Motorola 2006 Annual Report Download - page 12

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4
growth may also be affected by the cost of the new licenses required to use frequencies and any related frequency
relocation costs.
The U.S. leads the world in spectrum deregulation, allowing new wireless communications technologies to be
developed and offered for sale. Examples include wireless local area network systems, such as WiFi, and wide area
network systems, such as WiMAX. Other countries have also deregulated portions of the available spectrum to
allow these and other new technologies, which can be offered without spectrum license costs. Deregulation may
introduce new competition and new opportunities for Motorola and our customers.
Backlog
The segment's backlog was $1.4 billion at December 31, 2006, compared to $3.0 billion at December 31,
2005. The 2006 backlog is believed to be generally firm and 100% of that amount is expected to be recognized as
revenue in 2007. The forward-looking estimate of the firmness of such orders is subject to future events that may
cause the amount recognized to change. The decrease in backlog at December 31, 2006, compared to
December 31, 2005, is primarily due to an unusually high level of backlog at December 31, 2005 resulting from
strong customer demand for new products during the fourth quarter of 2005, certain of which were unable to be
shipped in significant quantities due to supply constraints for select components.
Intellectual Property Matters
Patent protection is extremely important to the segment's operations. The segment has an extensive portfolio
of patents relating to its products, technologies and manufacturing processes. The segment licenses certain of its
patents to third parties and generates revenue from these licenses. Motorola is also licensed to use certain patents
owned by others. Royalty and licensing fees vary from year to year and are subject to the terms of the agreements
and sales volumes of the products subject to licenses. The protection of these licenses is also important to the
segment's operations. Reference is made to the material under the heading ""Other Information'' for additional
information relating to patents and trademarks and research and development activities with respect to this segment.
Inventory, Raw Materials, Right of Return and Seasonality
The segment's practice is to carry reasonable amounts of inventory in manufacturing and distribution centers in
order to meet customer delivery requirements in a manner consistent with industry standards. At the end of 2006,
the segment had a higher inventory balance than at the end of 2005. The increase reflects a growth in inventory in
the fourth quarter of 2006, primarily due to slower than expected initial customer demand for certain products.
Availability of materials and components required by the segment is relatively dependable, but fluctuations in
supply and market demand could cause selective shortages and affect results. We currently source certain materials
and components from single vendors. Any material disruption from a single-source vendor may have a material
adverse impact on our results of operations.
Energy necessary for the segment's manufacturing facilities consists primarily of electricity and natural gas,
which are currently in generally adequate supply for the segment's operations. In addition, the cost to operate our
facilities and freight costs are dependent on world oil prices. A substantial increase in worldwide oil prices could
have a negative impact on our results of operations. Labor is generally available in reasonable proximity to the
segment's manufacturing facilities. However, difficulties in obtaining any of the aforementioned items or a
significant cost increase could affect the segment's results.
The segment permits returns under limited circumstances to remain competitive with current industry practices.
The segment typically experiences higher sales in the fourth calendar quarter and lower sales in the first
calendar quarter of each year.
Our Facilities/Manufacturing
Our headquarters are located in Libertyville, Illinois. Our other major facilities are located in Plantation,
Florida; Flensburg, Germany; Singapore; Beijing and Tianjin, China; Jaguariuna, Brazil; and Basingstoke, England.
We also maintain an interest in a joint venture in Hangzhou, China.