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Motorola, Inc. (MOT)

Q3 2006 Earnings Call

October 17, 2006 5:00 pm ET

Executives

Ed Zander - Chairman, CEO

Dave Devonshire - EVP, CFO

Ron Garriques - EVP, President, Mobile Devices Business

Greg Brown - EVP, President, Networks & Enterprise

Dan Moloney - EVP, President, Connected Home Solutions

Ed Gams - Corporate VP, IR Director

Analysts

Edward Snyder - Charter Equity Research

Ehud Gelblum - JP Morgan

John Bucher - BMO Capital Markets

Tal Liani - Merrill Lynch

Mike Ounjian - Credit Suisse

Jeff Kvaal - Lehman Brothers

Brian Modoff - Deutsche Bank

Matt Hoffman - Cowen and Company

Brant Thompson - Goldman Sachs

Tim Long - Banc of America

Mark Sue - RBC Capital Markets

Ittai Kidron - CIBC World Markets

Larry Harris - Oppenheimer

Scott Coleman - Morgan Stanley

Phil Cusick - Bear Stearns

Daryl Armstrong - Citigroup

Maynard Um - UBS

Jerry Solomon - Capital Guardian

James Faucette - Pacific Crest

Richard Windsor - Nomura

James Richard Kramer - Arete

Ben Bollin - Cleveland Research Company

Mark Kurland - Bear Stearns

Bill Choi - Jefferies

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Motorola third quarter 2006 earnings release conference call. (Operator Instructions) I would now like to turn the call over to Mr. Gams. Please go ahead, sir.

Ed Gams

Good afternoon. With me on this conference call are Ed Zander, Chairman and CEO of Motorola, Inc.; and Dave Devonshire, Chief Financial Officer. Joining us for the Q&A portion of this call are Ron Garriques, President of the Mobile Devices business; Greg Brown, President of the Networks and Enterprise business; and Dan Moloney, President of the Connected Home business.

An Internet slide presentation is accompanying this call, and can be viewed by visiting www.motorola.com/investor. Slides will be advanced automatically as our presentation proceeds. We encourage you to view these slides while you listen. A replay of this webcast, including questions and answers, will also be available on our website at approximately 8 p.m. Central Time today.

Forward-looking statements will be made during this conference call. Forward-looking statements are statements that are not historical facts. Such statements are based on the current expectations of Motorola, and there can be no assurance that these expectations will prove to be correct. Because forward-looking statements involves 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 today's earnings press release on pages 19 through 27 of Motorola's Form 10-K for the fiscal year ended December 31, 2005 and in Motorola's other SEC filings.

This conference call is occurring on October 17, 2006. The content of this call contains time-sensitive information that is current only as of the time of this live broadcast. If any portion of this call is retransmitted at a later date, Motorola will not be reviewing or updating the material that is contained herein. This call is the exclusive property of Motorola, Inc. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Motorola, Inc. is strictly prohibited.

Now, here's Ed Zander.

Ed Zander

Thanks, Ed and good afternoon, everyone. For the third quarter, Motorola delivered solid financial results, including robust operating cash flow. We continue to grow our operating earnings and market share in key parts of our business. Each of our businesses improved operating margins sequentially from Q2, excluding the highlighted items mentioned in our press release.

Once again, thanks to all of our employees worldwide for their continued hard work and dedication. Our vision of seamless mobility is an ever-increasing value proposition to communication, consumer and content companies worldwide. We are delivering on our goal to make the mobile broadband Internet a reality.

As we look ahead to Q4 this year and fiscal 2007, we feel optimistic about our competitive position in our key businesses. With our new portfolio of mobile devices shipping in volume this quarter, investments in WiMAX and Wi4 technologies, leadership positions in video, IP set-top boxes and fixed mobile conversions and our new focus on enterprise mobility with the planned acquisition of Symbols Technologies, we look forward to continued successes in the months and year ahead.

While I have many positive things to say about the quarter, I do want to take a moment and explain why our sales were below the midpoint of our guidance range by about 3.5%. About half of our shortfall is due to lower than expected GSM infrastructure sales in our EMEA -- Europe, Middle East and Africa -- region. Primarily, customers delayed capital spending, plain and simple. The other half was due to lower sales of iDEN handsets caused by customer inventory adjustments, in anticipation of our new dual-mode phones which will ship this quarter. More about that later.

That aside, Q3 had many positives. First, sales of $10.6 billion, up 17% from Q3 2005, a record third quarter; gross margin percentage up quarter over quarter. For continuing operations, we delivered solid Q3 earnings per share of $0.34, excluding the highlighted items noted in our press release. That's 17% growth year over year. Finally, our balance sheet remains very strong, and we had a great operating cash flow of $1.6 billion.

In Mobile Devices, once again, more records and good results. We shipped close to 54 million units in Q3, an increase of 39% over Q3 last year, and up over 3.6% versus Q2. Market share is estimated to be 22.4%, up 3.8 points year to year and up 0.3 points quarter over quarter. Mobile Devices earned an 11.9% operating margin, as new product launches, supply chain cost reductions and higher technology licensing and platform revenues allowed us to offset the impact of lower iDEN unit shipments that I discussed earlier. We continue to achieve our goals of year-to-year operating margin improvement and quarter-over-quarter market share growth.

Networks and Enterprise continues to lift its operating margin on a sequential basis, and reached 15.4% in Q3, excluding highlighted items. Public Safety had its best Q3 ever. WiMAX and Wi4 momentum continue, and with our Symbol announcement, we are poised to strengthen our enterprise position.

Finally, Connected Home had another strong quarter, with sales up 9% year over year, a new record for set-top box unit shipments, nearly 2.5 million and operating earnings grew 47% year over year, and operating margin increased 2 points year over year and 0.8 points quarter over quarter, excluding highlighted items.

We also announced today that we've hired Casey Keller as our new Chief Marketing Officer. Casey is a seasoned marketing executive, with years of experience at such companies as Heinz and Procter & Gamble. We are really pleased to have Casey join us.

In summary, we had a solid quarter in profit and market share, but as a management team, we are not pleased with the slight revenue shortfall. Our Q4 guidance is once again good revenue growth year over year. We are innovating for the future around our core competencies, seamless mobility products and services.

With that, I would like to now turn the call over to our CFO, Dave Devonshire, who will provide some more details about our second quarter results.

Dave Devonshire

Thanks, Ed. We had another solid quarter in sales and earnings growth, approximately 17% in sales. Earnings per share from continuing operations were $0.29, including expenses of $0.05 per share of highlighted items. Excluding the highlighted items discussed in our press release, operating earnings increased 6% year over year; operating margin was 11.6%, up 0.5 points from the second quarter; and earnings per share will be $0.34, up 17% versus last year's earnings per share of $0.29.

It, however, should also be noted that our taxable income for the quarter and the year have been sourced from higher-tax countries. This change resulted in a higher third quarter tax rate of approximately 37%, which lowered our earnings per share in the quarter by approximately $0.01. Our higher tax rate is also expected to continue through the fourth quarter. In terms of the tax rate you can expect in the future, our 2007 tax rate is expected to return to our recent historic range of 35% to 36%.

As Ed reviews our segment results, keep in mind that our stock compensation expense is reflected on the other elimination line, not in the individual businesses.

I'm going to go back and review the highlighted items in our press release. Earnings per share from continuing operations includes several highlighted items, shown here and listed in our press release, which aggregate to a combined $0.05 per share of expense.

The organizational charges in Q3 2006 are related to further workforce reduction being implemented in our Networks and Enterprise segments. The reorganization impacts approximately 500 employees, and we anticipate annual savings of approximately $50 million from this restructuring, which we will begin to fully realize in the second half of 2007.

Motorola has reached a preliminary settlement with the staff of the SEC regarding an investigation by the SEC of the Adelphia matter. I'm talking specifically about the legal reserve. This matter is subject to final approval of the SEC Commission, which is expected by the end of the year in terms of the in-process R&D related to the acquisitions of PTP Com, Broadbus, Vertasent and NextNet; the other items are as presented.

In terms of cash flow and debt for the third quarter, we generated $1.6 billion in operating cash flow, our 23rd consecutive quarter of positive operating cash flow. However, it should be noted that in the $1.6 billion, we sold an additional $250 million, as is customary in our business, of accounts receivable above what I would call an ordinary level. So really, a truer comparative operating cash flow was in the range of $1.4 billion. Still a very solid and large operating cash flow quarter for the Company. During the first nine months of 2006, we generated $2.8 billion of operating cash flow.

CapEx for the first nine months was $390 million. For the first nine months, we generated free cash flow, therefore, of $2.4 billion. Our balance sheet, as you can see, remains very strong, with net cash of $10.5 billion and a debt to total capital of 20%, which is our targeted rate, at the end of the quarter, versus 20.3% at the end of 2005.

In terms of our stock repurchase program, in July of 2006 we accelerated the completion of the $4 billion stock repurchase program, and our Board approved an additional $4.5 billion stock repurchase over the next 36 months. During the quarter, we continued our stock repurchase program by purchasing approximately 62.4 million shares at an average price of $23.61 per share. From the inception of our repurchase program through the end of the third quarter, we purchased approximately 180 million shares for $4 billion.

Now moving on to our fourth quarter guidance, our outlook for the fourth quarter is sales between $11.8 billion and $12.1 billion, which is up in the 18% to 21% range versus the fourth quarter of 2005. In terms of our guidance, as you recall, stock compensation expense is not in the prior year. It will be in the fourth quarter, identified as a highlighted item, but it will be about $0.02 per share.

So thank you for that, and I will turn the podium over to Ed.

Ed Zander

Thanks, Dave. Let me now review each of the three business segments. First, Mobile Devices. As you can see, Ron and his team had just another good, solid quarter. Once again, all-time records for units and operating earnings and all-time third quarter sales.

Operating earnings, this is the 11th straight quarter of year-over-year operating expansion as we said earlier, 11.9% despite the shortfall in revenue due to iDEN handsets that I discussed earlier. The OE was achieved by three things, primarily: strong product portfolios, we shipped a number of KRZRs in the September timeframe; Stu and his team with supply chain cost reductions that we put in place over the past several quarters; and third, increases in technology and platform licensing revenues.

For the eighth consecutive quarter, we delivered sequential market share growth at 22.4%. This is a great foundation, especially with our new Q4 product rollouts.

In terms of the products, we're really excited about the product line we have now and the products we're going to roll out this quarter. KRZR did ship in volume in September. It was first launched in Hong Kong and the rest of Asia. It's now in North America at CDMA operators. RAZR continues. We went past 50 million. We shipped more RAZRs in Q3 then we did in Q2. It's still strong, all form, factors and colors.

We're pleased to that you have probably seen a lot of press here last week with the RED campaign, which follows what we did in the UK with RAZR and SLVR in fighting disease in Africa. We're pleased to have Sprint and US Cellular this quarter be offering the RED-branded phones here in the United States.

Q is now shipping 120 days and very pleased with the uptick in those orders. A new software release came out this quarter, which adds push e-mail capability and a lot of new features to the Q product.

In music, we continue to just really do some really interesting and cool things; 15 million optimized handsets in Q3 2005, the ROKR E2 and we are now shipping our new KRZR M phone, which is designed for music. iDEN. a new five-year supply agreement for handsets and infrastructure with NII. And finally, new launches. You can see here 3GSM, CDMA and iDEN.

Financials, we have covered some but just again, sales increased 26%, now over $7 billion. Units up 39%, operating earnings up 36% excluding highlighted items. Operating margin increased to 11.9%, a full point increase over last year.

During the quarter, Mobile Devices did have lower average selling prices. This was given by decreases in unit volumes for UMTS and iDEN, as well as the strategic repositioning of RAZR to the mid-tier to make way for KRZR and RIZR, and also a twofold increase in our market share in India. During the fourth quarter, we expect ASPs to improve as a steady stream of new product joins KRZR in the market, and we expect to grow beyond the market share gains from the third quarter and push beyond our current estimated 22.4%.

On a regional basis, in North America we are number one, and we are number one at five of the top six wireless operators. Our market share is up 4.5 points from Q3 2005. The gap between Motorola and our largest competitor now stands at more than 20 points.

Latin America, we enjoy solid leads in economically strong markets such as Venezuela, Argentina, Mexico and Brazil. We are number one of the top three wireless operators, and we are number one in sell-through to consumers.

Europe was a little bit of a challenge in the quarter, largely due to 3G. Having said that, RAZR continues as the top seller in Western Europe. To drive 3G momentum in Q4, we're launching, of course, our RAZRXX and RAZRMAXX, and I will talk about those in just a minute. Additionally, for the GSM EDGE networks, RIZR is preparing to join KRZR in Europe.

We are back in Russia now. We opened our new Red Square MOTO store in Moscow. It is our regional crown jewel, and we expect good things out of that this quarter and throughout 2007.

Turning to North Asia, unit shipments were up nearly 200% compared to Q3 2005. Market share for the region is up nearly 12 points compared to the same period last year. In China, we continue to build share, which we now estimate is nearly 23%. In high-growth markets, Mobile Devices is driving rapid expansion. Our market share is up more than 10 points compared to Q3 last year, and units are up also more than 200% compared to a year ago.

In India, compared to Q2, we have doubled our market share and now have more than 15% share in this important and increasingly exciting market.

Briefly, on the products, I think we have covered KRZR. We're really excited about the early reception and action in this particular area. We have two products out here, both in CDMA, EV-DO and our GSM EDGE products.

In North America, I think the music product, it is music optimized, newly launched with leading CDMA EV-DO operators. The KRZR K1m looks like, we think, a big hit and a big seller for the holiday season, so stay tuned. I think this is going to be another iconic, successful product for us.

I said earlier RAZR is still the standard. It's in all technologies, colors, experience and styles. As I said just a couple minutes ago, we have had higher sales in Q3 than in Q2, and we're just about to launch two new handsets that we're confident will set new standards for speed and performance coming this quarter, the XX for UMTS and RAZRMAXX for HSDPA.

Speaking of those, the XX is designed for 3G and UMTS. It delivers all the essentials that consumers have told us are most important to them. It has stunning style, with diversions and delights to entertain; high-speed connectivity, delivers super fast data downloads, a full suite of features ensures multimedia; 1.3 megapixel camera, integrated MP3 player and point-to-point video telephony are just some of the features in hand. This will be shipping this quarter.

Also a great, exciting, really exciting product is our MAXX. It is ramping for HSDPA. It is packed with features delivering ultra high-speed connectivity, in addition to a premium mobile multimedia experience, over-the-air music video, point-to-point video telephony, blazing fast speed with HSDPA, integrated MP3, 50 MB of memory, as well as an optional MicroSD card for music and games and any content you want, when you want it and need it most; and unmatched performance enabled by an ARM2 microprocessor HSDPA technology and of course, Bluetooth. Both of these products, as I said earlier, will be shipping this quarter and should be a definite boost, especially in the European market.

Also we're on track for two other products. Our RIZR is our newest offering in the slider form factor. It is really our first iconic slider. It is getting ready to debut. For the fans of iDEN, we talked about that earlier, we are now shipping our Motorola ic502. It’s our first dual-mode CDMA iDEN handset, which delivers high-performance push-to-talk and provides CDMA voice and data links to enable a superior high-speed mobile experience.

We talked a lot at the analyst conference about MOTOFONE, very excited also. We are shipping that product, too. It's designed to deliver the aspirational and affordable style, reliability and performance for the world's emerging markets, multi-language voice capability, long battery life, an easy-to-read display and more. We unveiled the MOTOFONE for GSM in July. We're pleased to also announce that we are bringing MOTOFONE to the market in CDMA also during the fourth quarter. So lots of momentum in many of these products.

That's the Mobile Device recap for Q3 2006. A solid third quarter, excited about the holiday selling season. Ron and his team are focused and very clear, as we have said, about their commitments to grow market share profitably, compelling products, rich experience and quality and efficiency every time.

As we look to the fourth quarter of 2006, we expect the market to grow by greater than 15% for full year 2006. We expect typical seasonality and strong demand for new products in the fourth quarter, and we expect Mobile Devices to continue to keep growing market share on a sequential basis, and do this profitably by expanding OE on a year-over-year basis.

Let me shift now to the Networks and Enterprise highlights. It was also a good quarter for this group. We won new business in WiMAX from Sprint and iDEN, extended for five years, the five-year business from NII Holdings, the former Nextel International. We completed the acquisition of NextNet and invested in Clearwire. We also announced a venture with Huawei for UMTS.

We announced new data products for our Public Safety business. We continue to take action to maintain our number one position in Public Safety globally.

Finally, we also announced our intent to acquire Symbol Technologies. This is, we believe, a game-changing move for us. Greg and his team continue to transform this organization, focusing on areas we continue to win in, IPR creation in growth markets that understand our vision of seamless mobility and the broadband Internet, all while gaining operating earnings.

In terms of the details, we had a slight sequential sales decline. Having said that, we improved operating earnings as a percentage of sales to 15.4%, excluding highlighted items, primarily driven by integration-related synergies.

Our Private Networks business had strong growth in the quarter. In fact, Q3 performance in our Private Networks business was actually the best third quarter we have had in history. Our Public Networks business had a sequential sales decline of 6%, which is generally in line with our historical sequential decline from Q2 to Q3, and as I mentioned, also with the GSM Europe, Middle East, Africa situation.

Lastly, we took further integration and cost reduction actions in Q3, consistent with our ongoing integration activities of the former Networks and GEMS business.

I touched a little bit about WiMAX. We are really, really excited about the uptake in this area. It was a great quarter for the entire MOTO WiFi portfolio, in addition to Sprint/Nextel. NextNet and Clearwire, we are working with Clearwire in building a WiMAX network, and we'll be the exclusive infrastructure provider.

Just last week at WiMAX World in Boston, we showed Motorola's portfolio of WiMAX equipment. These included the outdoor series units as well as indoor desktop units. We also won the WiMAX World Award for Industry Innovation. It has been a long time since Motorola won an award for infrastructure such as this, and we are really excited about what we are seeing in the future and the uptick in this area. We are seeing more providers around the world exploring WiMAX and what it can do for them. We are now supporting 18 market trials worldwide.

In our traditional Network segment, as I mentioned, we had our biggest iDEN customer outside the United States with a five-year extension of this technology. With Huawei, our alliance is bringing an enhanced and extensive portfolio of UMTS and HSDPA products and technologies to customers worldwide. More on this progress in Q4 2007.

Our CDMA business was solid, and as I said earlier, our GSM business was down primarily in the Europe, Middle East and Africa area.

In Public Safety, we continue as the number one provider of wireless public safety communications systems in the world. During the quarter, we announced incident scene management solutions for first responders. We announced the point-to-point wireless Ethernet bridge specifically tailored for use by the public safety sector. As public safety communications moves toward incorporating the use of sophisticated data services, we have developed the world's first PDA device for use on TETRA networks. O2 Airwave in the UK, operating one of the largest public safety networks in the world, recently placed an initial order for this new product.

Lastly, here in the United States, a number of wins including the Prince George County, Maryland for a $60 million contract for a new system based on next-generation public safety technology.

Finally, in a quarter of strategic announcements, perhaps none was bigger than our recent announcement that we intend to acquire Symbol. Our products and services are highly complementary. Symbol's portfolio includes rugged mobile and wearable computers, RFD systems, enterprise wireless infrastructure, automatic identification and data capture systems and a mobility management platform. Additionally, Symbol will provide us with a significant customer base, backed by the more than 12,000 channel partners and distributors and more than 900 patents. This acquisition is pending, so there isn't much more I can add right now to what we announced last month.

In terms of an outlook for Networks and Enterprise, we expect the public and private infrastructure market to grow in the mid single-digits for 2006. From Motorola Networks and Enterprise, we expect sequential increases in sales and operating earnings and continued strength in the worldwide Public Safety business.

Let me shift now to Connected Home and Dan's business. In addition to being a leader in North America with number one in set-tops and number one in cables, as we said earlier in the year, we had a push to get Connected Home around the world and it is certainly paying off. EMEA is showing solid growth, especially in the video space, where operators are still in the early phases of rolling out IP video services.

Latin America continues to explode. Motorola is driving innovation in digital video in this region with approximately 80% market share. Finally, data has really taken off in Asia Pacific, and is driving operator interest in triple-play advanced services. StarHub in Singapore is the first operator to deploy 100 MB service using Motorola technology.

In terms of the financials, a great quarter for this team. We grew sales by 9%, increased operating margin excluding highlighted items by 2 points. We have again shown strong operating earnings improvement, excluding unusual items, up 47% a year ago. Winning performance across the board, strong digital video performance in terms of record shipment of digital set-tops and excellent operational quality.

As Dan outlined at the financial analyst meeting, we have made a number of key investments over the past four years to enhance our core intellectual property and digital video expertise. As such, we closed two acquisitions during the quarter: Broadbus, which is Motorola's new on-demand solutions business. Customers are cable and telco and around the world. A record quarter, shipping 57,000 video streams over 17 operator systems. The second company was Vertasent, a smaller technology company with powerful software for managing switched digital networks. This is a powerful solution for operators who want to deliver advanced services.

Following the close of the quarter, we were really pleased and excited. We achieved a new industry milestone, shipping our 50 millionth digital set-top. We believe that nobody does video like Motorola. We have been leading in this space for 50 years. In fact, if we take into consideration the 40-plus million analog devices we shipped before we introduced digital 10 years ago, and add in these 50 million devices, well, you get the picture. We have a great franchise here for the home and fixed mobile conversions and the eventual quad-play.

In terms of the outlook for Connected Home, in the broadband Connected Home market, mid to high single-digit growth. Motorola's Connected Home solutions, our forecast is to maintain and grow share and improved operating margin. In Q4, we expect sales and operating margins for Connected Home to be up both quarter over quarter and year over year.

With that, I will turn it over to Ed, and we will be glad to take your questions.

Ed Gams

Thank you, Ed. Now, before we take your questions, we would like to ask that each of you please limit yourself to one question and avoid multiple-part questions. We only do this to help ensure that in the limited time available, as many of you as possible will have an opportunity to ask your questions. Your cooperation is greatly appreciated. Operator, please instruct our audience on how to pose their questions to us.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Edward Snyder - Charter Equity Research.

Edward Snyder - Charter Equity Research

Ron, if I might, you don't seem to have nearly the focus on 3G devices as does, say, Nokia or Samsung. You have been bearish on it in the past. What do you need to see before you get more bullish here? Is it going to be higher data ARPUs at the carriers or greater 3G coverage? Are you looking for a strong uptick in 3G phone sales from others before you kind of plow into it with both legs?

Ron Garriques

Thanks for the question, Ed. I think the predominant, when you think 3G -- meaning specifically UMTS -- for us, this quarter is about a platform change. We took our previous platform which we built V3x on and now have transitioned to what we call Argon LV from Freescale.

With new products like XX and MAXX, I do believe this platform in this quarter gives us a very competitive set of products out in the marketplace. I have been relatively bearish about the size of the UMTS market in 2006. I think that's kind of the way it played out. I am more bullish on 2007. I'm also more bullish on our 2007 roadmap, consistent with a stronger market.

Operator

Your next question comes from Ehud Gelblum - JP Morgan.

Ehud Gelblum - JP Morgan

First, a clarification. The 11.9% operating margin for handsets, I may have missed where you calculated that. I only calculate 11.6%. I'm sure there are probably some one-time items. Dave, if you can walk me to get there.

But my question had more to do with the operating margins. 11.9% up from 11.2%. Did gross margins improved this quarter? Is that what drove it? I know the Stu Reed stuff was definitely in there. But was that a lot of the driving force, or was it more the OpEx? As you get further into the emerging markets, you don't have to spend as much, and therefore, how should we look at OpEx versus gross margin in Q4? Thank you.

Ron Garriques

I'll take a shot at this, Ehud. First of all, the thing that was excluded is when we bought TTPCom, there was a one-time call-out on that. That's the difference between the 11.6% and the 11.9%. When you think about the operating earnings expansion in the Mobile Device business, it really had several parts. The first part it had is we brought out some pretty exciting products, the KRZR and the KRZR M. We got nice volume in this quarter thanks to Stu and the supply chain, and we were able to hit into multiple regions.

The second thing -- again, thanks to Stu and the supply chain -- is we saw very significant cost downs as we now leverage our closer relationship with our operators, the narrowing of the number of suppliers that we use, as well as the ability to be better about forecasting where we are going. So you saw nice takedowns.

In addition to that, we talked about it at the financial analyst meeting. We have grown our revenue from licensing of technologies and platforms, consistent with our revenue growth in the industry from last year to this year. We are quite tenacious about protecting our IP, about making sure that we collect value for it. Those three things helped us continue to expand operating earnings on a year-over-year basis now for eight-plus quarters in a row.

Ed Gams

Once again, to clarify Ehud's question about the operating margin, the GAAP operating margin reported in our financial statements for Mobile Devices is $819 million. As disclosed in our press release, that includes a $16 million charge for IP R&D related to the TTPCom acquisition. So, backing that charge out, the operating margin would be $835 million or 11.9% of sales.

Operator

Your next question comes from John Bucher - BMO Capital Markets.

John Bucher - BMO Capital Markets

Thank you very much. A question regarding the share increases you showed in China and India on Mobile Devices. I'm wondering, does that reflect the enhanced retail points of presence that you indicated you had planned to do several months back? Or does your SG&A for Mobile Devices not yet reflect costs associated with the expansion of distribution in this region going forward? Thank you.

Ron Garriques

I would break the question up into two pieces. Clearly, the lion's share of our growth so far, I believe, has been in improved portfolio. So we look at the products that were specifically designed for the China market, things like MING that are Chinese touchpad type of designs, as well as coming up with both a very strong low-end platform for the India market, as well as continuing to really market the high end inside of India.

Having said that, we are also seeing the benefits of the 50-plus stores that we've opened up in China to go push our product. We are still not probably getting the full effect, given the size of the Chinese market and the fact that it's only 50 stores so far.

Operator

Your next question comes from Tal Liani - Merrill Lynch.

Tal Liani - Merrill Lynch

Hi guys. In your remarks, you said that part of the reason that you had some weakness in the quarter was because of Nextel waiting for dual-mode phones.

Ed Zander

You are breaking up, Tal.

Tal Liani - Merrill Lynch

Can you hear me now? In your remarks, you said that part of the reason that you had some weakness this quarter is because Nextel was waiting for a dual-mode phone and it's now being shipped. So the question is, when I look at your guidance versus the consensus for the next quarter, the consensus is at the high end of your guidance, which means your midpoint is below consensus. So if we are going into a seasonally strong quarter, and if it was just because of Nextel waiting to get the new phones, why don't we see stronger guidance?

Ed Zander

Well, first of all, I'm not going to talk about specific customers. We talked about iDEN, and we did have as I said, the sales weakness was two things: GSM in Europe and also the iDEN inventory adjustments for anticipation of dual-mode.

As far as our forecast goes, we think it's a healthy, as Dave said, 18% to 20% year-over-year forecast. It takes in a lot of businesses that we have here, including infrastructure and other things. But in Ron's business, I think, with our new products we did say we would grow earnings year over year and we would grow market share year over year.

So I just don't want to comment specifically on customers, other than to say we do think this quarter is going to be, with all our new products shipping, a good one for Mobile Devices.

Ron Garriques

One of the things I would add to Ed's comment is when we look at our backlog, which is basically our orders for Q4, our orders for this coming quarter are at the highest level since Motorola has been in the Mobile Devices business.

Operator

Your next question comes from Mike Ounjian - Credit Suisse.

Mike Ounjian - Credit Suisse

Ron, it looks like the new products for Q4 are all on track to launch on time. How should we think about any potential supply constraints? Clearly that has been a problem in the past, in terms of the demand being there but not necessarily being able to meet the demand. How is that incorporated into your guidance, and what should we be looking for along those lines, in terms of ability to ramp up the new products this quarter?

Ron Garriques

Clearly, Stu coming to the Company has been an unbelievable ally in making this a whole lot easier to happen. I think in the last quarter, when we did 52 million units, that felt very good and it felt nice and linear from a ramp perspective. I look at this quarter on how linear the KRZRs, both in CDMA and GSM, ramped. I feel good about that. The big products for us, XX, MAXX, RIZR and the two versions of MOTOFONE, I feel very good. We don't feel supply-constrained ramping those up in Q4. From a macro level, I'm not seeing any significant macro problems in the industry, given the platforms that we are building on. So I feel pretty comfortable.

Operator

Your next question comes from Jeff Kvaal - Lehman Brothers.

Jeff Kvaal - Lehman Brothers

Thanks very much. Ron, this one's for you. I'm wondering if we should think about 11.9% margins being the new bar for you in the phone business?

Ron Garriques

Sure. When I took this role two years ago, I had a pretty simple message, that we were going to gain share sequentially, and year over year that we would expand OE. That's really what I'm sticking to, is we're going to expand OE percent this Q4 over last Q4. Clearly, it's an internal goal for my team to continue to drive it sequentially as well. However, our stated objective and what we're committing to is year-over-year OE percent increases.

Operator

Your next question comes from Brian Modoff - Deutsche Bank.

Brian Modoff - Deutsche Bank

Ron, looking at the product lineup you have coming with the RIZR, the MAXX, the XX and two versions of the MOTOFONE, are these going to be late-quarter introductions, similar to the KRZR last quarter? Do you expect these to be in meaningful volume perhaps before that November Thanksgiving Weekend holiday sales season?

Ron Garriques

Across the board, with the exception of the CDMA MOTOFONE, I expect these to be October and early to mid-November shipments, making sure that we hit that all-important, fill the channel for the holiday season. Great thanks to John Sapola and Terry Vega on the CDMA MOTOFONE. That's something that we really didn't have planned or targeted until Q1 of next year. With a lot of great work and a lot of great platforming, they were able to pull that into this year. So that one is kind of an end-of-the-year piece, but the rest of them are all solid and ready for the holiday season.

Operator

Your next question comes from Matt Hoffman - Cowen and Company.

Matt Hoffman - Cowen and Company

Thanks. The iDEN business has been very profitable for Motorola the last few years. But now that you have got a technology transition going on there, is it possible that the new dual-mode iDEN handsets will bring higher pricing, at least initially? Or are we looking more at a volume situation over the near term?

Ron Garriques

I'll let Greg talk about the infrastructure side of the house. But from an iDEN handset perspective, the big thing that drives basically higher ASPs on iDEN handsets isn't necessarily the technology. It's the fact that we design mill spec products that are different than any other handsets, whether it be a CDMA, UMTS or other technologies that are out there. The fact that it's now CDMA as well, and therefore it has a broadband length, I believe that consumers will find that more valuable.

Having said that and putting it to the side, if you look over the last eight to 12 quarters inside of this business, although our iDEN customers are unbelievably important to us and we really do cherish that business, it becomes a smaller percent of our overall business every single quarter. At the exact same time, we're still expanding OE percent on a year-over-year basis.

Greg Brown

On the infrastructure side, the only thing I would add is that Q3 was a solid quarter on the iDEN infrastructure. We will probably have our second-best year on iDEN infrastructure out of the last four or five on an annualized basis. That's coming off of last year, which was a record high.

iDEN continually has a high level of interest and growth outside of the U.S., internationally. We referenced NII Holdings, but iDEN now worldwide is up to about 27 million subscribers in I think 26 different countries. So we see it has a very viable technology in a variety of different international theaters.

Ed Zander

The iDEN was a missed forecast, frankly, on our part and a shortfall. If we forecasted properly, we plan accordingly. So understand that. We think we have now forecasted for Q4 what we need to go do there, including the dual-modes, and hopefully throughout 2007.

Operator

Your next question comes from Brant Thompson - Goldman Sachs.

Brant Thompson - Goldman Sachs

I was wondering if you could give us a little bit more color around the top line guidance. Your handset business is continuing to gain share. ASPs are looking up. There seems to just be a lot of new momentum around your new products. The top line guidance, you're indicating is a little softer, putting the midpoint again below The Street. Is some of that coming from the non-handset businesses? How should we think about the balances between handsets and non-handset business in this next quarter?

Ed Zander

The infrastructure, especially in the cellular infrastructure, is certainly not growing as fast. That has to factor into the numbers. I don't know, to be honest, what the latest consensus is, but we think this growing, as Dave pointed out, 18% to 21%, is pretty healthy year over year. Ron's business, I think we’ve got a pretty good product lineup. So when we roll it all up, this is what pretty much we think our targets are. We think in Ron's business we will be able to continue to achieve both OE growth and market share growth in the quarter.

Operator

Your next question comes from Tim Long - Banc of America.

Tim Long - Banc of America

Thank you. Ron, you mentioned the platforms and the licensing. Can you just go into a little more detail as to what is driving this? Is it completely just leveraging the intellectual property, or is it selling more platforms? Where is that taking place, and is it growing faster than the overall business?

If you could just clarify, I'm just curious on your market share sequential comments. We have had four of the top handset companies report so far, and we are up 12 million units sequentially. But your numbers last quarter and this quarter for the industry are up 4 million. So I'm just curious. Is the view here that the rest of the industry is down in units, or is there some other explanation?

Ron Garriques

Sure. I'll answer the questions in the reverse order, because I've already forgot the first one. But I'll come back to that in a second. On the second question, it is absolutely clear that the top five handset players in the industry look like they are all going to have a good, strong Q3. That's actually a great thing for the industry. The profit pool is expanding, and those three are expanding their OE and expanding their share.

I think what's happening there, and it's been happening now at least two years, if not two-and-a-half years, is the top five players are continuing to gain and consolidate share out there in the marketplace. So we look at us calling the TAM at 240 million this quarter. We called the TAM at 235 million last quarter. We think we have a pretty good hand on it. Could anybody be wrong by a couple of million units one way or the other, given the number of players in this industry? Sure, but I feel confident about it.

From an IP perspective, I think the way you ought to think about the IP and the platform licensing, IP and platform licensing this year has grown at the same rate as our sales has grown. When you think about us running this business independent of companion products and accessories, software revenue streams, the ability to do different technologies out in the marketplace and the ability to license our IP and our platforms out in the industry, we clearly would like to see more players in the industry supporting our platforms, as it gives us a cost advantage in the marketplace.

Clearly, as these devices become more and more complicated, especially with the introduction of 4G into our product portfolio, our licensing of our very significant and vast IP portfolio for the benefit of our shareholders is something that we will aggressively do this year, next year and going forward.

Operator

Your next question comes from Mark Sue - RBC Capital Markets.

Mark Sue - RBC Capital Markets

Thank you. A question for Dan. Do you anticipate a slowdown in the set-top box units as we wind down the year? So far, so good, but we are wondering if it's lumpy from here going forward and if the easy opportunity is behind us.

Dan Maloney

I think that as you look at the market today, you'll see our customer base continuing to show growth quarter over quarter as they report their third quarter results as well. As Ed indicated, our guidance for Q4 is sales and margin up quarter over quarter, and year over year. So we believe overall we still have a very healthy business that's going to continue to grow in the mid to high single-digit type of range.

Ed Zander

One of the other things, as I pointed out, as Dan has in the past year expanded internationally, we are beginning to now grow other revenue streams in some of these areas in Europe and the Far East, as I mentioned.

Operator

Your next question comes from Ittai Kidron - CIBC World Markets.

Ittai Kidron - CIBC World Markets

Ron, can you give us perhaps a regional review on your units performance in each region and how it acted sequentially? It seems that if we neutralize the big impact you had from India, you're kind of flattish overall, quarter over quarter.

Ron Garriques

Let me just kind of be upfront with this, because you guys all know me, is when we run the Mobile Devices business we have a target on any given quarter on the number of units that we would like to go do. We really shot for 55 million units this quarter, and we came in slightly below that, 1.3 million below that. If you think about around the world, in North America, even with the significant amount of that miss being in there, we gained share in this market. In Latin America, we maintained our number one share position. We had very nice growth in North Asia and very nice growth in the high growth markets.

I think we struggled in the European market on the eastern part of Europe. We struggled because of the stuff in getting Russia going again for us, which is a very important market in Eastern Europe for us. I believe that is behind us now, but that did give us a hiccup in Q3. Quite honestly, in Q3, as Europe has become more of a UMTS market, our products really that meet those needs are Q4 products; they weren't Q3 products. I think we have to work through that. I think, from a 2.5G perspective, Europe still has a very large 2.5G. We did refresh with one device, the KRZR. We will be refreshing again with RIZR here in Q4. But globally, really the issue for us was the European market.

Operator

Your next question comes from Larry Harris - Oppenheimer.

Larry Harris - Oppenheimer

Any additional information you can provide relative to the GSM infrastructure sales in the third quarter? Was that delayed to the fourth quarter or 2007? Any additional commentary would be helpful.

Greg Brown

Quite frankly, we were just disappointed. We expected GSM to be stronger in Q3. It was not. It was primarily, as we have talked about, delay and deferred decision-making out into future periods. We would expect GSM to be stronger in Q4 than Q3.

Historically, specifically when we looked at EMEA which was the biggest sore point, the last two years, Q2 to Q3, EMEA on the Networks side actually sequentially increased. This year, Q3 from Q2, we had a sequential decline. So, again, we are hopeful that we can close the majority of that business in future periods, and we are going to do that.

Operator

Your next question comes from Scott Coleman - Morgan Stanley.

Scott Coleman - Morgan Stanley

Thanks guys. I'm wondering if I could follow up on that last question. Earlier this year, Ed, you talked about business in China, wireless infrastructure picking up in the second half of the year. I'm wondering if you are seeing that, and if you could give us any comment on what your expectations for Q4 for high-growth markets for infrastructure are?

Greg Brown

Just a couple of things. We did see a sequential increased in Asia Pac. The networks revenue side, China specifically -- typically we don't give individual regional color -- but we are expecting more revenue in the public networks side in Q4. Obviously, in China, there still has not been any decision on 3G licenses. As they get granted, whenever they get granted, whether it's TD-SCDMA or UMTS or CDMA2000, we believe we have a portfolio of infrastructure product that can meet and address the competitive alternatives that are available to those providers.

Ed Zander

I will add, because I do remember what I say, and back in the first quarter, we thought our forecast heading into the second half of this year in the GSM business would return to a better growth rate. It just hasn't. Now, in some areas, as Greg said, it has, and we expect Q4 to be a little bit better. But with the delays in China and what we saw in Europe, it just hasn't materialized to the degree that we thought back then.

I don't think it's any different for our competitors, judging by what I saw announced in Q2 and some of the preliminary stuff in Q3. But we do see it moving in the right direction. It just wasn't, if you go back to our March-April forecasts, in line with what we saw than.

Operator

Your next question comes from Phil Cusick - Bear Stearns.

Phil Cusick - Bear Stearns

Hi guys. Somebody touched on this a little bit earlier, but I would like to go back to Ron. We talked earlier in the year about putting about 100 basis points of margin into growing out distribution in China and India and markets like that, and that that would ramp down through the year. Ron, I wonder if you could expand a little bit on where that ramp-down is, if it has ramped down, and how much further we could come down over the next 12 months? Thanks.

Ron Garriques

I think that from a ramp-down perspective, we in the Chinese market have gone a long way to putting the tools in place. I think with 23%, 24% market share now inside of that market, it's evident that we've put about the right amount of investment in it. At the end of Q4, I think that's probably no longer a continued going-on, different than normal business investment.

Sitting in the India market, with only a 15% market share, sitting against a competitor that has three to four times that market share, I think that you will see us continuing to invest through 2007. I would probably envision 0.5 points inside of that market tailing off to, at the end of 2007, being basically solid like in the China market. So going from 0.5 points in the beginning of the year to almost nothing at the end of the year, as we get into a normal doing business relationship in India with, at that point I hope, a solid number two market share position, which is in the 20 to 25 points.

Operator

Your next question comes from Daryl Armstrong - Citigroup.

Daryl Armstrong - Citigroup

Thank you very much. Ron, in terms of the KRZR, from a product strategy standpoint, given the feedback that you have gotten from the channel and the carriers, should we expect that the wholesale price for that product, as you bring it down, will be similar in slope to what we saw with the RAZR?

Then, could you also give us a little bit of detail, I think I understand the feedback loop between you and the carriers and the channel, but in terms of sell through, how frequently do you get that data for some of these new products?

Ron Garriques

We have really become sophisticated over the last two years. I have the ability to basically get in the morning, and I can see real sell-through data in our most important markets around the world. We are very excited where the KRZR GSM and the KRZR CDMA is selling through in the markets that we have launched.

You are asking me about price reductions on something that I literally launched 40 days ago, and I've got lots more colors to bring out, lots more accessory packs, lots more operators and retailers and distributors to get it with, additional technologies that you put into it. So I don't really look for any price reductions on this device, or my boss here, Ed, is going to shoot me, through the Christmas selling season.

Ed Zander

It's a steal at the current price.

Operator

Your next question comes from Maynard Um - UBS.

Maynard Um - UBS

Thank you. A question for Ed. We have seen you make some strong decisions in rationalizing the businesses with re-orgs and sales of non-core businesses. I'm just curious. As you look at the company today, how much more do you feel you need to do in terms of either additional sales of non-core businesses or acquisitions, and in which key areas?

Ed Zander

Thanks Tom. I tried to cover a lot of that at the analyst meeting. But I'll give you an update. I feel pretty good about what we're doing right now. I think Ron has got the real great business. Certainly, it has just as we saw this quarter, lots of great things. But you get one customer, one technology, and you can have some of the implications. But if you look at the fundamentals of owning our IP in his area, you look at the product line breadth, the investments we made early in some of these emerging markets, I think we're positioned for good success in that area, a strong number two. We're going to continue to go after number one and add new things to the product line.

In Dan's area, I think that area, several years ago, a lot of questions about what we're doing in that business. Now, I don't think there's any debate that being in the home is as essential as being in the handset business. In fact, they go hand-in-hand. Just talk to any cable, wireline or wireless carrier today around the world, and they are looking at ways to do fixed mobile conversions and how to bring these wireless devices into the home.

What Dan has done, is not only taken the cable business around the world but also the wireline expansion, and we didn't talk about IPTV and the stuff we're doing with Verizon, AT&T and some other carriers. But that is a potential multi-billion dollar breakout over the next few years, if you see what is going on in its early stages. Some of the devices we are working on for dual-mode type devices inside the home.

So I feel very good about that, and you have seen us in that area with some of acquisitions, such as Broadbus this past quarter and Vertasent and some of the others, continue to make small acquisitions to build out that.

The one area that has been transforming and I still think we have some work to do, is in Greg's area. We do have an absolute franchise in the Public Safety area. We did things like MESH last year, and you will see some more things. But that's a franchise in and of itself.

Enterprise is something that I have been talking about and spelling it for my team for the last two years, and now we have done something about it. I think, if you talk to any corporation, including your own and talk about your mobile workforce and what can happen in not only devices like Q but all of asset tracking and logistics and the kinds of things that corporations are doing. So with Symbol, I think that's a major play there, and there could be others to round out that.

The area that I think Greg is spending a lot of time transforming and we still have work to do, is in infrastructure. We are betting a lot of our feature-leading direction around Wi4, which includes not only WiMAX but everything around the kinds of things we have in Canopy and Orthogon and some of the other things.

We are managing very closely our existing legacy wireless infrastructure on CDMA, GSM and iDEN. We saw this quarter, in fact, in the GSM area, caused us some concerns. We still have to work through that. We did minimize a lot of our 3G R&D investment with the relationship with Huawei, so I think you can see that.

But I like our portfolio. You might see additions that help us in our IP core area. The big one, of course, was Symbol. I'm not necessarily, as you know, a huge fan of big acquisitions. Even though it looks small, it's big to me. But we're excited about that. So I like what we have got around seamless mobility. I like what we have got around the broadband Internet. I think good execution over the next year is going to put us in leadership position.

Operator

Your next question comes from Jerry Solomon - Capital Guardian.

Jerry Solomon - Capital Guardian

I was just trying to understand the other line, which seems to be higher this quarter than in previous periods, the other and eliminations. When you talk about the operating margin and operating income ex the charges for the three divisions, then compare that to the operating earnings, it's just larger than in previous periods. Can you detail that a little more?

Ed Gams

I don't have those details in front of me right now. I'll be happy to take you through that on the phone later this evening or tomorrow, at your convenience. But that's not something I'm prepared to discuss at this moment.

Ed Zander

We just don't have that. I'm kind of surprised.

Operator

Your next question comes from James Faucette - Pacific Crest.

James Faucette - Pacific Crest

Thank you. I just wanted to follow up on the infrastructure question, a bit of clarification. I understand that the EMEA region was a bit weaker than you had expected. But I'm wondering if you had anticipated that it would be up sequentially, as it has been the last couple of years, and this year was just down as normal seasonality would imply? Or is there something a bit broader going on there with the carriers readjusting their plans and reevaluating their priorities?

Greg Brown

No, I think you hit it right on. I think that we expected it to perform along more historical trends, either flat or slightly sequentially up in EMEA, and it just didn't materialize. So obviously, we had to readjust accordingly. But that's really the primary driver. Again, I think that was largely driven by the push-out of customer decisions, primarily to Q4 in 2007.

Ed Zander

There was consolidation going on across the world. It doesn't let us off the hook for not forecasting properly in that particular area. So we have to take that one plus the iDEN one, as in July when we gave you guidance, those two things had different forecast numbers on them. They didn't materialize. One for, we know now, with the dual-mode and the GSM, our checks in the last few weeks or months actually was mostly due to move outs, some of which you just said about, in terms of consolidation and people reassessing their capital budgets. But nothing in terms of competition in the accounts we went after and took a look at.

Operator

Your next question comes from Richard Windsor - Nomura.

Richard Windsor - Nomura

Hi, good evening. Ron, I was wondering if you could give us an idea of how profitability in the handset business varies region by region? You have been pretty solid in terms of your profitability for the last several quarters. I'm just wondering if there's any regional variation.

Ron Garriques

Well, when you look around the world, we really look at it from a technology perspective. I think that we were pretty open from a technology perspective when we were at the financial analyst meeting that on the traditional time division multiple access technologies, it has been a more profitable business for us. CDMA was a business that wasn't as profitable. However, that team has worked unbelievably well, and has partnered unbelievably well with QUALCOMM to make that a nicely profitable business.

I think UMTS from a scale perspective out there in the industry, still needs to get some more scale out there in the industry to be able to get to the profitability level of more mature technologies. When you lay that over the regional markets, I think what you would see is that markets like North Asia, the high-growth markets, Latin America are probably your more profitable regions. In markets in Europe, where new technologies are rolling out and have not become mature yet, or in the US, where there's just absolutely brutal competition from everyone, those markets make it harder to make the same amount of OE percent, although I feel good about our businesses in both of those regions.

Operator

Your next question comes from James Richard Kramer - Arete.

James Kramer - Arete

Thanks very much. Maybe just one clarification. Dave made comments on account receivables sales, and perhaps you could also flesh out why working capital went up so much for this quarter, and whether we will see a change there?

Then, more broadly speaking, perhaps for Dan, could you give us a sense of how much was actually spent on the acquisitions you made, and if there are other areas or technology areas you think need to be filled in to flesh out the Connected Home portfolio? Thanks very much.

Dave Devonshire

Sure. On the first part, as it relates to cash flow and the $1.6 billion of operating cash flow, as I indicated, it's probably a little bit inflated by the amount of receivables that we saw in the quarter. We typically do sell receivables. We have a very efficient way of doing it, literally it is a breakeven type of operation for us. We sold about $250 million higher than what we would normally sell. We had such a strong third quarter, and that's the reason for it. That also is the reason why it drove up a higher working capital balance at the end of the quarter, in terms of receivables.

Ed Zander

Dave, I think you meant to say third month.

Dave Devonshire

Third month of the quarter. Sorry about that.

Dan Maloney

On the other half of the question, we don't disclose actual amounts on any of these small private acquisitions. I think, as Ed indicated, we feel like we have a very good portfolio and well-positioned around the Connected Home, and particularly strong in the video space. That being said, as we highlighted at the analyst meeting, there are areas around that we want to keep bolting on. So we will keep looking to see if there are other appropriate smaller acquisitions which can add to that portfolio.

Operator

Your next question comes from Ben Bollin - Cleveland Research.

Ben Bollin - Cleveland Research

As you guys look at the handset industry, we're approaching what looks like the fourth consecutive year of 20% plus unit growth here in 2006. As you look at the industry over the next several years, where do you anticipate the type of industry unit growth could moderate to, what type of growth level? How do you envision the mix between replacement sales in emerging markets? How do you see that shifting over that timeframe?

Ed Zander

I'll say something first, and maybe Ron will give you the answer, and I'm anxious to see his numbers. But this is coming into my fourth year. As we enter the new year, we as an industry, not Motorola, have been just wrong in terms of our January-February predictions, and it has been higher. You scratch your head and you say, why? Well, there are a lot of reasons. You talk to people here in the United States on the streets of Chicago, for example, who now look at this device as a lot more than just a phone but something iconic, something personal and something that's going to give them Internet access and access to information.

Then you do some of the travel that I've been doing outside the United States. Ron talked about China and India. I like to talk about Vietnam, Nigeria, the Congo and places around the world and these other billions of people that will be connected. This device known as a mobile device will be their first use with a telephone, their first use with a computer and their first use with Internet access.

So sometimes, on one side of the pillow I say, gosh, there's so much more to do here. If we keep bringing data and Internet services and making these things truly a mobile Internet both for the developed countries and, of course, for the emerging countries, there could be some interesting growth over the next several years.

You always try to balance that with the economic situations and some of the replacement stuff you talked about. I'm not sure, as we enter almost January here, I can predict again. But I'm going to let Ron give you the numbers so I can measure his plan for next year.

Ron Garriques

The way I look at it is, if you have really, really great products, those products create the total addressable market. There is no such thing as just a total addressable market. I think that we've shown for two years, independent of form factor, independent of technology, that we can come out with a thing that consumers want. So I’m not willing to make a 2007, 2008, 2009 prediction of where it is. However, I will continue to believe that we will continue to gain share sequentially each one of those quarters. We will continue to expand our OE percent year over year, as we leverage what we do into the market and become more efficient in doing so.

Operator

Your next question comes from Mark Kurland - Bear Stearns.

Mark Kurland - Bear Stearns

My question is regarding the Connected Home where the margins are like 2.6%. So my question is, do you guys see that? You talk about a strong growth in demand. Do you see those margins approaching double-digit in the next 12 months, or 5%? What is your goal on that?

Ed Gams

First of all, the GAAP margin was 2.6% but that included two highlighted items, the intellectual property R&D associated with acquisitions in the quarter and the legal reserve agreement related to Adelphia that we mentioned earlier. If you exclude those two highlighted items, the operating margin in the quarter was 7.8%, and continues to improve sequentially in year over year. I will let Dan fill you in on his plans to get to double digits.

Ed Zander

Go ahead, Dan. Dan nearly grabbed the mic out of Ed's hands when you said that. Go ahead, Dan.

Dan Maloney

I think if you go back to what we talked about at the analyst meeting, we're not confused at all on the objectives here. We have a plan to get this business into double digits. As I said, it doesn't happen in one quarter or two quarters, but will happen over a number of quarters.

I think, if you look at the last several quarters of operating performance, you see sequential quarter-over-quarter operating earnings percent growth, as well as very solid year-over-year growth. So at 7.8%, we feel there has been great performance, but we have much more to do. We can drive this business into double digits.

Ed Zander

Keep in mind and in fairness to Dan, we're also asking him right now to invest heavily in the wireline business, and that today doesn't have the kind of revenue and profit. So we have a big investment in next-generation IP set-top boxes around the world, so that's also factored into the 7.8%. His earnings grew 47% year over year.

Operator

Your final question comes from Bill Choi - Jefferies.

Bill Choi - Jefferies

Thank you. Ron, I want to ask a question on the average selling prices on the phones. This quarter it looked like by some crude calculations here on divisional revenue and units shipped, a 5% sequential decline. I know that you had the negative benefit of not having the high ASP Nextel phones, and also the fact that RAZR is now your mid-tier. How do we look at that, as all of your new products are largely high-end phones? Can we see the ASP moving up pretty significantly, sequentially?

Ron Garriques

I think that what you will see from us in Q4 is more of a traditional ASP inside of Q4. I think if you hark back and you look at our ASPs in Q2 that would be a pretty good guide for Q4 ASPs. I think if you look at what happened inside of Q3, clearly, as you mentioned yourself, iDEN units down, UMTS units down, the repositioning of the RAZR family with the anticipation of the new high-end devices, as well as continuing to grow share in the emerging markets. So I think that's what you can see from ASP. I think Q2 is a pretty good guide for what Q4 ASPs might be.

Ed Gams

Thank you all for participating on this call. During the 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 related to the following topics: guidance for Motorola sales for the fourth quarter of 2006; Motorola stock compensation expense for the fourth quarter of 2006; expectations regarding the volume and the impact of our stock repurchase program; the expected completion, proceeds and financial impact of pending acquisitions and divestitures; expenses and financial impacts relating to the Company's ongoing reorganization activities; future sales, profitability, operating earnings, operating margin and market share for each of Motorola's segments; expected timing for the announcement, launch and shipment of new products; the sales impact and pricing of new products; future tax rates; future sales of receivables; timing of legal settlements; expected growth in the markets we participate; expectations regarding availability of suppliers; and strategic directions and plans.

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 afternoon's press release on pages 19 through 27 and item 1A of Motorola's 2005 annual report on Form 10-K, and in Motorola's other SEC filings.

Thank you for participating in this afternoon's call.

Operator

Ladies and gentlemen, that does conclude the conference call for today.

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