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Analysts

Tim Long – BMO

Mark Sue – RBC

Matt Hoffman – Cowen

Deepak – Credit Suisse

Brian Modoff – Deutsche Bank

Tavis McCourt – Morgan Keegan

Richard Kramer – Arete

Rod Hall – JPMorgan

Jim Suva – Citigroup

Jeff Kvaal – Barclays

Mark McKechnie – Gleacher & Company

Hendi [ph]

Richard Pallady [ph] – Insurance Cowest [ph]

Matt Thornton – Avian Securities

Motorola, Inc. (MOT) Financial Analyst Meeting November 15, 2010 9:00 AM ET

Operator

[Presentation can be found here: seekingalpha.com/article/237009-motorola-solutions-financial-analyst-meeting-prepared-remarks-transcript]

Question-and-Answer Session

Greg Brown

So let’s open it up for questions and we’ll start right here in the – okay, on number four, sorry.

Tim Long – BMO

Can you hear me?

Greg Brown

Yes.

Tim Long – BMO

Okay, yes, Tim Long at BMO. Could you just talk a little bit start with the Government business here, give us a little sense of that 65%? How should we look at – how does that split out Federal, state, local? And obviously there was a little bit of a firm drop in tech last week with comments about some issues at state and local level, obviously different businesses in what Cisco sees. But could you just give us your view on why it’s different? Do you see the same things? Or any perspective on that would be great.

Greg Brown

So two things before I turn it over to Mark Moon for commentary on the distribution between Federal and state and local. But again, I referenced the fact that in the third quarter we grew 1.5%. You can compare and contrast that to other providers and other things that some other folks talked about in terms of what they see.

I think the second point in what we’re trying to impart on you this morning is that, yes, the Government markets are challenged, but we have city, county, state, US Federal, international, and that we have a pretty diversified mix of “Government”, it’s not all the same.

The other thing I’d point out to you is this is a longer sales cycle business, it’s a long cycle implementation business. So if you look as a composite at Government, everybody is in a different buying cycle or implementation cycle of these respective systems. So one state might be 30% of the way through of grants they have received and they’re implementing a multiyear process, a multiyear system irrespective of some of the other exogenous factors around them.

So I think that this business is a little different, the resiliency of our Solutions are different, and the criticality where these products and services sit in the food chain, security, statewide interoperability, and mission-critical public safety, it doesn’t mean they’re not totally immune, but they move higher up in the food chain of criticality which is why I think we’ve been able to grow at a reasonable level of consistency. And Fitzpatrick showed you that even in the core, this business even through Armageddon a few years ago and economic times has been a 6% compounded annual growth rate.

In terms of distribution –

Mark Moon

Yes, I think, the first comment would be when you talk about the Government segment as we did, I think it’s important to remind you that we’re talking about product portfolios that we’ve classified as a Government section, primarily radio products that are in there as well as the services associated with that.

So immediately, some of those radio products in Government segments are being sold to utilities or other kinds and users. But to answer your question directly, from a Federal Government perspective, our US Federal Government is about 8% of our business, so the overwhelming majority of the rest of that Government business, if you will, is primarily state and local – if you think of state and local being states and counties here.

Internationally we also – well it’s not US Federal Government is part of that 8%, we feel nationwide networks as well. So, but again, to what you would call there as a local or Federal Government, so the overwhelming majority of the 65% is primarily to what you would classify is non-US Federal Government.

Greg Brown

Right here.

Mark Sue – RBC

Thank you. It’s Mark Sue from RBC.

Greg Brown

Hi Mark.

Mark Sue – RBC

Just within the Government, do you think the – all these special assessments and Federal grants actually provided a lot of the tailwind for you as it will go down to the state level? And what percent or component of that should we rely on as you try to target your 5% to 8% long-term growth rate? And then, separately Greg, as we think long-term what do you think might happen first? You have 50% digital conversion or a nice handsome 2% dividend.

Greg Brown

So let me take the second one first. You’ve seen the way we’re modeling the business longer term. It’s important – again, we’re targeting an investment grade rating at launch. So what we’re focused on and what I am focused on Mark is launch and list this firm. Launch and list the firm.

There is a reason we’re investment grade, it’s important to our customer base for continuities and stability as they look to do business with the government provider. And so, overtime, as we generate more cash and as Fitzpatrick talked about moving more toward an optimal capital structure what does that mean.

He referenced the fact that debt to EBITDA is closer to 3 at the moment. We’d like to get to 2 to 2.5. As we move towards that and make progress, we’ll give full consideration to returning capital to the shareholder including full consideration for some type of dividend at some point in time.

Mark Moon

I think most certainly the Federal funding has provided as you said tailwind, certainly has helped the growth. Again, though, I would say what I said before, generally what we’ve seen is even in downtimes we haven’t seen it down as far, and up times we haven’t seen up this far. I think public safety which is where we are primarily selling when we talk about Government is at a point that even through all the administrations in our current elections have said first responders in public safety is critical important. So I think it will somewhat continue in that pace.

The other thing I would remind you is, it’s not and that’s why I’ve tried to go through a litany of grant programs that’s not just stimulus. I mean there was Byre grants, COPS Mill programs, interoperability, urban area initiatives, going out even before the President initiated more stimulus funds. So those programs will continue in some fashion. And all of those programs in many cases are multiyear projects.

So in other words, something that has already been awarded if we talked about what’s been allocated to [inaudible] so the $100 million that’s been allocated to Los Angeles. That will stem for several years to go. So many of this when you talk about $8 billion worth of grants are already issued to really run projects that will stay in the next three or four years.

So I think while it’s provided good tailwinds, it’s really hard to get – I don’t think it’s going away tomorrow, but it’s also hard to calculate our complete dependency, because what I’ve said earlier and what we’ve witnessed is, when there isn’t as much funds, it seems like our customer base still gets prioritized. And when there is extra funds you do other things within that customer segment that may or may not could directly benefit Motorola sales.

Greg Brown

Number two.

Matt Hoffman – Cowen

All right, thanks. Question – Matt Hoffman with Cowen.

Greg Brown

Hi Matt.

Matt Hoffman – Cowen

Question for Greg and Gene. As you think about LTE and video over LTE in public safety, you partnered with Ericsson on the Node B side. What percentage of the total value of the contracts are you leaving on the table via that partnership?

Second question probably for Gene on the operations side, what does your manufacturing look like on the other side of this internal versus contracts? Thanks.

Greg Brown

Matt, in terms of what percentage are we leaving on the table to the partnership, none, because and this is important to distinguish, Delaney talked to you about the importance of mission-critical LTE, so think of it is a private network, LTE or public safety LTE implementation, that’s a 100% Motorola. That’s an infrastructure base stations, interoperability platform, provisioning, control points.

What we’re saying is as a San Francisco or an LA or a big public safety LTE network gets deployed which is a 100% Motorola if we win the business. As those customers, as those first responders leave the coverage area of that network and may have to roam on to a carrier network we would then package with the primary phase of the customer, an Ericsson eNodeB. Since we’re divesting of the networks business and we really didn’t have, well we didn’t have any, zero LTE awards for the US in our networks business, the opportunity cost is zero.

Ericsson made sense because they are the number one installed base footprint in the US and internationally. To Delaney’s point as we talk to them which was for the last couple of years, we determined that they had a leading edge LTE position with a strong footprint and incumbency and they were a great partner to team up with, because they didn’t have the appetite or desire to lead in public safety. So we are not leaving anything on the table and instead we get a world-class partner that for industrial large DMA networks in the urban areas that have to roam, we will package and install eNodeB equipment to roam accordingly.

Gene Delaney

Yes, I think the key point – the key point in public safety in LTE is that we’re going to take full system responsibility. So we talked about Ericsson as a partner to us, but they’re really a supplier to the solution that we’re taking full responsibility for. So the appropriate pricing and margin will be reflected just like it is on any supplier to solution.

Your question about supply chain I assume is around with the split with the volumes that mobility has.

Matt Hoffman – Cowen

[inaudible].

Gene Delaney

Okay. In our manufacturing, you saw our footprint and we have done a lot of work in optimizing our supply chain. The two issues that I’m sure you’re worried about is; number one, there is a discussion around shortage of supply, which is an industry-wide issue; and then are we going to be disadvantaged from a pricing perspective with suppliers given that a lot of volume came out of mobile devices.

So let me start with the first one. Clearly, the industry supply issue has been challenging. It has not impacted our ability to achieve our financial forecast and guidance that Greg has given you every quarter. I will tell you that it’s top of the mind for me, and Rich Valin, our Chief Procurement Officer who is the room, we spend virtually every week. One of us is out with suppliers making sure that what we need to fulfill the needs of our customers is planned and we do a lot of more demand planning with them.

So the supply issue I think is still going to be around for a couple of more quarters. We’ve seen significant improvements in Q3 and the trend here in Q4, but we’re not going to take our eye off the ball, and I’m going to spend more time with suppliers than I ever have in the past.

From a purchasing perspective, the leverage issue about mobile devices and the volumes, how will that impact our ability to get proper pricing, we’ve done a lot of analysis of that as well. And we believe it’s not going to be material at all. So when we look, if you’re breaking into thirds, a third of the suppliers that we rely Motorola Solutions weren’t even suppliers and mobility. Another third we shared suppliers, but we were a dominant source for that. The other third – it’s pretty much indifferent and it’s not going to move the needle.

I was in Electronica last week in Munich with Rich, specifically to keep me in with suppliers. And what I’m hearing from suppliers consistently is they like the Motorola Solutions organization because of our first of all hi-tech nature of our product lines, the fact that we’ve got good visibility and we’ve got intense leadership position, there is predictability, and a lot of these suppliers as you know they’re dealing with a lot of this to have a partner to be a supplier to a company like solutions with a little more predictability is a huge benefit.

The last point I’ll make on supply chain is we have over the last year been very, very effective in an initiative of we manufacturing and we have significantly leaned out our factories, so that will produce the products faster, cheaper, our in-process inventory is dramatically down, our cost structure down, and I think it’s contributed to the fact that we were able to hold margins and that we have been very diligent on continuing to bring the supply chain.

So I like where we’re at from a supply chain. I don’t see big downside on purchasing, I’m keeping a watchful eye on key suppliers. But the indications I have right now is that it won’t material affect Motorola Solutions.

Greg Brown

And the primary manufacturing locations for this business, Mexico, Malaysia. And then in terms of assembly US and Germany. Over here.

Deepak – Credit Suisse

Thanks. This is Deepak from Credit Suisse. Greg, could you maybe talk a little bit about your view on growth through acquisition? What are some of the focus areas there and how do you think about your acquisition strategy going forward? Thank you.

Greg Brown

So Deepak, I think for now we’re focused at the moment at launching, listing, and growing organically, that’s not to say we don’t have our eyes open on other areas. I think in terms of where you can look at some of the areas that we highlighted. So if there is opportunities that would facilitate and/or enhance our projected growth that have similar kind of margin profile, return on investment capital profile, operating margins, we’ll evaluate it. But for now, this team is focused on more executing and launching, and then we’ll see how things come at us in 2011. Number one.

Brian Modoff – Deutsche Bank

Hi, Brian Modoff from Deutsche Bank. Couple of questions. Gene, can you kind of give us a little bit of history lesson on how APCO-25 and TETRA rollout the current starting in early ‘90s and where they peaked and kind of give us – you may give us a pre-pressure [ph] when I look at for these LTE upgrades?

And then you guys – obviously for your investments, one of these investors are looking at with your cash flow and kind of your overall profile is the dividend. And you’ve kind of have been vague on that. Can you give at least a timeframe maybe from when you’ll start looking at paying a dividend? Thanks.

Gene Delaney

I think on the P25 TETRA systems, first of all as you rightfully said, it was 20 plus years that’s back [inaudible] integrate to going through that whole process is relative to LTE, we’re going to be obviously be leveraging off of the commercial LTE standardization work that’s already taken place.

So P25 systems and TETRA had a slow start and when they became standards. As they worked through that process, funding got aligned, bid started to be issued. And then there was a ramp up and there continues to be a ramp up on P25. If you’re going to look geographically, in the early 2000s, you saw a lot of TETRA builds going on in Europe. Europe was very aggressive on doing countrywide deployments and you had that along with the countries that deployed TETRA, so there was a lot of activity within that.

But they – as Mark mentioned in his presentation, a P25 network or a TETRA network is a multiyear deployment. So we’re not going to see some huge necessary spike there, because they take multi-years to deploy. Now we’re continuing to plug P25. There’s still lots of P25 opportunities here in North America as well as other parts around the world and the same with TETRA, as especially TETRA starts to be deployed in other verticals of beyond public safety.

If we think about LTE, as I said, I think the window for standardization of the LTE piggy backing up for what’s happening in commercial that won’t take as long. I think in public safety there are still issues to be discussed and resolved relative to allocation of spectrum specifically for public safety on whether it will be auctioned or allocated directly to public safety, that also will align, how that transpires or line up funding. So that’s why when I was talking I think in ‘11, you’ll see more trial activities, and then in ‘12, ‘13, and beyond, you’ll start to see appreciable revenue on LTE broadband.

Mark Moon

One other quick perspective on that piece though is we got to remember that when we put in TETRA, ASTRO, fortunately I think the history as you said is good, but that’s been a long tail and is continuous to go. And I think LTE will have that same long tail if there wasn’t an embedded base of radio communications. So there wasn’t that immediate need to go do something, because you had something.

So the adoption or the initial route I believe was slower in those cases than what we will see in LTE broadband, because this is the demand we talk about really needing real-time video for instance which you don’t have a pipe that can get that today on a crime scene or when you talk about public safety video. I think the initial route certainly in the large cities will be much quicker than we saw for like ASTRO or TETRA. And then they’ll have the town.

Ed Fitzpatrick

So Brian on the divided, we talked about one of the metrics for sure that we would want to get comfortable with would be getting our debt-to-EBITDA ratio in a more comfort zone in a 2 to 2.5 range. And as Greg mentioned, depending upon the rating agency that you’re talking about the adjusted debt to adjusted EBITDA calculation may vary, but we’re in about 3 right now.

So I talked about deleveraging in 2011, that’s a $30 million [ph] payment we will plan to do that. And I think at that point in time we will reassess where we are and if we’re in that we will have – that that will be a time when we would consider. But I think it’s all going to be based on getting into that sweet spot of 2 to 2.5 debt-to-EBITDA.

A quick question would be that we have a lot of cash. We do have a lot of cash, but remember we’re also in international business and some of that cash is outside the US used in operations. I also mentioned that we have cash that’s outside of the US that all other things been equal, I’ll probably bring back today and I would be in a more flexible position arguably, but I’m not doing it part of it for tax planning purposes, right?

So I talked about that 20% tax rate. I think that’s important, right? I think that’s an important differentiator now that we’re able to generate more cash flow, given our cash tax rate will be lower. So it will be a balance. So I think there is no fine line that I’d draw for you, it’s going to be a balance of all that. US, international cash is going to be getting the debt to EBITDA ratios where they need to be, all balanced with the bringing the right returns to shareholders including things like tax rate. So – and we’ll continue to update you as we go through here.

Greg Brown

Number two.

Tavis McCourt – Morgan Keegan

Thanks. Tavis McCourt at Morgan Keegan. Just a quick follow-up on that. How much of the cash of the $5.3 billion laid out will be in the US after the spin and does that include or exclude the network sale? And then the follow-up to that is how committed is Microsoft Windows Mobile which I think is pretty much all of your Enterprise line. You have a shift to make whether it’s to Windows phone or to Android or are they committed to Windows Mobile long term?

Ed Fitzpatrick

So I will take the first one and you take the second one.

Greg Brown

Yes, just on the last one, just so I’ll get that out of the way.

Ed Fitzpatrick

You’re the boss.

Greg Brown

So on the Enterprise side, we’re all Microsoft Win Mobile. The ES400 has Win Mobile 6.5.3. We’ve had extensive discussions with Balmer and team Bob Sanders in the back runs of the Enterprise product group. And we are in close contact with Microsoft to make sure that they refresh an extend Win Mobile or as they know call us Windows Handheld to make sure that has – it has an extensible roadmap to accommodate the install base and the applications into the Enterprise that we support.

Ed Fitzpatrick

Tavis on the cash balance, you could think about it in terms of 30% to 40%. Motorola on a consolidated basis I think I’ve talked about it in a 45% range, so it will be a bit lower than that. And with some cash and regions I talked about that will be in a national regions for an extended – for a period of time such though we can maintain the tax credit.

So think of it in terms of 30%, 40% –

Greg Brown

First solution.

Ed Fitzpatrick

First solution, yes.

Greg Brown

Number one solution.

Ed Fitzpatrick

That we would migrate that closer to a 45% to 50% overtime as we work through the tax credit situation –

Greg Brown

And that does not include.

Ed Fitzpatrick

Yes, does not include –

Greg Brown

Does not include the monetization in network.

Ed Fitzpatrick

And that payment would be based upon a tax proportion as that would be a part of that we paid domestically and part of that with also the international based on up on as I’m sure you’re aware of the international business.

Greg Brown

30% to 40% and the separation would be US based for cash in Motorola Solutions. Let’s go to four.

Richard Kramer – Arete

Thanks very much. Richard Kramer from Arete. Couple of questions just following up for Ed and one for Gene as well. For Ed, can you give us a bit of timing on when you’ll expect networks to close? Can we assume it’s going to be after the separation that Greg mentioned in January?

And also just following on from the comments on capital structure, is there anything which would prevent you longer term from gearing up the business or levering the business, is it something about the customer profile and what they expect to see in Motorola that you would have to maintain a large net cash balance?

And one for Gene, we’ve seen the other half of Motorola get quite aggressive in ascertaining its IPR and patent portfolio. You mentioned there is 6,000 plus patents and 3,500 that are pending. Can you talk about whether there will be a material stream of income from IPR from Motorola Solutions and whether you’d equally get more aggressive and ascertaining you a patent portfolio versus competitor? Thanks.

Greg Brown

Actually I’ll take the first one on just the networks close. As we’ve disclosed and I mentioned in the last earnings call, we’re anticipating the close of the networks deal in early 2011. We’re working through the requisite regulatory approvals CFIUS in the US, EU individual countries, China NI Trust and so on, and that’s the target we’re still going after.

Ed Fitzpatrick

And I think you mentioned something about we need to have this much cash for your customers. I think the plain answer is no. I think from a rating agency perspective, the bigger gaining item for us right now is the debt to EBITDA. But I also talked about – I’d prefer my cash in the US to be a higher percentage, I would, but I’m balancing that, right? We’ll do what we think is the right thing to do and strike the right balance there from a tax perspective versus US versus international cash. I think that’s the piece of it.

Greg also talked about why is the rating agency is denoting us as solid investment grade important to us and to our customers. I think it is – we are a long cycle business, they expected to be here for the long run. Gene talked about as backwards compatible products for years and years, we’re also – we’re going to be there for the long haul, so I think that’s very important to our customers.

The investment grade rating, you think if it as better financially repaying lower rates, you also think of it as our customers are seeing us as a stronger more stable business. But you also see it as your availability to credit is greater. A lot of the contracts that we have require performance bonds or letters of credit. And during the periods in ‘08, ‘09 when we got downgraded we were having to pose some cash to collateralize, it too got a point where it was kind of silly, we were a 15% to 16% operating earnings business, but we couldn’t get access to the performance bonds – couldn’t access it was harder to, and that’s not something that we ever want to be in that position again such that we don’t miss opportunities with the growth that we talked.

Gene Delaney

So we use very reasonable non-discriminatory of course on all our IPR. We have IPR revenue stream that’s baked into all the numbers that Ed shared with you. We’re very proud of our IPR position and we would defend it when required. We’ve clearly had the conversations from time-to-time with suppliers, because there is so many especially in the Enterprise size and things. But I first of all will defend our IPR that we made the investments, but I would not see the – I think you were asking about a material uptick in IPR revenue streams from Motorola Solutions and I wouldn’t bake that into your model.

Greg Brown

And as we made final decisions on the division of the IP to Gene’s point we made sure that Motorola Solutions has a strong IPR position in public safety, in push to talk, in push to talk over cellular in the provisioning of public safety LTE, things around RFID and Enterprise Mobile Computing and we feel pretty solid from our position, but I would think of us is a big revenue stream monetizing IPR going forward. Let’s go to number one. Rod.

Rod Hall – JPMorgan

Yes, thanks. It’s Rod Hall with JPMorgan. I just had two questions. One for Ed, on the $150 million, if you could talk a little bit about what the specific costs are, give us some breakdown and what sort of costs are coming in and then how you intend to work us down overtime, will that be up front in the year, spread through the year?

And then the second question is back to this regional flipping, you have 21% of your revenues to the EMEA and I wondered if you could you give us some idea as to what proportion that is, Government is it 65% or higher? And then if you guys could talk a little bit about how government spending is going in EMEA, particularly some of these countries that have been upfront on the cost that would be helpful?

Ed Fitzpatrick

Can you repeat the first part of the question?

Rod Hall – JPMorgan

The $150 million.

Ed Fitzpatrick

And in the second part of it, you said the $150 million and then –

Rod Hall – JPMorgan

How quick?

Greg Brown

Yes, that’s right.

Ed Fitzpatrick

Okay, okay.

Rod Hall – JPMorgan

Through the year and what kinds of [inaudible]?

Ed Fitzpatrick

Okay. So as you know, today we are a $20 billion plus business. Motorola Solutions as we guided you to are going from about 7.7%, 7.8% up by 4% and 4% to 5% in the aggregate for next year. So as you can expect, it’s a – the infrastructure to support a $20 billion plus business is different that the infrastructure that you need to support an $8 roughly billion business, right? So it’s going to be things and across all the function HR, IT, finance, legal, all those costs that we’ve kind of consolidated and supported all of these businesses that we’re done in the aggregate, there wasn’t one specific team for each. Although we had our specialties, there was that – you were getting some economies of scale to having that.

So it’s going to be in those spaces where we’re going to need to go after and we’ve already really identified what we need to do, it’s not a surprise. So we’ve identified, we’ve already started to take the actions that we need to take. We expect the actions to be completed in 2011. I’d say that to get to the numbers that I’ve talked about we’ve already modeled in when they were going to take place. So the 16% that we talked about for 2011 factors in the pace that we’re going to be going.

One of the cost that that you can appreciate that doesn’t go away is pension cost, right? We’re – at the Solutions business we’re maintaining or supporting this entire pension plan where that pension plan was for all the employee including, well that’s the piece that you really can’t take away, right? It’s a benefit that they’re going to get. So we’re going after other cost and efficiency such that we can deliver to you and to investors that 16%.

Greg Brown

And you’ll see us make these reductions in the front half of 2011 and the majority of the reductions will be outside of the R&D and go-to-market area.

Gene Delaney

So the question around Europe, Middle East and Africa, is a very good question. In fact, when you look at the split in Europe, Middle East and Africa, it is different than the 65/35, it’s roughly 50/50. And so the mix is different, there is a higher mix of Enterprise business in that region. And your question also was about government spending in that region and I would say that’s mixed. When you think about Europe in particular and in particular Western Europe, I would say spending is extremely tight now and it’s pressured. I mean there is a lot of pressure on the government spending and what’s going on.

To the contrary, in the Middle East and Africa, I see them as very high growth rates particularly in the Middle East and particularly in governments are large MOI and MODs within those countries, so we still see that as a huge opportunity for us. So all-in-all, I think when you take those two in, growth rates are still pretty good for that region, but certainly your question you hold in on, the mix is a little different, Enterprise is a very strong business throughout. Even in Europe right now it’s still growing like we’re seeing in North America, retail and other things have really bounced back in Europe, and overall Government is still struggling a little.

Greg Brown

How about right here in the front, I see this gentleman trying to stand up for a long time.

Jim Suva – Citigroup

Thank you, it’s Jim Suva from Citigroup, and thank you for hosting this very well informed meeting. A question for Greg and then a different question for Ed.

Greg, can you talk a little bit about how integrated or tightly integrated or twined the Government and Enterprise businesses are, do they share a lot of R&D, a lot of CapEx, back of an office, or do they operate kind of a two standalone entities that you’ve kind of oversee?

The question for Ed is, Ed back in my CPA days 15 years ago, there was a rule about two years of a Safe Harbor post to spend, where the company couldn’t sell any meaningful parts of its business. Does that hold true for the Motorola Solutions business or is that two-year Safe Harbor just for the Mobility business? Thank you.

Greg Brown

On the integration of Government and Enterprise, I would characterize, Jim, supply chain and manufacturing is integrated largely in Reynosa, Mexico. And I would characterize the integration on the go-to-market Mark Moon area outside of the US. So in LATAM, in the EMEA and Asia Pac, Moon has one General Manager and they’ve integrated the go-to-market. And as he talked about with the 25,000 in the rep channel partners under what we call partner in power, the management of the indirect channel has been integrated.

In terms of product management, it has not been integrated. We have Bob Sanders running Enterprise Products, Bob Schassler running the Government Products, so we keep the distinction between the product management areas difference than the integration that’s been done in the supply chain and the go-to-market. In the US and North America, we also have – well it all reports to Moon, still largely two sleeves in Enterprise force and a Government force. So that’s the degree of the integration.

Mark Moon

So if could just make one little caveat on that.

Greg Brown

Sure.

Mark Moon

On the product management, Greg’s right, we have the Enterprise run by Bob Sanders, Government by Schass. But as we look forward beyond the core and I talked about advanced devices and with LTE coming, we’ve got improvised strategy around serving that need.

We would – Bob Schassler would be responsible to make sure we have a robust public safety LTE portfolio, but that’s going to include mobile computers, so he will look and partner with Sanders to make sure that we deliver that type of a device. That’s where the power of the acquisition a several years ago a single technology is really [inaudible] to play out and this device strategy that we have and the ability now to work across what was traditionally public safety radio and traditionally Enterprise Mobile Computing and start to bring them together and collaborate with one another I think is a key differentiator for us. So there’s probably more partnering going on toward the beyond the core strategy I discussed.

Ed Fitzpatrick

So Jim on the tax, you were getting at the tax free nature of the transaction, are there restrictions that could jeopardize? I think on both sides, on the Mobility and the Solutions sides, there are restrictions. I think – but to be clear as long as you’re not in contemplation or in discussions on transaction ahead of the separation you’re kind of not restricted, although we’ve been very careful on that. And as you can probably imagine, we’re pretty busy trying to make sure we’re going to be able to separate to make sure we’re still clear that. But there are certain restrictions and we are aware of it.

Greg Brown

Out back here.

Jeff Kvaal – Barclays

Thanks. It’s Jeff Kvaal from Barclays. I also have two questions. And I think my first one is on the outlook on for government spending and you talked about the third quarter being up a point and a half and they’re being challenged. And of course Cisco is telling people that things got materially worse for state and local in October. So I’m wondering if you could help us understanding your visibility, talking about 4% and 5% revenue growth for 2011.

And then the second one Ed, I think it’s for you, and that is on the historical data side, are you going to give us some like quarterly historical information like top line all the way through that we can use?

Ed Fitzpatrick

So the second one, the reason we didn’t give too much specificity today as I talked about for Q1, all the numbers are going to be recasted again as we do the Mobility spin off. So we just did – recently did the [inaudible] operation for networks right, all the numbers were recasted and we get back and we stated and kind of do the apples to apples. We’re going to say the same exact same Q1 when we come out of the gate and report, we’re going to do the same thing such that we recast them with Solutions numbers or things like it’s over hanged and then they’ll get layered into our numbers in the prior period and everything will be affected by that.

So I think that will come out, but I think it’s – I’m trying to get you some high-level guidance so that you guys can see what we’re thinking, how we’re modeling it top to bottom and not get too into the detail in the middle because it’s all going to change from Q1 when we recast cash and we restate prior periods for discount.

Greg Brown

Mark you want to talk about –

Mark Moon

Yes, I would just say, what you just said was true. What we said about third quarter is 1%. Going into fourth quarter, I feel very good about our visibility. In fact October was very strong for us contrary to what Cisco said about their, but it’s been a strong October, we have good visibility to already what’s aged into the quarter in what new orders we expect to turn. So I feel very confident about the estimation that we gave you in 4% to 5%.

And also we had a good year. Third quarter was a little lighter. We expect fourth quarter to come back and little lighter just being third quarter of the previous year was a little better as well. So our Government business has been very, very stable and I fully expect it to continue.

Ed Fitzpatrick

Jeff, just one more thing, I failed to mention – I think failed to mention when we were going through the high-level guidance as well. When we guided to the 16% or approximately 16% for 2011, as you had modeled the businesses we talked about internally and the numbers are shaking out such that they look relatively comparable at the Government and Enterprise side for profitability perspective in 2011. So as you think about it, there is not a drastic difference in their returns to the bottom line, so I just wanted to give you that color.

Greg Brown

Let’s go to number one.

Mark McKechnie – Gleacher & Company

Thanks. Mark McKechnie from Gleacher & Company. This is for Gene probably. First to China, how is your market share of public safety and/or Enterprise gear over China or in China relative to the rest of the world? And are you ever concerned about local Chinese manufacturers getting more involved in the western space? Thanks.

Gene Delaney

Sure. Do you want to take the market share – okay. In China, we’re very well positioned. We know Motorola has been in China since 1987, we’re well in tranche, a very well-known brand. Our market share position across the country is excellent. We serve all the public safety needs, most of the police department. Also in China, you’ve got lots of activity around metro line, virtually all of the metro lines is connecting all the cities now, almost all of them are using Motorola communication solutions.

They just had a big expo in Shanghai. Virtually all of the communications equipment to run that expo was Motorolas, all of the trains – again the transit to get the people there run with our equipment. So I really like our position in China. We do quite well, we do it across multiple vertical. As far as the Chinese competitors come into other spaces, was it second part of your question. First of all, I take nobody for granted as you would expect.

Typically what happens is they try to come in at the low end and work up and I’ve highlighted on especially mobile computing how we’re going to make some investments in the value tier or maybe that was – we did not serve their markets, we’ve kind of we’re at the higher end. On the professional and commercial radio with our platforming activities where we now have we anticipate our digital margins will be comparable to our analog margins.

I think we’re well positioned from a tiering perspective and with the differentiation of clearly there is an aggravation and there can be a market disruptor. But I think overall market presence and our overall solutions and the fact that we can tier where required we’re able to compete very, very effectively.

Greg Brown

Just to add to that too, and that’s a very important point in the professional and commercial radio business, Gene’s done a great job on the product group along with Jeff Space [ph] and others rounding out the portfolios to have tiered subscribers. That was also the basis for Vertex, a deal we did a couple of years ago, where we acquired 80% of them to have a fighter brand, if you will, an alternative brand of Motorola and have Vertex fill in some of the lower end and mid-tier portfolio where we didn’t have product, but we can attack pretty swiftly under a different brand. So we feel pretty well positioned there. Number two or number one again. Hendi [ph].

Hendi [ph]

Thanks Greg, it is Hendi. Okay, a couple of questions. First of all, just want to re-attack one last time the Cisco question of what they’re seeing and what you’re not seeing. My guess is when they reported last week you went back to your customers and said what’s going on just want to reconfirm and make sure. If it is kind of relive those moments for us and as you come with the point that they’re on different projects than you are at the same customer set, do they come up with – as you come with perhaps that they are a different customers in those – in that same market that you’re in or are they just not – I mean something is happening to them, I’m just wondering if it is different customers that they’re selling into or are you seeing weakness in those same customers, but they’re just in a very, very isolated part of the market and you are at a much broader part of the market and therefore you could offset that with other customers. So some sense as to customers that would be interesting.

Gross margins have been very steady at 50%, 51%. You’ve gone through several transitions, the analog transition to P25, TETRA it will be moved to LTE. Can you go over the gross margins of each one of those devices, you said the gross margins on the digital devices, Gene, are very similar to just the analog, I’d imagine right now the expenses are higher. Is there any difference though in the gross margin profile as we watch you move through several transitions of technology and what are the different – is there a gross margin difference between the Enterprise side and Government side. Just to more color you can give us in the different pieces of the business that – and after that 50%, 51% will be great.

Greg Brown

So on the gross margins, I’ll take it first. I think that irrespective of some of the differences in the middle of the transitions, our gross margin profile first of all for Government and Enterprise is very similar. And it is our expectation to do everything possible to maintain those gross margins. We don’t necessarily Hendi sit here and when we think about analogs and digital or trunked radios to P25 or analog to TETRA or today’s environment to LTE, we don’t necessarily see a dislocation of gross margins based on the way we’re running the business and what we think we can manage in terms of supply chain efficiencies, procurements and cost of goods sold.

In terms of Cisco and I know this is a good deal for you guys and you keep asking it many different ways, but I actually think that you’re better off asking them than us, because I can’t speak to what they’re seeing and obviously it rattled the markets. And I just think we’re a different business – by the way, that does not mean, right, we’re not looking at this through any rose-colored glasses or myopic, thinking we’re impenetrable and the world doesn’t react that we’re immune to the reactions of the world, but we’re looking at it. Moon talked about October. We talked about where we expect to finish the year and we talked about ‘11 guidance and we think we’d incorporate largely the environment we’re seeing today.

Gene Delaney

Yes, we obviously reacted, we both [inaudible] rooting what really has happened and broke it down and what’s into funnel did a very good analysis and we talked to customers. I think opposite of what you said rather than our broadness, I think they’re talking about public sector. When they talk about Government business they talk about schools, they talk – we primarily, I mean reality is which is a growth opportunity for us we can grow into other areas of government. And when we talk about government we’re primarily talking about public safety.

Greg Brown

That’s a good point.

Gene Delaney

So it’s really a very different market somewhat. And by the way I think the fact that they do so the broader we have extensions now with our Enterprise portfolio to grow into those areas better than we have. But today we’re not exposed to those areas that are getting cost reduction.

Hendi

[inaudible].

Gene Delaney

I would too.

Greg Brown

I think we’re doing different things in different areas.

Gene Delaney

That’s right.

Hendi

[inaudible].

Gene Delaney

That’s right.

Greg Brown

Let’s go to number four.

Unidentified Analyst

Yes, hi, I have a two questions. The first is on the network sale R&D, you anticipate being that that’s going to be – you’ll be able to shield all taxes on that sale given the basis in those assets. And then the second question just goes back to sort of debt-to-EBITDA levels that you talked about. You had mentioned $7.7 billion to $7.8 billion of sales this year growing 4% that puts you at a little bit over $8 billion, 16% margin I think gives you to about 12.80 billion in EBITDA. And I think for the old EMS business in ‘09 was 150 so it’s about equal to your CapEx at 160. So you’re kind of it 14.50 of EBITDA, you’re at $2.9 billion of debt now. So aren’t you essentially at two times leverage? Am I doing something wrong in the calculation? Is it historical? Am I right in thinking CapEx and D&A are offsetting? Can you just help me sort of bridge all that?

Ed Fitzpatrick

Yes, I don’t think you are far off on the standard debt to EBITDA. But as you know the adjusted debt to adjusted EBITDA includes other things including pension obligations, right? If you look at our balance sheet today, we do have a pension liability of approximately $1.9 billion. If they stay where they are today, interest rates at a lower levels that balance will grow a bit $500 million to $600 million. So as I talked to you about in the kind of the three range, high 2s to low 3 range, it incorporates that adjusted debt to adjusted EBITDA level.

So the interest rates aren’t helping us. The market hasn’t helped us a bit either with the asset levels. The good news is the asset levels have come back a bit, but the interest levels are still pretty low. So the pension obligation numbers are a bit higher than what we were. So I think that’s the piece of it and maybe you can come back to your first question again so I can remember what it was.

Unidentified Analyst

Networks – tax basis on the network side.

Ed Fitzpatrick

Yes, so we’re still going through the calculation. There will be some taxes on that. And depending upon as I talked about before the allocation and by jurisdiction that will affect it. But there will be some factors we haven’t really provided any color until we get through this the detailed analysis of it and work through it. I won’t give you any color on that until we nail that down. But there will be some. I’ll leave it at that.

Greg Brown

Number two.

Richard Pallady – Insurance Cowest

Hi Richard Pallady [ph] of the Insurance Cowest [ph].

Greg Brown

Hi Rich.

Richard Pallady – Insurance Cowest

As you spoke about your growth markets, you mentioned video security and surveillance a couple of times. That’s an area that’s dominated by software. I mean or so I should say there is a heavy software components to it. Would you contemplate expanding Motorola Solutions into pure software models such like a Variant [ph] or a [inaudible] as a – is that concerned a complementary area, is that type of acquisition, testing, when you talk about services.

And then on the financial side of that equation, given the most – given that lot of the companies will be looking at, foreign subsidiaries as well as domestic, would there be a way to utilize your cash perhaps in foreign locale as you go about making acquisitions?

Greg Brown

So on the second – on both parts, there’s always the opportunity to use foreign deployed cash for nonorganic expansion. That opportunity is in front of us, we give it due consideration to do that, there might be a couple of areas and specific companies where we would be able to utilize that. And if it was attractive and it meant sense, it made sense to do that we certainly would pursue it.

Do I think software could be an area where we expand? I do. Now, I used to run a publicly traded software company. I know it’s a very different animal. Gross margins are great, a very different animal. But we’re interested in pursuing expansions that can be incorporated into a whole solution and that description you gave, a video without the specific companies but conceptually is something that might be available for us to consider on, if you want to answer that, Gene?

Gene Delaney

No, I think that’s right. For our video solutions, are secret to us if you will. We’re playing all of these partners together and you named very important partner to us to their program, but what we’re doing is we’re taking their solutions and we’re aggregating them into an end-to-end solution back into the integrated command and control. So our view is we’ve got great opportunity on the service side, we can be integrator of the video solution and we can be the company that can tie that back into a command center. You aggregate all the video, you analyze the video, you identify the critically important, you dispatch over the mission critical voice that the core that I talked about. And as you dispatch first responders to some incident through our command and control and LTE systems, we can push the video to those first responders that are on the move before the fire fighter gets at a fire, or building if he sees the fire if its swat operation they know where the doors are that type of a thing.

So we believe the value that we have is not necessarily doing exactly what nice [ph] does but pulling all of those solutions together.

Greg Brown

No, you’re right. I think it’s a great point, Rich. We’ll do one or two more questions and then wrap. Okay, well we have one more in the [inaudible].

Matt Thornton – Avian Securities

Thanks, Matt Thornton at Avian Securities. Greg, I felt that services going to be very important incremental growth driver and a incremental emphasis for Motorola going forward. Can you talk about the headcount implications of that push and then also just remind us what the incremental margins are in the service business relative to the corporate average?

Greg Brown

So a great point. And let me back up and say first of all the growth rates we’ve given you and modeled for ‘011 in longer term are primarily organic. We talked about even though the core is the core, it’s sizable and its growing and we can grow in North America in addition to international. When you take a step outside the core, the biggest drivers for us will be public safety LTE, companion or collaborative devices that Delaney talked about, integrated command and control, still product centric type stuff. The last thing we want to do is go head-to-head with big boys in service or do something dilutive for the financial and operating profile that we have today.

So I would view our services expansions as more incremental and more thoughtful around the product platforms that we’re expanding and extension to the installed based we’re in. I think that – I know if we’re taking out of this but I don’t like to expand headcount. So I’d like to figure it out with what we have or redeploy within. I’m not looking to add cost. I know that’s surprising to you but I’m not looking at add cost as we transition and pursue growth I don’t want to see our BGM structure deteriorate and put pressure on the financial profile that we’re talking about.

Gene Delaney

I think about services and I know the initial reaction probably was we’re going to compete against big players there. But actually what’s happening if you think about the beyond the core, we’ll just talk about public safety but its equal to an enterprise. We have customers coming to us saying I wanted to play video. I know it’s beneficial. I want you to do it because you did the mission critical voice.

Integrated command and control, we’ll bring him into our customer briefing center, show him what we’re doing with our partnership with Microsoft, then they want us to do it. Interoperability, they want to tie two systems together. They want us to do it because they trust us as their partner. So we’re not looking at creating this new, new service offering. We want to take our domain expertise so deep and apply it in extending out from more of a product centric view to more of service say referred into advanced services from headcount perspective. Most of the headcount it would be associated with that would be direct labor.

So it would be in the gross margin, the product line or is it probably immaterial amount of indirect as we refer to it below gross margin type cost.

Ed Fitzpatrick

Yes I think that last point is the most important point. We’ve been working I mean we talked to Greg and Gene about this well over a year ago. I talked to the board about it, so we’ve really gotten the below gross margin kind of headcount has been in our run rate to build up these practices. Now we’ll expand that business, through self-services. So we don’t see as adding to our cost line as we grow that revenue stream, and we will start as Gene said with our existing customer base so there really the story I told about they really are asking us Motorola trust you, I would like you to give you more of my business and so I think it’s a logical extension.

Greg Brown

So I would just close by just leading you with a just couple of quick thoughts and hopefully you’ve seen in the course of the few hours this morning, we’re here, like this is our moment. But the moment that matters isn’t just the separation although it’s been a long road. And I and we are thrilled. The moments are going forward. This is an outstanding franchise. We have a great customer base. We have domain expertise in the standards plus, the billions of R&D, the unique organic development that we have been funding to prepare for 2011 and beyond, we’re well positioned to differentiate this firm.

We’ve got solid organic growth. It’s an excellent cash and earnings business with outstanding return on invested capital and the thing is what we do which often isn’t well understood in the context of mother [ph] Motorola. What we do is complex and custom, not commodity. We do complex and custom around mission critical and business critical implementations and instantiations and hopefully if nothing else and I hear you loud and clear on the dividend and on the return of capital to shareholders and other considerations that I think you would be anxious for us to consider. This is a growth business. Hopefully if nothing else, you said well it’s well positioned, it’s great, you don’t really understand it but you have this monster market share and they really grow, and hopefully if nothing else you’ve seen that we play in attractive. We absolutely can grow the core and we absolutely can grow in North America and internationally.

We have a balanced portfolio from a gross margin yield standpoint, we’ve afforded to Jim’s point some synergies in the way we’ve implemented the headcount, don’t want the cost structures certainly to go in the wrong direction. There is more cost efficiency as we think we can derive as we complete the separation and get after the 2% in the first half of 2011. And we’ve modeled 16% to 18%. We’ve talked about comparable 16% operating margins in ‘011 progressing up to 18% and I don’t see a cap on 18%.

But for now that’s an appropriate model. I really appreciate that you came this morning that you’re engaged, the room is full. We are excited and we have the team, and we’re thrilled about the prospects in longer term of this franchise in ‘011, ‘012 and far beyond. Thanks for coming and thanks for listening.

Dean Lindroth

Thanks everyone. So we’ve got lunch outside. Please feel free to grab lunch and return to the room. We’ve got a number of other Motorola executives that will be around during the lunch period, who’d like to continue the dialogs. And also if you would take a minute to fill out the survey, I would really appreciate your feedback from today. Thanks everyone.

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