Motorola 2007 Annual Report Download - page 23

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inventories is required to meet long-term warranty and contractual requirements. In addition, replacement parts
are stocked for delivery on customer demand within a short delivery cycle. At the end of 2007, the segment had a
higher inventory balance than at the end of 2006, primarily as a result of the acquisition of Symbol during 2007.
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, which increased significantly during 2007
and increased our manufacturing and shipping costs. 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 in our government and public safety market, we may enter into
milestone contracts providing that the product could be returned if we do not achieve the milestones. Due to
buying patterns in the markets we serve, sales tend to be somewhat higher in the fourth quarter.
Our Facilities/Manufacturing
Our primary offices are located in Schaumburg, Illinois and Holtsville, New York. Major design, integration,
manufacturing and distribution centers are located in: Holtsville, New York; Schaumburg, Illinois; Basingstoke,
England; Arad, Israel; Tianjin, China; Taunusstein and Berlin, Germany; Reynosa, Mexico; McAllen, Texas; Brno,
Czech Republic; and Penang, Malaysia. In addition to our own manufacturing, we utilize non-affiliated electronics
manufacturing suppliers, primarily in Asia, in order to enhance our ability to lower costs and deliver products that
meet consumer demands.
Other Information
2007 Change in Organizational Structure. Effective as of the second quarter of 2007, the Company realigned
its operating business segments into the following: (i) Mobile Devices, (ii) Home and Networks Mobility, and
(iii) Enterprise Mobility Solutions.
Financial Information About Segments. The response to this section of Item 1 incorporates by reference
Note 11, “Information by Segment and Geographic Region,” of Part II, Item 8: Financial Statements and
Supplementary Data of this document.
Customers. Motorola has several large customers, the loss of one or more of which could have a material
adverse effect on the Company. Motorola’s largest end customers (including sales through distributors) are Sprint
Nextel, Verizon, China Mobile, AT&T and America Movil. No single customer accounted for more than 10% of
the Company’s net sales in 2007.
Approximately 2% of Motorola’s net sales in 2007 were to various branches and agencies, including the
armed services, of the U.S. Government. All contracts with the U.S. Government are subject to cancellation at the
convenience of the Government.
Government contractors, including Motorola, are routinely subjected to numerous audits and investigations,
which may be either civil or criminal in nature. The consequences of these audits and investigations may include
administrative action to suspend business dealings with the contractor and to exclude it from receiving new
business. In addition, Motorola, like other contractors, reviews aspects of its government contracting operations,
and, where appropriate, takes corrective actions and makes voluntary disclosures to the U.S. Government. These
audits and investigations could adversely affect Motorola’s ability to obtain new business from the
U.S. Government.
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