Motorola 2004 Annual Report Download - page 24

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16
consumer electronic manufacturers agreed to a uni-directional security interface that allows third-party devices to
access broadcast programming (not pay-per-view or VOD) with a security device. These devices became widely
available in 2004. A full two-way security interface speciÑcation is in development, and compliant devices are likely
to be available in 2006. These changes are expected to increase competition and encourage the sale of set-top
terminals to consumers in the retail market. Traditionally, cable service providers have leased the set-top terminal to
their customers.
All of these changes could adversely impact our competitive position and our sales and proÑtability. Most of
our sales and proÑts arise from the sale of our set-top terminals.
We also compete worldwide in the market for broadband data products. We believe that we are the leading
provider of cable modems worldwide, competing with a number of consumer electronic companies and various
original design manufacturers worldwide.
Competitive factors for our products and systems include: technology oÅered, product and system
performance, features, quality, delivery, availability and price. We believe that we enjoy a strong competitive
position because of our large installed cable television equipment base, strong relationships with major
communication system operators worldwide, technological leadership and new product development capabilities.
Payment Terms
Generally, our payment terms are consistent with the industry and range from 30 to 60 days. Extended
payment terms are provided to customers from time to time on a case-by-case basis. Such extended terms are
isolated in nature and historically have not related to a signiÑcant portion of our revenues.
Regulatory Matters
Many of our products are subject to regulation by the FCC or other communications regulatory agencies. In
addition, our customers and their networks, into which our products are incorporated, are subject to government
regulation. Government regulatory policies aÅecting either the willingness or the ability of cable operators to oÅer
certain services, or the terms on which the companies oÅer the services and conduct their business, may aÅect the
segment's results. Regulatory actions also have impacted competition, as discussed above.
Backlog
The segment's backlog was $314 million at December 31, 2004, compared to $299 million at December 31,
2003. The increase in backlog and related orders primarily reÖects increased orders from our customers for
advanced set tops. The 2004 order backlog is believed to be generally Ñrm and 100% of that amount is expected to
be recognized as revenue in 2005. The forward-looking estimates of the Ñrmness of such orders is subject to future
events, which may cause the amount recognized to change.
Intellectual Property Matters
We seek to build upon our core enabling technologies, such as digital compression, encryption and conditional
access systems, in order to lead worldwide growth in the market for broadband communications networks. Our
policy is to protect our proprietary position by, among other methods, Ñling U.S. and foreign patent applications to
protect technology and improvements that we consider important to the development of our business. We also rely
on our proprietary knowledge and ongoing technological innovation to develop and maintain our competitive
position, and will periodically seek to include our proprietary technologies in certain patent pools that support the
implementation of standards. We are a founder of MPEG LA, the patent licensing authority established to foster
broad deployment of MPEG-2 compliant systems. We have also licensed our digital conditional access technology,
DigiCipher» II, to other equipment suppliers. We also enter into other license agreements, both as licensor and
licensee, covering certain products and processes with various companies. These license agreements require the
payment of certain royalties that are not expected to be material to the segment's Ñnancial results.