Motorola 2006 Annual Report Download - page 18

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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.
Natural gas, electricity and, to a lesser extent, oil are the primary sources of energy for the segment's
operations, 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 these items or a
significant cost increase could affect the segment's results.
Generally the segment's contracts do not include a right of return, other than for standard warranty provisions.
For new product introductions, we may enter into milestone contracts providing that the product could be returned
if we do not achieve the milestones.
Due to government buying patterns, private networks sales tend to be somewhat higher in the fourth quarter.
The business does not have seasonal patterns in the public networks market.
Our Facilities/Manufacturing
Our headquarters are located in Arlington Heights, Illinois. Major design, integration, manufacturing and
distribution centers are located in: Arlington Heights and Schaumburg, Illinois; Chandler and Tempe, Arizona;
Fort Worth, Texas; Swindon, England; Arad, Israel; Hangzhou and Tianjin, China; Munich, Taunusstein and Berlin,
Germany; and Penang, Malaysia. In addition to our own manufacturing, we utilize EMS manufacturers, primarily in
Asia, in order to enhance our ability to lower costs and deliver products that meet consumer demands.
Connected Home Solutions Segment
The Connected Home Solutions segment (the ""segment'') designs, manufactures, sells and services: (i) cable
television, Internet Protocol (""IP'') video and broadcast network set-top boxes (""digital entertainment devices''),
(ii) end-to-end digital video system solutions, (iii) broadband access networks, and (iv) IP-based data and voice
products (including modems). In 2006, the segment's net sales represented 8% of the Company's consolidated net
sales.
Principal Products and Services
The segment is a leading provider of end-to-end networks used for the delivery of video, voice and data
services over hybrid fiber coaxial networks. We also provide products for IP television (""IPTV'') Ì multichannel
television service using IP-based fiber-to-the premises and fiber-to-the-node access networks Ì to wireline carriers.
Our products are marketed primarily to cable television operators, satellite television programmers, telephone
carriers and other communications providers worldwide and are sold primarily by our skilled sales personnel. We
have also expanded our traditional distribution channels by selling directly to consumers in a variety of retail
markets. Through retail, we market and sell primarily cable modems and cordless telephones.
Our Industry
Demand for our products depends primarily on: (i) capital spending by providers of broadband services for
constructing, rebuilding or upgrading their communications systems, and (ii) the marketing of advanced
communications services by those providers. The amount of spending by these providers, and therefore a majority
of our sales and profitability, are affected by a variety of factors, including: (i) the continuing trend of
consolidation within the cable and telecommunications industries, (ii) the financial condition of cable television
system operators and alternative communications providers, including their access to financing, (iii) the rate of
digital penetration, (iv) technological developments, (v) standardization efforts that impact the deployment of new
equipment, (vi) new legislation and regulations affecting the equipment sold by the segment, and (vii) general
economic conditions. In 2006, the business benefited from increased spending by cable television operators on our
products, due to the increase in digital video and data subscribers and the deployment of advanced video platforms
by cable operators for high-definition television (""HD'') and digital video recording (""DVR'') (together ""HD/