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Executives

Dean Lindroth - Corporate VP of IR

Greg Brown - Co-CEO of Motorola and CEO of Broadband Mobility Solutions

Sanjay Jha - Co-CEO of Motorola and CEO of Mobile Devices

Paul Liska - CFO

Analysts

Ittai Kidron - Oppenheimer

Jim Suva - Citi

Richard Windsor - Nomura

Mark Sue - RBC Capital Markets

Brian Modoff - Deutsche Bank

Jeff Kvaal - Barclays Capital

Vivek Arya - Merrill Lynch

Maynard Um - UBS

Tim Long - Banc of America Securities

Richard Kramer - Arete Research

Ehud Gelblum - JPMorgan

Motorola Inc. (MOT) Q3 2008 Earnings Call October 30, 2008 8:00 AM ET

Operator

Welcome to Motorola's third quarter 2008 earnings conference call. Today's call is being recorded. If you have any objections, please disconnect at this time. After this teleconference, the presentation material and additional financial tables will be posted on Motorola's Investor Relations website

In addition, a replay of this call will be available approximately three hours after the conclusion of this call over the Internet through Motorola's Investor Relations website. The website address is www.motorola.com/investor.

At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation.

I would now like to introduce Mr. Dean Lindroth, Corporate Vice President of Investor Relations. Mr. Lindroth, you may begin your conference.

Dean Lindroth

Thank you and good morning. Welcome to Motorola's third quarter results conference call. On our call today is Greg Brown, Co-Chief Executive Officer of Motorola and CEO of Broadband Mobility Solutions; Sanjay Jha, Co-Chief Executive Officer of Motorola and CEO of Mobile Devices; and Paul Liska, Motorola Chief Financial Officer.

Before we begin today, I do want to remind everyone again that details outlining our highlighted items, our GAAP to non-GAAP P&L reconciliations and other financial information can be found on our website, and today's slides and audio replay will be posted shortly after this call.

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, Motorola's actual results could differ materially from these statements.

Information about factors that could cause, and in some cases have caused, such differences can be found in this morning's press release on pages 18 through 27, and Item 1-A of Motorola's 2007 annual report on Form 10-K and in Motorola's other SEC filings. This presentation is being made on the 3Oth of October 2008.

The 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 would now like to turn the call over to Greg.

Greg Brown

Thanks, Dean. Good morning and thank you for joining us. This morning we reported Motorola third quarter sales of $7.5 billion. On a GAAP basis, we had a net loss from continuing operations of $0.18 per share, compared to earnings per share of $0.02 in the third quarter of last year.

From the press release and the related financial detail on our website, you can see that in the quarter we had a significant net pre-tax charge of $770 million, or $0.23 per share, in highlighted items. This charge includes the impact of several decisions and plans that we will discuss during this call. Excluding the $0.23 per share in highlighted items, earnings were $0.05 per share, compared to our guidance of zero to $0.02 per share.

During the quarter, we executed on our cost reduction programs and generated $180 million in positive operating cash flow. We finished the quarter with total cash of approximately $7.6 billion. Our balance sheet and solid liquidity position give us the agility and flexibility in today's weakened global economy and turbulent financial markets. We also benefit from a broad portfolio of products and solutions that meet important needs of a diversified and global customer base.

However, given the current environment, as well as the challenges in Mobile Devices, we are taking further proactive actions. First, while we remain fully committed to the separation of the businesses, and preparation activity continues, we are no longer targeting the third quarter of next year, and Sanjay will discuss this later in the call.

Second, we will implement plans to further reduce costs. These actions which are already underway will be global in nature and impact all of the businesses, our supply chain and corporate functions. This initiative and other prior actions are expected to result in year-on-year cost savings of approximately $800 million in 2009.

Third, we will continue to prioritize investments for future growth by focusing on product innovation and product differentiation. This includes video, mission-critical communications, enterprise mobility, wireless broadband and enabling the mobile Internet.

At this point, I want to turn the call over to Paul to cover the financial results, discussions on liquidity and cost reductions in more detail. I will then come back to discuss Home and Networks Mobility and Enterprise Mobility Solutions, and then Sanjay will discuss Mobile Devices and the planned separation.

Paul Liska

Thanks, Greg. In the quarter, total sales were $7.5 billion, down approximately 15%, compared to the third quarter of last year. The decline in sales was primarily attributable to lower sales in Mobile Devices, partially offset by higher sales in Enterprise Mobility Solutions.

On a GAAP basis, we reported net loss of $0.18 per share, which includes a net pre-tax charge of $770 million, or $0.23 per share. Of this amount, $297 million will impact cash, while $473 million is a non-cash charge.

The net charge includes pre-tax charges of $370 million associated primarily with inventory write-downs related to software and silicon platform consolidation in Mobile Devices and $150 million associated with amending our supply agreement with free scale to eliminate all contractual purchase commitments. Sanjay will discuss both of these in more detail later in the call.

In addition, there were pre-tax charges of $185 million associated with asset impairments, previously announced workforce reductions and our separation activity, and $141 million for realized losses in the Sigma Fund related to three issuers.

These charges were partially offset by pre-tax credits related to $48 million gain on the sale of a facility, $28 million associated with interest expenses. In addition, there was an income tax benefit of $21 million. More detail on these items can be found on our website.

My remaining comments will exclude these highlighted items. Earnings were $0.05 per share, compared to $0.06 per share in the third quarter of last year. Operating expenses in the quarter were lower by $277 million, compared to last year. For the first nine months, operating expenses have declined by $745 million, compared to the same period last year.

Including our reduction efforts in cost of goods, we expect to exceed the $1 billion overall cost reduction target for 2008. Our new cost savings actions announced today are related to reducing the cost structure in all of our businesses, supply chain and corporate functions.

Including the impact of prior actions, we expect aggregate cost reductions in 2009 of approximately $800 million, compared to our 2008 cost structure. The majority of these savings will impact operating expenses.

Approximately $600 million of these savings relate to Mobile Devices actions and $200 million relate to the other businesses supply chain and corporate functions. Charges associated with these actions will be taken in future quarters as allowed under the applicable accounting rules.

Total net costs included in other income expense were higher than the year ago quarter due to lower net interest income and higher currency related losses. The ongoing income tax rate remained at 34%.

Moving on now to cash flow and liquidity, our overall operating cash inflow was $180 million, compared to $204 million cash inflow last quarter. Our cash and liquidity position remains solid. We ended the quarter with total cash of over $7.6 billion compared to $7.8 billion at the end of the second quarter.

To meet our working capital needs, our cash and investments are strategically positioned around the world. We continually review repatriation and offshore funding requirements to ensure that we have the appropriate levels of liquidity within the geographies to execute our business plans.

To meet our needs in the US, Motorola has a long history of repatriating funds and a track record of minimizing related friction costs. As part of our liquidity planning, we have identified over $2 billion of offshore funds that could be repatriated to the US.

We invest most of our US dollar-denominated cash in an in-house fund called the Sigma Fund. This fund is designed to perform similar to an institutional money market fund. This strategy centralizes Motorola's investment activities and provides an efficient cash management and investment vehicle.

The Sigma Fund portfolio is managed by four independent investment management firms affiliated with major financial institutions. The conservative investment guidelines Motorola provides to these investment managers stipulate, among other things, maturity parameters, concentration thresholds and investment quality. These guidelines are modified from time-to-time to reflect market conditions.

As macroeconomic conditions have changed, we have instructed the investment managers to take an even more conservative posture. As such, proceeds for maturing securities and new funds are being directed exclusively into treasuries and government-backed agency securities with durations of 30 days or less. As a result, the largest change in the quarter was in government and agency securities, which increased by over $400 million to $1.1 billion.

Like others, who have exposure to the fixed income markets, we have experienced pricing pressures given the stress and disruption in the credit markets. Charges in the third quarter included a realized loss of $141 million, which affected earnings, related to holdings in Lehman Brothers, Washington Mutual and Sigma Finance Limited.

Subject to quarter end, Sigma Finance Limited went into receivership, which will result in an additional impairment in the fourth quarter of no more than $43 million. Let me add that other than this one investment, Motorola's Sigma Fund is not in any way affiliated with Sigma Finance Limited.

We also recorded in the quarter an incremental temporary loss of $26 million, which impacted the balance sheet for securities that have had a decline in value. This brings the total temporary loss amount to $120 million. We expect, however, that if held to maturity we will realize the full value on these securities.

With regard to short-term refunding risks, we do not have any commercial paper outstanding and do not anticipate issuance in the near future. As for debt maturities, we had $84 million of debt due in the fourth quarter, which has been paid, and no additional long-term debt maturities until November of 2010.

Moving now to our outlook, excluding items of the variety highlighted in our quarterly earnings releases, we expect fourth quarter earnings to be in the range of $0.02 to $0.04 per share, resulting in full year earnings of $0.05 to $0.07 per share.

With respect to total cash, we now expect to end the year with approximately $7.5 billion compared to $7.6 billion at the end of the third quarter.

With that, I will pass the call back to Greg to discuss Home and Networks Mobility and Enterprise Mobility Solutions.

Greg Brown

Thanks, Paul.

In Home and Networks Mobility, sales were nearly $2.4 billion, essentially flat compared to the third quarter of last year. Excluding highlighted items, operating margin was 11.3%, up significantly from 6.9% in the third quarter of last year.

In Home, sales were approximately $1.1 billion, up 19% year-over-year and, as anticipated, sequentially lower due to accelerated purchases in the second quarter and normal seasonal weakness.

Overall sales of video solutions were up 25% compared to last year and included 4.1 million digital entertainment devices. Sales of broadband gateway devices were higher than a year ago on shipments of 3.1 million devices, while sales of network access equipment were down slightly year-on-year.

Looking regionally compared to the third quarter of last year, Home sales in North America grew 13% and accounted for approximately 79% of sales. Sales outside North America also remained strong and were up 46%.

The operating margin for Home improved from last year, but was lower sequentially due to the lower sales volume.

In Networks, sales in the quarter were approximately $1.2 billion, down from last year primarily due to the divestiture of Embedded Communications Computing and lower iDEN and GSM sales.

Operating margin improved from the year ago quarter. This reflects our ongoing efforts to appropriately size the cost structure supporting CDMA, GSM and iDEN technologies, while continuing to invest in both WiMAX and LTE. We also benefited in the quarter from a very favorable product and region mix.

Looking to the fourth quarter for the Home and Networks Mobility segment, we expect slightly lower overall sales while operating margin is expected to be higher compared to last year. That said, in Home, we expect sales to be higher sequentially with double-digit year-on-year growth, despite seeing some early signs of potentially slower in customer spending.

In Networks, we expect lower fourth quarter sales compared to a year ago and a less favorable mix than in the third quarter.

For the full year, we expect relatively flat total sales compared to 2007. This includes high teens sales growth in Home, offset by a decline in Networks. Despite the flat overall sales, however, we continue to expect operating margin improvement in both Home and as well as in Networks.

In Enterprise Mobility Solutions, sales were slightly over $2 billion, up approximately 4% compared to the third quarter of last year. Sales in government and public safety were $1.5 billion for the quarter, an increase of nearly 9% compared to the year ago quarter.

In the Enterprise market, sales were $525 million, down approximately 8% from the year ago quarter.

Excluding highlighted items, operating margin increased to 20.2% compared to 17.2% for the third quarter of last year. This improvement reflects higher gross margin and a favorable product mix.

In North America, sales for the segment declined 6% compared to the third quarter of last year. Excluding the US Postal System sales from last year, sales were essentially flat year-on-year. This reflects mid single digit growth in government and public safety in North America, including solid results from Vertex, offset by a double-digit decline in the enterprise market.

The weakness in the enterprise market was primarily in retail and transportation and logistics verticals. While mobility and productivity remain a top priority, we have seen some customers extend deployment time lines and, most recently, delay orders to conserve cash.

Segment sales outside of North America, which accounted for 44% of total sales, were up approximately 20% over the third quarter of last year, driven by sales into the government and public safety market.

In EMEA, sales grew by nearly 16% compared to the third quarter of last year and accounted for approximately 28% of sales. We saw a deceleration in growth in this region compared to the first two quarters of the year, primarily due to lower spending in enterprise markets.

In Asia Pac, sales increased by 33% compared to the year ago quarter and accounted for 10% of total sales. The growth was essentially all in the government and public safety markets.

In the quarter, we announced a very important addition to our mission critical portfolio, the APX family of products and solutions. This includes the industry's first two-way portable and mobile P25 multi-band radio featuring multi-agency interoperability, dual-sided portable operation and integrated GPS, aimed at mission critical first responders. APX infrastructure equipment will be shipping this quarter.

After the end of the quarter, we completed the acquisition of AirDefense, a leading provider of premium software security applications for wireless LAN networks. Earlier this month, we announced that we entered into an agreement to sell our biometrics business to SAFRAN in an all cash transaction.

As for the fourth quarter in the Enterprise Mobility Solutions segment, we expect higher sales compared to last year with comparable operating margin. This reflects year-on-year sales growth in government public safety. In the enterprise market, we expect sales to be sequentially higher, but lower year-on-year.

For the full year, we expect mid-single-digit sales growth, driven by government public safety. We also expect operating margin to be up slightly from 2007, reflecting improvement in government public safety and in enterprise.

Now, I will pass the call over to Sanjay to discuss Mobile Devices.

Sanjay Jha

Thanks, Greg. I have been at Motorola for about 90 days now, and it has been a very productive start. I have been reviewing our operations, the product portfolio, platforms and the cost structure. I have also met with many of our employees, customers and suppliers.

I will begin today by reviewing the third quarter results and our outlook for the fourth quarter. Then, I will discuss several decisions and plans we have put in place to reposition the business. I will also give an update on the business separation.

In Mobile Devices, sales for the third quarter were approximately $3.1 billion. Unit shipments were 25.4 million, and our estimated market share was 8.4%. Our regional mix was largely similar to past quarters with North America accounting for 50% of total sales and Latin America 23% of sales. Asia Pacific and EMEA made up the remaining 19% and 8% respectively.

Overall ASP was $123, up from the second quarter, due primarily to mix. Stock in channel at the end of the quarter was down sequentially. Excluding the impact of $545 million of highlighted items, the operating loss in the quarter was $295 million, compared to $340 million operating loss last quarter. The sequential improvement was due primarily to lower operating expenses.

We have now reduced operating expenses by $474 million through the first nine months of the year, compared to the same period last year. We now expect to exceed our $600 million cost reduction target for this year.

With regards to our top sellers in the quarter, we shipped over 11 million W Series devices, over 3 million RAZRs, over 1 million ROKR Series and over 1 million RAZR2. We began shipping 16 new products in the quarter. These included three 3G devices and three additions to the ROKR family. We also made several additions to our low- and mid-tier product lines. In the last few weeks, we have announced nine additional products, including the Krave ZN4 touch-screen smartphone for Verizon.

Looking ahead to the fourth quarter, we expect lower than normal seasonal growth in the handset market. Growth is primarily being driven by smartphones and the very low tiered two product categories where our portfolio is more limited today.

Consequently in Mobile Devices, we anticipate sales and units to be down compared to the third quarter. Due to the lower volume, the operating loss is expected to increase sequentially. I want to now shift and discuss our challenges and actions that we have recently taken.

We have had inconsistent product planning and too much complexity in our product platforms and system architecture. Let me give you an example. Today, we have over 20 combinations of software, silicon and UI platforms. Our competitors have far fewer. This has resulted in high cost and portfolio gaps in critical market segments, especially 3G, including smartphones and in the very low tier.

To address these issues, we have put aggressive plans in place to rebuild and reposition the business. First, we concluded a final settlement agreement with Freescale. This agreement ended our contractual purchase obligations. The agreements we reached last January allowed us increased flexibility in our multi-sourced silicon strategy by eliminating next generation design awards.

This final settlement resulted in $150 million charge, which will be paid over the course of next year. Going forward for 2009 and 2010, we will focus on TI and QUALCOMM as our preferred UMTS chipset suppliers. Freescale and TI continue as our GSM and EDGE chipset suppliers, and QUALCOMM continues as our CDMA chipset supplier.

Second, we are no longer planning to develop certain operating systems within Mobile Devices. Specifically, in UMTS, we will focus on three software platforms; Android, Windows Mobile and P2K. We will also continue to leverage ODM solutions for low and very low tier.

As a result, after completion of some already committed devices, we will no longer offer new devices on Symbian/UIQ or our internally developed Linux Java platform. This plan resulted in $370 million of charge in the quarter and was primarily related to inventory write-down.

With the consolidation of platforms, we intend to reduce future investments in operating system development and focus our resources on product development and in innovation. We will utilize Android and Windows Mobile broadly in the mid- and high-tier markets.

They will enable us to provide differentiated devices and experiences, including smartphones, messaging and mobile Internet devices for consumer and enterprise customers. Our plans include a variety of additional Windows Mobile devices. Our first Android smartphone is targeted to be in market for the holiday season in 2009.

Third, we will have an increased focus on certain key markets. These include North America, Latin America and certain markets in Asia. In other geographies, we will prioritize and make investments commensurate with the competitiveness of our portfolio.

These decisions and plans will result in platform consolidation and refocused product and market priorities. Our cost structure will also be significantly lower, and we expect these and prior actions to yield $600 million in saving in 2009.

Let me close by saying that, although I have been here for only a short time, I understand the challenges and the changes that we need to make to address them. We have a strong global brand, great IP and great engineering talent and an organization determined to succeed.

Customers with whom I have spoken, many of whom I have known for a long period of time, want us to win, but the reality is there is no quick fix here. We have made decisions and developed plans on chipsets, operating systems and investment priorities. They will reduce the number of products we launch in the first half of 2009, compared to what we had previously planned. Consequently, the first half of next year will be challenging.

With that said, these plans are taking us on a new course to rebuild this business. As we start to deliver more differentiated cost effective devices, we will be in a much better position for sustained financial improvements.

Finally, while we remain committed to a separation of the businesses, we are no longer targeting the third quarter of 2009. This is due primarily to weakness in the global economy, including slowing demand anticipated for the handset industry, stresses in the financial market and changes underway in Mobile Devices business.

We have made good progress on our preparations for the separation and will continue to prepare for separation at the time that is appropriate for the company and its shareholders. When we have better visibility and a likely time frame, we will update you accordingly.

Now, I will turn the call back over to Dean to start the question and answers.

Dean Lindroth

Thanks, Sanjay. Before we begin taking questions, we would like to remind callers to limit themselves to one question so we can accommodate as many participants as possible. Operator, you can now provide our callers with instructions and how to ask questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Ittai Kidron from Oppenheimer. Please go ahead.

Ittai Kidron - Oppenheimer

Thank you very much. Actually the question is for you, Sanjay. Thanks for the color on the plan. Can you get a little bit more specific, though it sounds like you are significantly retrenching the business on a geographic basis? Does that mean that next year, regardless of a macro conditions, you still expect a huge shrinkage in your volume, as well as you get out of Europe, which we haven't mentioned, and some regions in Asia, which are, on a combined basis, around a quarter of your business?

Sanjay Jha

Ittai, we are not getting out of any region, in particular. What we are doing is focusing our resources where we think we have the best product portfolio and we have the best brand recognition for Motorola. We will continue to participate in Europe and in other markets that I hadn't mentioned specifically. But our focus will be North America, Latin America and parts of Asia.

In terms of volume reduction, I won't provide you any guidance. But certainly, as we look at which areas we address, there will be changes in our volume. We won't address every single geography equally going forward.

Ittai Kidron - Oppenheimer

With regards to your gross margins as you make that geographic focus in your business longer term is because of that your gross margin potential is lower than otherwise? The US is known to be a lower gross margin region. Does that cap your capability to improve gross margins going forward?

Sanjay Jha

As you know, with the plans that we have, we're making changes in the business. In the short-term, we think that in the first half next year, our ability to address the smartphone segment is more limited. As you know, some carriers in the United States are saying that as much as 30% of their shipment is going to be in smartphone.

So I do believe that in the short-term there are some implications in terms of the gross margin pools we address. But our changes here are significant changes and position us to deliver compelling products, addressing the large margin pools in wireless in the medium to long-term. So I am confident that we will do that medium to long-term, but in the short-term we have made a decision to retrench our product portfolio.

Ittai Kidron - Oppenheimer

All right. Good luck.

Dean Lindroth

Next question, please?

Operator

Our next question comes from Jim Suva from Citi. Please go ahead.

Jim Suva - Citi

Great. Thanks very much. Very impressive results on the Home and Networking and Enterprise, but focusing on the biggest issue at hand, on the handset, can you give us a little bit of roadmap or colors? Exactly what type of production volumes or cutting in production footprint will it take to breakeven?

It seems like if you are retrenching that we should even expect bigger losses ahead, but maybe I'm missing something there on the costing.

Sanjay Jha

Our expectation for 2009 is that we will improve our losses over the losses that we are projecting to make in 2008. So, I think that, directionally, I could guide you to an improvement in our losses in 2008.

I won't guide you today on when we will breakeven, but we do believe that some of the steps we are taking here will position us to address large gross margin pools and will be more aligned with where we think wireless handset market is headed.

Jim Suva - Citi

Great. So, even with retrenching or pulling back in '09 on units to reposition yourself, you still think profitability should improve, if I understand correctly?

Sanjay Jha

That is right and that is one of the reasons why we have taken aggressive action to reduce our cost structure.

Jim Suva - Citi

Great. That's good to hear. Thank you very much.

Dean Lindroth

Next question, please?

Operator

Our next question comes from Richard Windsor from Nomura. Please go ahead.

Richard Windsor - Nomura

Hi. Thanks very much. Question on your Android platform. Now, looking at Android, it seems to me that only very high end hardware can support it at the moment.

So what is really the outlook here for you to address anything like the mass market in the consumer side? Aren't you really going to be addressing really only the very, very low end with ODM and very high end smartphones with this huge opportunity in the mass market being completely missed?

Sanjay Jha

Richard, in 2009, what you say is accurate. In 2009 with the work that we are doing and with the work that's being done by other partners, including Google, I think that we will expand our footprint from just high tier to high end medium tier. We certainly plan large number of devices addressing a number of price points in the wireless handsets market using Android as well, by the way, as using Windows Mobile.

I think that you would see both Windows Mobile and Android work. Both platforms address much larger market share than they have one addressed in the past and will address in 2009. In 2010, I think that they will both address much larger tier.

Richard Windsor - Nomura

Great. Thank you very much.

Dean Lindroth

Next question?

Operator

Our next question comes from Mark Sue from RBC Capital Markets. Please go ahead.

Mark Sue - RBC Capital Markets

Thank you. Sanjay, and maybe Greg, if you want to chime in. Is there a floor in terms of market share that Motorola is comfortable with? Do you feel the fourth quarter may be the bottom in terms of units?

Likewise, when do we get the full launch of smartphones and entry level phones to stabilize unit market share? Should we just add two quarters to everything since the spin is also two quarters later than planned?

Sanjay Jha

This is Sanjay. Greg will chime in on the spin question here. I don't think that we've guided to two quarters specifically. My view is that we will start launching smartphones on Windows Mobile Platform 6.5 in second half next year, and for Christmas season, based on Android platform, and in '10, we will deliver a much richer portfolio based on both of these two platforms.

I am not going to guide you to a market share today. The financial result is what I am focused on rather than market share.

Mark Sue - RBC Capital Markets

With that being said, Sanjay, should we kind of assume with your comments on retrenching that the first half of 2009 we might still see a little slide in share?

Sanjay Jha

Let me hold from giving you to advance the guidance here, because the visibility is not that good right now. But I would say that given the choices that we have made in terms of canceling some of the Symbian UIQ product launches moving forward, I think that it is certainly true that we would be launching fewer new products and that will have consequential effect in our volumes.

Greg Brown

Just to add to that, I think that we are both very, very focused on cash, cash is king, and continued earnings generation. Clearly, we need to stay focused on Home and Networks and Enterprise Mobility Solutions, and the arrangement with both Sanjay and I afford us the ability to do that. I think what you've heard Sanjay say is as he is pushing forward hard on decisions to simplify and consolidate Mobile Devices. The first half of '09 will be challenging, but for the full year '09 over '08, profitability improves.

So, in regards to the separation, the environment just isn't conducive to pursue it at this point in time between the global economy and the stressed financial markets. But we remain committed to that, and in kind, we'll take cost out of this business. As a full organization worldwide, we will continue to take cost out of both Mobile Devices, as well as the other businesses, supply chain and corporate. We will have a prioritization around cash and earnings to give us the kind of balance sheet flexibility that will be necessary for future decisions.

Mark Sue - RBC Capital Markets

Thank you, gentlemen. Good luck.

Dean Lindroth

Thanks. Next question, please.

Operator

Our next question comes from Brian Modoff from Deutsche Bank. Please go ahead.

Brian Modoff - Deutsche Bank

Hi. A question for Sanjay. In terms of your regional mix in Asia, you talk about certain areas of Asia, would that include India and China?

Then, in terms of the mid range line-up of phones next year, if you're looking at kind of what you intended versus what you're planning now, can you give us an idea of what kind of cuts we could see percentage-wise in that line-up versus what you had originally planned?

How many 3G phones are you expecting to actually have out in the market in the first half of next year? Thanks.

Sanjay Jha

Brian, China will be a particular focus of ours in moving forward, because we see two things in China which is attractive to us. One is that it has pretty good growth as China Telecom launches CDMA, as China Unicom launches UMTS and China Mobile then proceeds, I guess, with the EDGE solution and CDMA and edge dual-mode solution. But we see growth there, but we additionally see both TAM and actually gross margin full growth there.

In India, we see pretty good TAM growth, but the gross margin growth in India is a little more challenged. We will play in both of those two areas, but we will clearly target the larger gross margin pool first.

The second part of your question was in the mid range of phones in 2009, could I provide a little more color? Clearly, with the decision to cancel some products on Symbian UIQ, which we are squarely targeted to the mid to mid high tier of the marketplace, I think that that will reduce the number of phones that we'll launch at least in the first two or three quarters of next year. But I think, thereafter, as I mentioned in response to Richard's question, we expect that using Android and Windows Mobile, we'll be able to address a larger portion of the mid and mid to high tier market.

I think that I addressed your question. 3G, we launched three phones in the third quarter and expect to do many more devices in the second half 2009, again based on QUALCOMM solution.

Dean Lindroth

Thanks. Next question, please.

Operator

Our next question comes from Jeff Kvaal from Barclays Capital. Please go ahead.

Jeff Kvaal - Barclays Capital

Yes. Thanks very much. Greg, I was wondering if we could turn to the microenvironment and its impact on the broadband and mobility businesses. In particular, could you help us understand a little bit about the trends within the former Symbol business, what the pressures might be on government spending and where are we with broadband and cable? Thank you.

Greg Brown

So, in government and public safety, they had a remarkably strong quarter overall in Q3. The guidance we gave for Q4 looking forward on government and public safety is year-over-year growth on the full year. We are conscious of the fact of looking forward and we will keep an eye on the many states that have prospective budget deficits approaching us in 2009.

As we finalize the planning for '09, as it relates to public safety, we have to factor that in accordingly. It is a pretty resilient business. More of the public safety business is coming internationally as a percentage, which is helpful from a diversification standpoint.

On the former Symbol business, they've had very good performance this year, particularly on the bottom-line. We have seen a slowing in Q3 in particular where they had negative growth. For the full year, as I mentioned, we are actually expecting the former Symbol business to be slightly down in top-line, but still generating strong cash and positive operating margin expansion.

We've seen the verticals in logistics and transportation and utilities slow around that. We're not losing business. It's just being deferred. So we'll watch that in kind as well.

On the network side in Q3, we had a particularly strong favorable mix that I would not look to be repeated on the network side going forward. We had strong CDMA performance, particularly in KDDI in Japan, and we had a very favorable mix with more economic and margin contribution from software versus hardware. So that I think was very, very solid and allowed network to be particularly strong in Q3. I would expect that to normalize downward going forward.

On Home, Homes continue to grow great, 19% in Q3. I think it was 22% in Q2. But we're watchful of overall slowing around spending or CapEx in that area by either the carriers or cable MSOs. We still would probably look at revenue growth in Q4 in Home of 10% to 13% or 10% to 15% broadly in that range and the overall demand for HD and HD DVR remains strong. It's kind of a composite outlook.

Jeff Kvaal - Barclays Capital

Okay. Thanks very much. Then, I guess the next question then becomes currency. A lot of the growth that you have talked about is international, should we worry about the currency impacts? Honestly, I'm not quite sure how you price over there. Is that in local currency in all these businesses?

Paul Liska

This is Paul Liska. I think we've said before that primarily our sales mix at company level is about 50/50 US to non-US. But outside of the US, we still do a lot of business in US dollars, foreign currencies that have not had much volatility or are pegged to the dollar.

In foreign countries, our operating costs are denominated in that currency, and so there's kind of a natural hedge. So typically, we don't have the currency issues. There is some pressure at the top-line on currency, but not like you'd see for a lot of other global corporations.

Jeff Kvaal - Barclays Capital

Thank you.

Dean Lindroth

Next question, please?

Operator

Our next question comes from Tal Liani from Merrill Lynch. Please go ahead.

Vivek Arya - Merrill Lynch

Thank you. It's Vivek Arya on Tal's behalf. Sanjay, a clarification and a question. On the clarification, can you please give us some sense of how much handset volumes can decline in the first half '09? Are we looking at 5%, 10%, 20% year-on-year, any color would be very helpful to calibrate expectations.

On the question, if you look at some of these leading smartphone players, Apple and RIM, they control their operating system. So how do you take market share from them by using Android and Windows Mobile when it is already being used by several other handset vendors, or do you think ownership of operating system is not that important?

Sanjay Jha

Tal, I would take your second question first if you don't mind. We have, as you know, invested for a long period of time in our Linux Java platforms. Actually, what I think we've demonstrated is that commercializing proprietary operating systems and creating an equal system around it, because, remember, it's not just the operating system, but you need to get large number of third-party application developers to port their applications to your platform and create services around it.

I think we've demonstrated that that is quite a difficult thing to do. We see large ecosystems especially centered around mobile Internet, around Android and Windows Mobile. That I think is going to be more important as we go forward.

As messaging changes from a textual messaging environment to a more graphical environment, where you can open up all of the attachments and view them, I think that being able to have ecosystems, which are more connected with IT and the mobile Internet is going to be more important for us.

But to your point, we will work very hard. In fact, ourselves and Android folks up in California, we work very closely to ensure that we deliver differentiated products. Similarly, with Windows Mobile, we are planning to open an office in Seattle and work very closely with Microsoft to deliver differentiation.

I think it is possible to deliver differentiation without owning the platform. We have invested in Linux for a large number of years and we have a large number of applications which we can bring to bear into the Android platform already. So I think that your point is well taken. I think that the judgment that we made here was that we could differentiate using these platforms, while leveraging the ecosystem that they bring to bear.

With respect to the first part of your question about volume expectations in first half, allow me not to provide you quantitative guidance, but provide you some color. Again, if you look at the places where volumes are growing, they are low tier, they are smartphones, and it's 3G. In the first half, unfortunately, we won't be able to address all of these three tiers, as well as we would have wanted to address them.

So we certainly see some impact in our volume as a result of that. But as I say, with the decisions we have made, with the chipset choices that we have made, I think we will be well positioned to play in these markets and succeed.

Vivek Arya - Merrill Lynch

Okay. Update on the chipset negotiations? There has been some flux in your chipset suppliers, any update that you could provide on that would be appreciated. Thank you.

Sanjay Jha

On the chipset suppliers, clearly, on GSM and EDGE, we have Freescale and TI continue as our chipset suppliers for UMTS, QUALCOMM for the low end, the single chip solution that they are introducing and also 6245 and 6246 platforms would be very appropriate for our needs. We quite like TI's OMAP solution and a combination of TI's OMAP solution. The cost performance of the platform appeals to us.

So those negotiations are completed. We have for 2009 and 2010 made a decision to use QUALCOMM and TI. Clearly, we will start evaluating towards the end of 2009 middle of 2010 for a next-generation decision. Of course, at that time, everybody, including Freescale and STMicro and Infineon, will have an open shot at winning our slots. But for the short-term, we have locked and loaded QUALCOMM and TI bids for us and UMTS.

Vivek Arya - Merrill Lynch

Thank you.

Dean Lindroth

Thanks. Next question, please?

Operator

Our next question comes from Maynard Um from UBS. Please go ahead.

Maynard Um - UBS

All right. Thanks. Sanjay, with lower volumes and presumably increase in ODM, can you just talk about your manufacturing facilities, which are a fixed cog for you? You announced the Singapore plant closing, I think, last year or earlier this year, but with unit volumes decreasing, can you talk about how to improve the utilization there to improve your gross margins?

Then, if I could also ask about TI's plan to sell their chip business, how that impacts you and the way you think about the mix between QUALCOMM and TI? Thanks.

Sanjay Jha

I would say we have multiple manufacturing facilities, but three main ones. We have Tianjin, Hangzhou and the Brazilian manufacturing facility. You would see us consolidate two manufacturing facilities, one in China where we see Asia Pacific, where we see large growth in that factory will support the growth in Asia Pacific, and the facility in Brazil will support the growth that we see in Latin America and North America. So we'll consolidate our manufacturing as we go forward.

Remember though, the volume decreases that I'm guiding today are really for '09. We certainly plan as we address the very low tier, which is an important part of our plan going forward, we expect that the volumes will recover. But really, '09 is where I am guiding the volume today. So your point is taken and we are consolidating our manufacturing.

Greg Brown

Just to add on the supply chain as well, since some of these key manufacturing facilities are shared between Mobile Devices and other businesses, we are looking to load balance and appropriately get utilization within the footprint we have. So we have gone from 24 or 25 manufacturing facilities as a footprint four years ago, down to 11 or 12 now. Much of that heavy lifting has been done.

Now it's about tweaking the actual utilization and capital deployment and load within the footprint, as well as balancing between the businesses within Motorola to get the best utilization and return on capital.

Then, he had a question on QUALCOMM and TI.

Sanjay Jha

In terms of mix between QUALCOMM and TI, as I say, I think we'll focus on QUALCOMM low end solutions. I think QUALCOMM modems are some of the best. As some of you know, I was (inaudible) that.

Then, from TI, I think, again, we are very impressed with cost performance straight up that we get from the OMAP platform. I think that we get the best of both worlds as we use both of these platforms. These two, of course, happen to be also the world's two largest wireless chipset providers.

Maynard Um - UBS

Sanjay, on the low tier should I assume then that you won't be ODM-ing as much and you'll be doing a lot more in-house manufacturing? Thanks.

Sanjay Jha

I think that we will be ODM-ing in the 2G low tier. In 3G, I think that we will focus a little more internally. So as 3G gets commoditized in the low tier, we will start to ODM there also.

Dean Lindroth

Thanks. Next question, please?

Operator

Our next question comes from Tim Long from Banc of America Securities. Please go ahead.

Tim Long - Banc of America Securities

Thank you. A two-part for you, Sanjay. First, could you talk a little bit about, it sounds like an increased emphasis on smartphones and 3G, how are you finding it getting talent? I know you are obviously taking cost out of the business, but I am assuming you need some new personnel to help with some of those measures, so could you talk about that?

Then, secondly, I'm just curious about your views on time to market. Just take the Google Phone, the Android phone as an example, still a year from now, so obviously a long time to get that developed. Is the mindset that once we get these new platform approaches in the second half of the year for 3G and smartphones and the different operating systems that at that point you're more in line with the better companies in the industry at spinning new products or do you think there will be a change in time to market for Motorola once these decisions have been made? Thank you.

Sanjay Jha

Thanks, Tim. I think you are right. I think one of the things that we need to do better at Motorola is actually execution on our software strategy. As you know, at Motorola we've had a number of software strategies, but in my view there has been nothing wrong with the software strategies. The execution on those strategies has been poor.

So I think, going forward, the talent that we are looking for is really in software execution. We have a great software team around the world in China and Libertyville, in San Diego, in Bay Area. What we've been able to do is actually get a lot of folks from what was the good technology group with experience in end-to-end service and application delivery to work on a number of new and differentiated products, a lot of that is getting done in California.

As I say, we will open a software office in Seattle as well to drive forward looking developments with Windows Mobile. So, I think we are very much focused on what I believe is going to be an important part in our execution going forward to software.

In terms of time to market, yes, I do believe that once we get these platforms solidified and we start executing delivering products, I think that we will have a much better oiled machine in delivering products and that we'll be competitive with other folks in the industry.

Dean Lindroth

Thanks. Next question, please?

Operator

Our next question comes from Richard Kramer from Arete Research. Please go ahead.

Richard Kramer - Arete Research

Thanks very much. Maybe a question for Paul and one for Greg, Paul, can you help us understand the nearly 5% sequential change in gross margins? I think this is a level that we've never really seen in Motorola before. Can you try to help us maybe understand a little bit better from a divisional perspective where gross margins declined?

Also, for Greg, can you talk about the Home and Networks business and Enterprise Mobility businesses, and whether there is any potential to participate in some form of industry consolidation which seems to be taking place either de facto or explicitly in some of the end markets and end customers that those markets serve? Thanks.

Greg Brown

So I'll do Home and Networks and Enterprise Mobility first. In terms of industry consolidation, let's take the Home segment. That team has made six acquisitions over the last three years around a whole host of different things, around MPEG and compression efficiency, content management, Daiwa Digital to get a lower, more competitive set-top box particularly in China and some of the other emerging markets. While the ASP price point on set-top boxes would be lower in those geographies, we could still participate in the margin pool.

So when I think of consolidation, Dan Maloney's team has been doing that with, I would call it surgical tuck-ins to strengthen the end-to-end video value proposition and move it away. It's not a commodity set-top box business. It's a sophisticated provisioning of video between head end and through and into the home for the video experience. I think we've been participating in that.

On the Network side, as you know, we've got a 2G position primarily in CDMA and GSM and iDEN, which we're, obviously, the only provider of. In 3G, we made the strategic choice a couple of years ago to partner with Huawei. It made more sense. I wouldn't necessarily call that industry consolidation, but I would call it strategic partnership where the returns are superior to trying to do organic development of UMTS infrastructure ourselves where, quite frankly, we weren't good at it, and had largely missed the market on the infrastructure side.

I don't know on the network side. I mean the business is continuing to run actually quite well. I think we're very realistic about the market in CDMA and GSM and iDEN. We know that iDEN has gone down year-over-year for a few years. We've planned for it accordingly and we'll plan for it looking forward in 2009. That said, we are participating in WiMAX and LTE. So I don't really know if the opportunities would be present in this environment to do that. That said, I would always look at and we would always look at ways to maximize shareholder value in the infrastructure area. While it's a tough business, the team's done a really good job.

In Enterprise, the Symbol acquisition has gone well. It's met or exceeded our expectations for the last two years on integration, on talent retention, on the cost efficiencies, we've targeted to get out of there, on the utilization of channels. Recently, we did the acquisition around AirDefense, which really strengthens our wireless LAN position. Depending upon the measure in wireless LAN, we're either number two or three. We go back and forth with Aruba.

But, again, the overall environment from an environment standpoint and a financial market standpoint wouldn't necessarily lead us to be looking for any major acquisitions at this time. I think you do the best with what you have. We have a great assembly of assets and we're going to measure it and manage it for cash and earnings on the other.

Paul Liska

Yes. With regard to gross margin, excluding the highlighted items, it's really just somewhat of a slight mix issue. I think it's important you understand that, again, gross margin on Mobile Devices has declined, but all the other businesses have either increased or are relatively flat to the prior year.

Richard Kramer - Arete Research

Okay.

Paul Liska

Go ahead.

Richard Kramer - Arete Research

Greg?

Greg Brown

Yes.

Richard Kramer - Arete Research

I mean, could you comment not so much about whether Motorola would be acquiring things, but whether you would look at in areas which might be moving into decline like Networks, which faced a large R&D bill for LT&E, whether you would consider spinning that business out or seeing it as part of a wider consolidation in a limited number of pools of R&D resource?

Greg Brown

I think it's a great question. At the moment, we're very pleased with where we are in WiMAX. We're also actually pretty pleased with where we are in LTE, and we're working with a couple of major carriers that I think will be leading anchor tenant customers around 4G or LTE. We've been doing a lot of work for several years on the infrastructure side and feel very good about our position.

That said, we're very pragmatic and will be looking forward. If there are strategic partnerships for other things that can facilitate or enable our performance to be strengthened, we'll consider it.

Richard Kramer - Arete Research

Okay. Thanks very much.

Dean Lindroth

Operator, we'll take our last question.

Operator

Okay. The last question comes from Ehud Gelblum from JPMorgan. Please go ahead.

Ehud Gelblum - JPMorgan

Thank you very much. I appreciate it. Just a couple of quick ones. Sanjay and Greg, as you look to new timing for the split, what are you looking forward to see aside from the environment being a little better? Are you looking for the operating margin in Mobile Devices to hit breakeven or get some sort of share level or volume level, what are the overriding parameters you're looking at?

Then, Sanjay, as you solidify around Windows Mobile and Android, actually Motorola do use Windows Mobile like the Q and still were not terribly much of a success. Some of the criticism of prior phones has been the usability, the user interface, just overall system design, the buttons and shortcuts and everything, the way that the phones are put together. That goes above and beyond just the operating system that they use and may speak to some of the design criteria that Motorola has used in the past.

How much of that has surprised you as you came in and what can you do in addition to solidifying around the operating systems in these other areas that actually differentiate the phone, and how can you change the culture at Motorola and the design culture to move into the types of phones and models that are more competitive?

Greg Brown

Just on the separation first, obviously, the environment, both the macroeconomic and the financial markets, are the premier thing we have to continue to keep an eye on. Given the uncertainty, any kind of planning in this separation remains very, very difficult.

The second thing around the separation is we collectively decided, as we would have started to expend reasonable amounts of cash to target '09 separation, you wouldn't want to spend that cash in this environment given the unpredictability. So we're preserving cash and obviously maximizing earnings along the way, but still structurally planning for the separation.

I think outside of the economic environment, it is the environment and the progress made in Mobile Devices. It's the stability, consolidation and simplification of platforms that Sanjay has described. It's a significant improvement in bottom-line profitability and a better cash generation progress, in particular within Mobile Devices, and an overall stability in tracking to return to top-line growth and significant profitability improvement before we would consider it at this point in time.

Sanjay Jha

Ehud, to your question about how will we deliver better experiences with our products, first of all, let me acknowledge that I think that we have been a little too focused on what I call bright, shiny objects, and not enough focused on the user experience. I actually believe that the design culture at Motorola is very, very good. The design team here does a wonderful job. It just does it in a more limited sphere.

As we go forward, the complete user experience, the services, the user interface, all of those things become more important. I think as we look at our two platforms, Android and Windows Mobile, it is true that Windows Mobile, pre 6 and even at 6, has not delivered the experience that, I think, Apple has been able to deliver. But as you look at the plans that Windows Mobile 7 makes, and even, in fact, 6.5, I think that there are significantly new added features, which will help in the platform. So the platforms that we've chosen are evolving towards being capable of delivering better performance and better experience.

As I was saying in response to an earlier question, we have now targeted new teams, which are focused, one in California and one in Seattle, and of course, leveraging the assets that we have in China and Libertyville and elsewhere to deliver experiences. That is where we have to differentiate, that is the bottom-line, that's what some of our competitors have done much better than we have. So, we recognize that, Ehud, and whether we succeed or not time will tell, but we recognize that and we are focused on it.

Ehud Gelblum - JPMorgan

Thank you.

Dean Lindroth

Thank you. During this call, we have made a number of forward-looking statements. 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. Such forward-looking statements include, but are not limited to, our comments and answers relating to the following topics:

Guidance for Motorola's earnings per share for the fourth quarter and full-year 2008; expectations for cost savings from the company's ongoing reorganization activities; guidance for future sales, operating margins, profitability, ASPs or market share for each of our Motorola segments; benefits to be realized from Mobile Devices, silicon and software consolidation initiatives and product portfolio simplification; the expected timeframe for the potential separation of Motorola's businesses into two independent publicly traded companies; the impact of Motorola's performance and financial results from strategic acquisitions and divestitures, including those that are recently completed, those that are pending and those that may occur in the future; expected timing for the announcement, launch and shipment of new products; market adoption of Android and Windows Mobile in different product tiers beyond 2009; manufacturing consolidations. Cash repatriation plans; the impact of foreign currency valuation and plans with regard to commercial paper.

Because forward-looking statements involve risks and uncertainties, Motorola's actual results could differ materially from those stated in the forward-looking statements. Information about factors that could cause such differences can be found in this morning's press release on Pages 18 through 27 in Item 1-A of Motorola's 2007 annual report on Form 10-K and in Motorola's other SEC filings.

Thank you for joining us today. This now concludes our conference call.

Operator

Thank you, ladies and gentlemen. This does conclude today's teleconference. The presentation material and additional financial tables will soon be posted on Motorola's Investor Relations website.

In addition, a replay of this call will be available over the Internet in approximately three hours. The website address is www.motorola.com/investor.

We thank you for your participation, and ask that you please disconnect your lines at this time. Have a wonderful day.

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