tier. In addition, we will further simplify our platforms and focus on key markets, including North America, Latin America and certain markets in Asia. These actions are expected to lower our cost structure and result in a more focused, consumer-driven portfolio, reflecting trends in converged devices, the mobile Internet, navigation and messaging. We expect our product portfolio enhancement efforts to demonstrate progress in 2009 and better position Mobile Devices for improved financial results.
In our Home and Networks Mobility business, we are focused on delivering personalized media experiences to consumers at home and on-the-go and enabling service providers to operate their networks more efficiently and profitably. As the market leader in digital video, including digital entertainment devices and end-to-end network solutions, we are positioned to capitalize on demand for high-definition TV and video-on-demand services, as well as the convergence of services and applications across delivery platforms. However, due to the impact that economic conditions, especially in the U.S., may have on demand for services provided by our customers, demand is likely to slow in the home business. In wireless broadband, we will continue our efforts to position ourselves as a leading infrastructure provider of next-generation technologies, including WiMAX and LTE. In wireless cellular networks, we expect the market environment to continue to be highly competitive and challenging.
In our Enterprise Mobility Solutions business, our key objective is profitable growth in enterprise markets around the world. We are the market leader in mission-critical communications solutions and continue to develop next-generation products and solutions for our government and public safety customers. We also utilize our market leadership positions and innovations in mobile computing and scanning to meet customersâ needs in retail, transportation and logistics, utility, manufacturing, healthcare and other commercial industries globally. These business-critical enterprise products and solutions allow our customers to reduce costs, increase worker mobility and productivity, and enhance their customersâ experiences. Our enterprise and government customers are facing uncertain and volatile economic conditions that will likely slow demand in our enterprise, government and public safety businesses. However, we believe that our comprehensive portfolio of products and solutions, market leadership and global distribution network make our Enterprise Mobility Solutions segment well positioned to meet these challenges.
We conduct our business in highly competitive markets. These markets are characterized by rapidly changing technologies, frequent new product introductions, changing consumer trends, short product life cycles and evolving industry standards. Market disruptions, caused by changing macroeconomic conditions, new technologies, the entry of new competitors and consolidations among our customers and competitors, can introduce volatility into our operating performance and cash flow from operations. Meeting all of these challenges requires consistent operational planning and execution and investment in technology, resulting in innovative products that meet the needs of our customers around the world.
Results of OperationsâThree months ended September 27, 2008 compared to three months ended September 29, 2007
Net sales were $7.5 billion in the third quarter of 2008, down 15% compared to net sales of $8.8 billion in the third quarter of 2007. The decrease in net sales reflects: (i) a $1.4 billion, or 31%, decrease in net sales in the Mobile Devices segment, and (ii) a $20 million, or 1%, decrease in net sales in the Home and Networks Mobility segment, partially offset by a $76 million, or 4%, increase in net sales in the Enterprise Mobility Solutions segment. The decrease in net sales in the Mobile Devices segment was primarily driven by a 32% decrease in unit shipments. The decrease in net sales in the Home and Networks Mobility segment reflects lower net sales of wireless networks, partially offset by higher net sales of digital entertainment devices, driven by a 52% increase in unit shipments, partially offset by lower ASP due to a shift in product mix and pricing pressure. The increase in net sales in the Enterprise Mobility Solutions segment reflects a 9% increase in net sales to the government and public safety market, primarily driven by: (i) increased net sales outside of North America, and (ii) the net sales generated by Vertex Standard Co., Ltd. (âVertex Standardâ), a business the Company acquired a controlling interest of in January 2008, partially offset by a 8% decrease in net sales to the commercial enterprise market.
Gross margin was $1.8 billion, or 24.1% of net sales, in the third quarter of 2008, compared to $2.5 billion, or 28.4% of net sales, in the third quarter of 2007. The decrease in gross margin reflects lower gross margin in the Mobile Devices and Home and Networks Mobility segments, partially offset by increased gross margin in the Enterprise Mobility Solutions segment. The decrease in gross margin in the Mobile Devices segment was primarily driven by: (i) excess inventory and other related charges of $370 million due to a decision to consolidate software and silicon platforms, (ii) the 31% decrease in net sales, and (iii) a $150 million charge related to settlement of the Freescale Semiconductor purchase commitment, partially offset by savings from cost-reduction activities. The decrease in gross margin in the Home and Networks Mobility segment was primarily due to lower gross margin in the wireless networks business, partially offset by higher gross margin in the home business. The increase in gross margin in the Enterprise Mobility Solutions segment was primarily driven by the 4% increase in net sales and a favorable product mix.
The decrease in gross margin as a percentage of net sales in the third quarter of 2008 compared to the third quarter of 2007 was driven by decreases in the Mobile Devices and Home and Networks Mobility segments, partially offset by an increase in the Enterprise Mobility Solutions segment. The Companyâs overall gross margin as a percentage of net sales can be impacted by the proportion of overall net sales generated by its various businesses.
Selling, General and Administrative Expenses
Selling, general and administrative (âSG&Aâ) expenses decreased 14% to $1.0 billion, or 14.0% of net sales, in the third quarter of 2008, compared to $1.2 billion, or 13.7% of net sales, in the third quarter of 2007. The decrease in SG&A expenses reflects lower SG&A expenses in all segments. The decrease in the Mobile Devices segment was primarily driven by lower marketing expenses and savings from cost-reduction initiatives. The decreases in the Home and Networks Mobility and Enterprise Mobility Solutions segments were primarily due to savings from cost-reduction initiatives. SG&A expenses as a percentage of net sales increased in the Mobile Devices segment and decreased in the Home and Networks Mobility and Enterprise Mobility Solutions segments.
Research and Development Expenditures
Research and development (âR&Dâ) expenditures decreased 9% to $999 million, or 13.4% of net sales, in the third quarter of 2008, compared to $1.1 billion, or 12.5% of net sales, in the third quarter of 2007. The decrease in R&D expenditures was primarily driven by lower R&D expenditures in the Mobile Devices and Home and Networks Mobility segments, partially offset by higher R&D expenditures in the Enterprise Mobility Solutions segment. The decreases in the Mobile Devices and Home and Networks Mobility segments were primarily due to savings from cost-reduction initiatives. The increase in the Enterprise Mobility Solutions segment was primarily due to developmental engineering expenditures for new product development and investment in next-generation technologies. R&D expenditures as a percentage of net sales increased in the Mobile Devices segment and decreased in the Home and Networks Mobility and Enterprise Mobility Solutions segments. The Company participates in very competitive industries with constant changes in technology and, accordingly, the Company continues to believe that a strong commitment to R&D is required to drive long-term growth. However, the Company continues to focus on aligning our R&D expenditures with our strategic plans and opportunities for future growth.
The Company recorded net charges of $212 million in Other charges in the third quarter of 2008, compared to net charges of $205 million in the third quarter of 2007. The net charges in the third quarter of 2008 include: (i) $128 million of asset impairment charges, (ii) $80 million of charges relating to the amortization of intangible assets, (iii) $31 million of net reorganization of business charges included in Other charges, and (iv) $21 million of transaction costs related to the proposed separation of the Company into two independent, publicly traded companies, partially offset by a $48 million gain on sale of property, plant and equipment. The net charges in the third quarter of 2007 included: (i) $91 million of charges relating to the amortization of intangible assets, (ii) $58 million of net reorganization of business charges included in Other charges, and (iii) $57 million of asset impairment charges.
Net Interest Income
Net interest income was $18 million in the third quarter of 2008, compared to net interest income of $7 million in the third quarter of 2007. Net interest income in the third quarter of 2008 included interest income of $70 million, partially offset by interest expense of $52 million. Net interest income in the third quarter of 2007 included interest income of $100 million, partially offset by interest expense of $93 million. The increase in net interest income in the third quarter of 2008 was primarily attributed to a $29 million decrease in interest expense related to the recognition of previously unrecognized tax benefits, offset by lower interest income due to the decrease in average cash, cash equivalents and Sigma Fund balances during the third quarter of 2008 compared to the third quarter of 2007, and the significant decrease in short-term interest rates.
Gains on Sales of Investments and Businesses
Gains on sales of investments and businesses were $7 million in the third quarter of 2008, compared to $5 million in the third quarter of 2007. The net gains relate to the sale of several small investments in the third quarters of both 2008 and 2007.
Net charges classified as Other, as presented in Other income (expense), were $173 million in the third quarter of 2008, compared to net income of $6 million in the third quarter of 2007. The net charges in the third quarter of 2008 were primarily comprised of: (i) $141 million of charges attributed to other-than-temporary declines in Sigma Fund investments resulting from our positions in Lehman Brothers Holdings Inc. (âLehmanâ), Washington Mutual, Inc. (âWaMuâ), and Sigma Finance Corporation (âSFCâ), a special investment vehicle managed by United Kingdom based Gordian Knot Limited, and (ii) $48 million of foreign currency losses. The net income in the third quarter of 2007 was primarily comprised of $21 million of foreign currency gains, partially offset by $5 million of investment impairment charges.
Effective Tax Rate
The Company recorded $203 million of net tax benefits in the third quarter of 2008, compared to $32 million of net tax benefits in the third quarter of 2007. During the third quarter of 2008, the Companyâs net tax benefit was favorably impacted by: (i) a net reduction in unrecognized tax benefits, and (ii) tax benefits on charges, including charges for: a software and silicon platform consolidation, a settlement relating to a purchase commitment, asset impairment charges, investment impairments and reorganization of business charges. The Companyâs net tax benefit was unfavorably impacted by: (i) a gain on sale of property, plant and equipment, (ii) transactions costs for which the Company recorded no tax benefit, and (iii) tax on the reduction of interest expense related to the recognition of previously unrecognized tax benefits. The Companyâs ongoing effective tax rate, excluding these items, was 34%. The Companyâs net tax benefit excludes a benefit for the U.S. R&D tax credit, which was not reenacted until after the end of the Companyâs third quarter. The Company will include a full year tax benefit for the U.S. R&D tax credit in the fourth quarter of 2008.
The Companyâs net tax benefit of $32 million for the third quarter of 2007 was favorably impacted by a relative increase in tax credits and a reduction in losses in countries where tax benefits could not be recognized. The Companyâs net tax benefit was also favorably impacted by nonrecurring items, including the reversal of deferred tax valuation allowances, and unfavorably impacted by nonrecurring items, including deferred tax adjustments for enacted tax rate decreases. The Companyâs effective tax rate for the third quarter of 2007, excluding the nonrecurring items and tax impact of restructuring charges and asset impairment charges, was 21%.
Thank you and good morning. Welcome to Motorolaâs fourth quarter results conference call. Todayâs call will include prepared remarks by Greg Brown, Co-Chief Executive Officer of Motorola and CEO of Broadband Mobility Solutions; Sanjay Jan, Co-Chief Executive Officer of Motorola and CEO of Mobile Devices; and Ed Fitzpatrick, Motorola acting Chief Financial Officer. Joining them for the Q-and-A portion of the call will be our Treasurer, Larry Raymond and Marc Rothman, CFO of Mobile Devices.
A number of forward-looking statements will be made during this 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 there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, Motorolaâs actual results could differ materially from these results.
Information about factors that could cause and in some cases have caused such differences can be found in this morningâs press release on pages 18 through 27 in item 1A of Motorolaâs 2007 Annual Report on Form 10-K and in Motorolaâs other SEC filings. This presentation is being made on 3 February 2009. Content of this presentation contains time sensitive information and 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.
I will now turn the call over to Greg.
Thanks, Dean and good morning and thank you for joining us. As you saw in this morningâs press release weâve named Ed Fitzpatrick Senior Vice President and Corporate Controller to the additional role of acting CFO, replacing Paul Liska and we have also initiated a search to identify a replacement.
Edâs been with Motorola for 11 years and has held a number of senior financial roles. Previously he was CFO for the Home and Networks Mobility segment. We appreciate the contributions Paul made to our planned separation and managing our cost reduction activities. We remain committed to the separation and we will continue to prepare for a separation at a time that is appropriate for the company and its stakeholders.
Turning to our financial results this morning; we reported Motorola fourth quarter sales of $7.1 billion. On a GAAP basis we had a net loss from continuing operations of $1.57 per share. This reflects a total net charge of $3.6 billion or $1.56 per share in highlighted items. Substantially all other charges for highlighted items are non-cash and relate to goodwill impairment and deferred tax asset valuation. Ed will provide more details on all of our highlighted items in a few moments.
Excluding highlighted items, the net loss in the quarter was $0.01 per share, consistent with the preliminary estimate that we provided on January 14. For the full year, sales were $30.1 billion. On a GAAP basis we had a net loss from continuing operations of $1.84 per share. The excluding highlighted items we had net income of $0.02 per share.
With respect to cash, we generated $201 million in operating cash flow in the fourth quarter and finished the year with total cash of over $7.4 billion. Our solid liquidity position gives us agility and flexibility in todayâs challenging economic environment. To strengthen the balance sheet and further enhance flexibility, our Board has made the decision to suspend the quarterly cash dividend, effective immediately. This will result in a cash savings of approximately $350 million in 2009. We are also actively implementing cost reduction actions, which are expected to reduce our cost structure by approximately $1.5 billion this year as well.
I want to now turn the call over to Ed to cover the financial results in more detail. Iâll then come back to discuss Home and Networks Mobility and Enterprise Mobility Solutions; and then Sanjay will cover Mobile Devices. Ed.
Thanks, Greg. In the quarter, total sales were $7.1 billion. The decline in sales compared to the fourth quarter of 2007 is primarily attributable to lower sales in Mobile Devices. On a GAAP basis we reported net loss of $1.57 per share which includes a net charge of $3.6 billion or $1.56 per share for highlighted items. Substantially all of this charge is non-cash and primarily relates to the impairment of goodwill and an increase in our deferred tax asset valuation reserve.
The total charge includes pretax charges of $1.6 billion associated with our goodwill impairment analysis under FAS 142. This charge against goodwill was driven by the macroeconomic environment and the resulting depressed level of asset valuations in relation to book. It had no impact on our cash position.
In addition, we had charges of $206 million associated with impairments of our investment in Clearwire and investments in the Motorola ventures portfolio. $169 million associated with previously announced workforce reduction and $41 million on a previously disclosed impairment in the sigma funds related to a single issuer. These charges were partially offset by pretax income related to a $237 million gain from the decision to freeze the US pension plan and $99 million for income associated with the legal settlement in the extinguishment of a liability.
Finally, in accordance with FAS 109 we took a non-cash charge of $2.1 billion to record a partial valuation reserve against our deferred tax assets. This accounting standard required that historical results be weighed more heavily and future projections when determining the companyâs ability to realize deferred tax benefits. Its subsequent analysis, the tax asset is deemed to be realizeable. We would make the appropriate adjustments to the reserve at that time.
Partially offsetting this charge was a $228 million tax benefit associated with the settlement of a tax audit. Detail on these highlighted items can be found on our website and our remaining financial comments will exclude highlighted items. Net loss per share in the fourth quarter was $0.01 compared to earnings per share of $0.14 in the fourth quarter of 2007. The reduction in net earnings was primarily attributable to the lower sales in mobile devices.
Overall gross margin in the quarter improved by 100 basis points compared to 2007 due primarily to a more favorable business mix. We expect overall gross margin to continue to expand as the broadband mobility businesses account for a larger percent of overall sales.
Also impacting the net earnings decline was a lower net interest income with lower net interest income and higher costs associated with foreign currency hedging that was implemented to minimize our exposure to foreign currency losses. The tax rate in the quarter was higher, primarily due to non deductible currency translation losses in foreign subsidiaries.
Regarding our cost reduction efforts, weâve been very focused on reducing operating expenses. On a year-on-year basis, operating expenses declined for the quarter and full year, by $385 million and nearly $1.1 billion respectively. Including our cost reduction efforts in cost of goods sold, we exceeded the original $1 billion target for 2008 by over $300 million.
As you know, we recently announced workforce reductions totaling 7,000, of which 5,000 are associated with mobile devices. Weâve also implemented actions to freeze the US pension plan, suspend the US 401(k) match and eliminate salary increases in the United States and certain other markets for 2009. Including the impact of these actions and those previously implemented, we expect operating expense reduction in 2009 of approximately $1.5 billion compared to our 2008 cost structure.
More than $1.2 billion of these savings relate to mobile devices. The actions to achieve these savings are well underway and we will begin to see sequential savings in the first quarter with further improvement in the second and third quarter. In addition, we further aligned our manufacturing operations with each of our businesses which should increase operational efficiency and focus and improve line of sight. We also continue to optimize our manufacturing footprint having completed or announced the closure or down sizing of several facilities during 2008.
Moving now to liquidity; we had positive operating cash flow in the quarter of $201 million, compared to $180 million in the third quarter. For the full year we had positive operating cash flow of $242 million. Our cash and liquidity position remained solid. We ended the year with total cash of over $7.4 billion, compared to approximately $7.6 billion at the end of the third quarter.
During the quarter we increased our US cash position from approximately $675 million to over $2 billion, due in part to repatriation of over $1.3 billion, with no significant cash cost. Over the course of last year, I will add, we repatriated over $2.1 billion from various international jurisdictions, also with no significant cash costs. We continually review our geographic funding requirements and have a track record of timely and efficient repatriation of funds. In 2009 we expect this trend to continue.
As you know, we invest most of our US dollar denominated cash in the Sigma Fund. Proceeds from maturing securities, as well as new funds, are being directed exclusively into cash and treasuries and government backed agency securities with durations of 30 days or less. As a result, compared to the end of the third quarter, investments in cash and government agency securities have increased by $750 million to approximately $1.9 billion. These highly liquid amounts represent about 45% of the Sigma Fund assets at the end of the fourth quarter.
Regarding debt, we do not have any significant amounts of long term debt maturing in 2009. Beyond that, we have approximately $530 million due in November 2010.
Moving now to our outlook, excluding items of the variety highlighted in our quarterly earnings releases, we expect a first quarter net loss in the range of $0.10 to $0.12 per share. This is based on expected effective tax rate of 34%. Beyond the first quarter, we expect operating results to improve, as operating gross margin expands due to business mix and we realize the full benefit from the operating cost reduction actions.
From a cash perspective, weâve taken a number of actions that we have previously discussed. These include suspending the dividend, suspending the 401(k) match, freezing the US pension plan, and implementing plans to reduce capital spending year on year. We are also committed to driving improved working capital efficiency in all our business to solidify our cash position.
With that, Iâll pass the call back to Greg to discuss Home and Networks Mobility and Enterprise Mobility Solutions.
Ed thanks. Despite a very tough economic environment, the broadband mobility businesses performed very well in the fourth quarter and produced solid overall results for the full year. In 2008, we generated over $18 billion of sales and contributed $2.5 billion in operating earnings. While the global economic downturn has adversely impacted some of the industries and the customers that we serve, these businesses remain substantial franchises with leadership positions in their respective markets.
In Home and Networks Mobility, fourth quarter sales were $2.6 billion, down approximately 5% compared to the fourth quarter of â07, reflecting a decline in Networks, offset partially by growth in home. Excluding highlighted item, operating margin was 10.9%, up significantly from 7.6% in the fourth quarter of 2007, reflecting improvement in both Home and Networks.
For the full year segment sales were $10.1 billion, up 1% from 2007. Sales in Home were higher, but largely offset by lower network sales. Operating margin excluding highlighted items improved to 9.6% from 7.8% in 2007, again with the improvement in both Home and Networks.
In the fourth quarter sales in the Home business were approximately $1.2 billion, up 11% year-over-year. The increase in sales was driven by higher demand for digital video products, which included 4.7 million digital entertainment devices. For the full year we shipped 18 million devices compared to 15 million in 2007.
Despite a challenging North American marketplace, Home sales in the region grew 10% over the year ago quarter and accounted for approximately 80% of sales. Sales outside of North America were up 16%. Fourth quarter operating margin for Home improved sequentially and year-over-year, primarily as a result of leverage from higher sales.
Overall for the full year, Home had great results, delivering top line growth of 16%, gaining market share, integrating several acquisitions and improving operating margin on a year-over-year basis. As we look ahead for Home, the longer term fundamentals of the business are solid, including demand for high def TV, personalized video services, broadband connectivity and a higher speed.
For 2009, overall industry visibility remains limited, with uncertainty in the economy a major factor. While weâre anticipating some pull back in total industry CapEx, revenue generating CapEx is a critical element to operator growth strategies in a very competitive marketplace.
In Networks, sales in the fourth quarter were approximately $1.4 billion down from the fourth quarter of 2007, primarily due to the divestiture of Embedded Communications Computing or what we call ECC, as well as lower GSM and iDEN sales. This was offset partially by higher wireless broadband sales, including our initial WiMAX sales and higher CDMA sales.
Operating margin in Networks was higher compared to the year ago quarter, due primarily to lower operating costs as well as favorable mix. For the full year, excluding Embedded Communications Computing, Networks sales declined 3% compared to 2007. This reflected the anticipated decline in iDEN, offset by higher sales in UMTS and wireless broadband, primarily WiMAX related.
In GSM, CDMA and iDEN, we significantly reduced our cost structure and improved margins. We funded R&D investments and demonstrated leadership in both WiMAX and LTE. In summary, the Networks business performed very well, especially in delivering overall year-on-year operating margin improvement, despite a changing sales mix and investment in next generation technologies.
Looking at 2009, we anticipate a continued decline in the overall market for 2G Networks. In our Networks business we expect lower sales in GSM, particularly in EMEA given the decline in the number of large 2G deployments. CDMA sales will be lower due in part to the recent carrier consolidation in the US, offset partially by recent wins in China and as expected, iDEN sales will also continue to decline.
In wireless broadband weâre pleased with the traction we have made in WiMAX and the developing area of LTE and expect to generate significantly higher WiMAX sales this year. Looking at the first quarter for Home and Networks Mobility on a year-on-year basis, we expect lower sales in both Home and Networks with relatively flat overall operating margin.
Now, if you switch over to Enterprise Mobility Solutions, Gene Delaney is now leading both the government and public safety and enterprise mobility businesses. Gene will drive further synergies and expand our growth opportunities by leveraging these best-in-class organizations, across a broad spectrum of government and enterprise customers.
In the fourth quarter, segment sales were over $2.2 billion, up approximately 4%, compared to the fourth quarter of 2007. Sales in government and public safety markets were over $1.6 billion for the quarter, an increase of nearly 11% compared to the fourth quarter of 2007. In Enterprise, sales were $560 million, down approximately 13% from the year ago quarter.
Excluding highlighted items, operating margin for the segment was 21.4%, compared to 21.8% in the fourth quarter of 2007. For the full year, segment sales were $8.1 billion, up nearly 5% from 2007. This was driven by the acquisition of Vertex, as well as organic growth outside of North America, by government and public safety. Operating margin excluding highlighted items improved to 18.8%, from 17.2% in 2007, which reflected improvement in both government and public safety as well as in Enterprise.
Looking regionally, sales in North America in the fourth quarter were essentially flat compared to the fourth quarter of 2007. Government and public safety sales were higher, driven by steady demand in state and local and federal markets. This was partially offset by softness in the indirect channel, serving construction, manufacturing and warehousing customers. Enterprise Sales were lower as well, driven by weakness in the retail and transportation and logistics verticals.
Segment sales outside of North America which accounted for 41% of sales were up approximately 11% over the fourth quarter of 2007, driven by growth in government and public safety, partially offset by a decline in Enterprise. In EMEA, year-over-year sales grew by nearly 4% and accounted for approximately 26% of sales. In Asia-Pac, sales increased by 19%, compared to the year ago quarter and accounted for 9% of sales.
Looking now at 2009, we expect continued softness in our indirect channel. While a significant number of states and municipalities in the US are facing budget challenges, our backlog and long term contracts do give us some visibility, but less than what we have had in prior years. That said we expect mission critical communications and Homeland Security to remain high priorities.
One final note on government and public safety; for 2009 we transferred certain aftermarket products to the Mobile Devices business and we anticipate closing the sales of our Biometrics business by the end of the first quarter. On a combined basis in 2008, these two activities accounted for sales of approximately $160 million.
In Enterprise, our leadership position and the fundamental needs for converged enterprise communications and productivity enhancing enterprise solutions remained strong. However, as we look at this year, given the global economic stresses and customer CapEx constraints, we anticipate continued pressure across our key verticals. As we look at the first quarter in the enterprise mobility solutions segment, on a year-on-year basis we expect lower sales and a decline in operating margin.
In closing, broadband mobility delivered solid results in 2008. Our employees in these businesses had many accomplishments throughout the year and have a lot to be proud of and I want to thank all of them and all of our support teams and partners for their ongoing efforts and commitment to our customers.
That said, weâre heading into 2009 with an economic environment thatâs expected to be difficult. Weâve taken a number of actions to ensure that we are aligned with market realities as well as our strategic priorities. Throughout 2009, we will aggressively manage our costs and prioritize investments in innovation and future growth opportunities. This will further position us for the next growth cycle and enable us to build upon our leadership positions in broadband, video, mission critical and enterprise mobility solutions.
Now, Iâll pass the call over to Sanjay to review and discuss Mobile Devices.
Thanks, Greg. Today I will give you an update on our progress and 2009 priorities and expectations, but first, let me review our fourth quarter results. In Mobile Devices, sales for the fourth quarter were approximately $2.4 billion. Unit shipments were $19.2 million and our estimated market share was 6.5%. Sales were adversely impacted by gaps in our portfolio and a weakened global economy.
Overall ASP was $123, unchanged from the third quarter. Stock in channel at the end of the quarter was down sequentially, both in unit terms and in weeks. Regionally, our mix was similar to past quarters, with North America accounting for 51% of total sales and Latin America 26% of sales. Asia-Pacific and EMEA made up 16% and 7% respectively.
Excluding the impact of highlighted items, the operating loss in the quarter was $476 million, compared to a $295 million operating loss in the third quarter. This increase in loss reflects lower sales due to certain gaps in our portfolio, as well as volatility in foreign exchange rates in certain geographies.
With regards to new devices in the portfolio, we began shipping several new products, including the ZN4 Krave touch device, the Q830 Hint to messaging slider, the I9 iDEN stature for both prepaid and post paid customers, and our luxury AURA device. This brought our total number of new devices in 2008 to nearly 50. More recently, at the Consumer Electronics Show, we announced the WT33 Green Phone made from recycled material. The VA76R Tundra, a rugged 3G push-to-talk device and a A3100, a 3G touch tablet.
As we move forward in 2009, our platform decisions and market focus will result in fewer new product launches than in the past year. We will be much more focused on mid and high tiers. This allows us to narrow our portfolio and focus on delivering more devices with compelling user experiences.
Consumers are migrating towards devices that provide easy to use mobile experiences which increasingly involves data subscription. As a result, carrier growth today is being driven primarily by data revenue. For this reason our road map has a much greater focus on bringing Smartphone functionality into lower tiers, with touch enquiry and on experiences around messaging and mobile internet. This will allow us to address the largest and fastest growing gross margin pool in mobile handsets.
Our Smartphone road map includes a variety of devices, many based on the Android operating system. Android is a flexible operating environment and has attracted thousands of developers with it as we believe we can enable differentiated user experience.
To that end, we are working on applications with best-in-class web browsing and unique experiences related to enhanced integration of mobility and social networking. We have shown a number of our devices to several customers. The feedback weâre getting is that the portfolio will be very competitive. This puts us in a position for important product slots in the fourth quarter and first half of 2010.
Turning now to our efforts to lower cost structure in Mobile Devices. We have announced plans to reduce our global workforce by approximately 25%. As you know, there are regulatory requirements in our biggest geographies associated with an action of this size. Much of the reduction will be completed during the first quarter and the majority by the second quarter. These and other actions that we have implemented are expected to result in a cost reduction in excess of $1.2 billion in 2009 compared to 2008.
In addition, we expect to generate manufacturing cost improvements through design for cost, higher level of standardization and a greater focus on quality. We have also made progress in our efforts to optimize our manufacturing footprint, having completed or announced several actions last year.
Regarding our outlook, in the first quarter we anticipate a higher than normal sequential decline in overall handset industry. Given this industry slowdown, decisions we have made to reduce platforms and our geographic prioritization, we expect sales and units to be down more than overall market on a sequential basis. This mix will reflect less lower tier products than in prior quarters. Our cost reduction efforts are expected to more than offset the lower volume, resulting in a reduced operating loss compared to the fourth quarter.
In closing, our priorities as we head into 2009 are clear. Develop and deliver compelling Smartphone road map by bringing data enabled functionality to mid and high tier devices, execute on reducing our cost structure and continue to leverage our strength in CDMA and iDEN and companion products. By executing on these priorities, we expect a meaningful reduction in the operating loss in 2009 compared to 2008. We will exit 2009 with a much more competitive cost structure which will position us for further financial improvement in 2010.
Finally, let me say that we have made a significant number of changes in a short period of time. I have been impressed with the teamâs sense of urgency and unyielding desire to win. We have our work cut out for us in 2009 as we focus on the future success of Mobile Devices. I want to thank all of the Mobile Devices employees and their supporting teams for their effort and I look forward to our progress in the quarters ahead.
Now, I will turn the call back over to Dean to start the Q-and-A.
Thanks, Sanjay. Before we begin taking questions, weâd like to remind callers to limit themselves to one question so that we can accommodate as many participants as possible. Operator, you can now provide our callers with instructions on how to ask questions.