Motorola 2005 Annual Report Download - page 10

Download and view the complete annual report

Please find page 10 of the 2005 Motorola annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 142

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142

3
Customers
The Mobile Devices segment customer partnership strategy continues to focus on strengthening relationships
with our top customers. The segment has several large customers worldwide, the loss of one or more of which
could have a material adverse effect on the segment's business. In 2005, purchases of iDEN» products by
Sprint Nextel Corporation and its affiliates (""Sprint Nextel'') comprised approximately 13% of our segment's net
sales.
The largest of our end customers (including sales through distributors) are Sprint Nextel, Cingular, China
Mobile, Amπerica M πovil and T-Mobile. In addition to selling directly to carriers and operators, Mobile Devices also
sells products through a variety of third-party distributors and retailers, which account for approximately 36% of
the segment's net sales. The largest of these distributors, Brightstar Corporation, is our primary distributor in Latin
America.
Although the U.S. market continued to be the segment's largest individual market, many of our customers, and
more than 60% of our net sales, are outside the U.S. The largest of these international markets are China, the
United Kingdom, Brazil, Germany and Mexico. Compared to 2004, the segment experienced substantial sales
growth in all regions of the world as a result of an improved product portfolio, strong market growth in emerging
markets, and high replacement sales in more mature markets.
On August 12, 2005, Sprint Corporation and Nextel Communications, Inc. completed their merger transaction
(the ""Sprint Nextel Merger'') that was announced in December 2004. The combined company, Sprint Nextel, is
the segment's largest customer and Motorola has been its sole supplier of iDEN handsets and core iDEN network
infrastructure equipment for over ten years. Sprint Nextel uses Motorola's proprietary iDEN technology to support
its nationwide wireless service business. Motorola is currently operating under supply agreements for iDEN handsets
and infrastructure equipment that cover the period from January 1, 2005 through December 31, 2007. The segment
did not experience any significant impact to its business in 2005 as a result of the Sprint Nextel Merger.
Competition
The segment believes it increased its overall market share in 2005 and solidified its hold on the second-largest
worldwide market share of wireless handsets. The segment experiences intense competition in worldwide markets
from numerous global competitors, including some of the world's largest companies. The segment's primary
competitors are European and Asian manufacturers. Currently, its largest competitors include Nokia, Samsung, LG
and Sony Ericsson.
Our strategy of driving our seamless mobility vision, creating valuable differentiation of our products through
design, and providing compelling, rich experiences (what we call ""mobile me'') to consumers and carriers is
intended to enhance our market position. We also believe that it is critical to invest in research and development
(""R&D'') of leading technologies and services to remain competitive. In 2005, the segment's total investment in
R&D increased to support new product development.
General competitive factors in the market for our products include: time-to-market; brand awareness;
technology offered; price; product performance, features, design, quality, delivery and warranty; the quality and
availability of service; company image and relationships with key customers.
Payment Terms
The segment's customers and distributors buy from us regularly with payment terms that are competitive with
current industry practices. These terms vary globally and range from cash-with-order to 60 days. Payment terms
allow the customer or distributor to purchase products from us on a periodic basis and pay for those products at
the end of the agreed term applicable to each purchase. A customer's outstanding credit at any point in time is
limited to a predetermined amount as established by management. Extended payment terms beyond 60 days are
provided to customers on a case-by-case basis. Such extended terms are not related to a significant portion of our
revenues.
Regulatory Matters
Radio frequencies are required to provide wireless services. The allocation of frequencies is regulated in the
U.S. and other countries throughout the world, and limited spectrum space is allocated to wireless services. The