Motorola 2008 Annual Report Download - page 52

Results of Operations—2008 Compared to 2007
Net Sales
Net sales were $30.1 billion in 2008, down 18% compared to net sales of $36.6 billion in 2007. The decrease
in net sales reflects a $6.9 billion, or 36%, decrease in net sales in the Mobile Devices segment, partially offset by:
(i) a $364 million, or 5%, increase in net sales in the Enterprise Mobility Solutions segment, and (ii) a $72 million,
or 1%, increase in net sales in the Home and Networks Mobility segment. The 36% decrease in net sales in the
Mobile Devices segment was primarily driven by a 37% decrease in unit shipments. The 5% increase in the
Enterprise Mobility Solutions segment net sales reflects an 8% increase in net sales to the government and public
safety market, partially offset by a 2% decrease in net sales to the commercial enterprise market. The 1% increase
in net sales in the Home and Networks Mobility segment reflects a 16% increase in net sales in the home business,
partially offset by an 11% decrease in net sales in the networks business.
Gross Margin
Gross margin was $8.4 billion, or 27.8% of net sales, in 2008, compared to $10.0 billion, or 27.2% of net
sales, in 2007. The decrease in gross margin reflects lower gross margin in the Mobile Devices and Home and
Networks Mobility segments, partially offset by increased gross margin in the Enterprise Mobility Solutions
segment. The decrease in gross margin in the Mobile Devices segment was primarily driven by: (i) the 36%
decrease in net sales, (ii) excess inventory and other related charges recorded in 2008 of $370 million due to a
decision to consolidate software and silicon platforms, and (iii) a $150 million charge recorded in 2008 related to
the settlement of a purchase commitment, partially offset by: (i) the absence in 2008 of a $277 million charge for a
legal settlement recorded in 2007, and (ii) savings from supply chain cost-reduction activities. The decrease in gross
margin in the Home and Networks Mobility segment was primarily due to: (i) an unfavorable product mix, and
(ii) the absence of net sales by ECC that was divested at the end of 2007. The increase in gross margin in the
Enterprise Mobility Solutions segment was primarily driven by: (i) the 5% increase in net sales, (ii) a favorable
product mix, and (iii) the absence in 2008 of an inventory-related charge in connection with the acquisition of
Symbol during the first quarter of 2007.
The increase in gross margin as a percentage of net sales in 2008 compared to the 2007 was driven by an
increase in gross margin percentage in the Enterprise Mobility Solutions segment, partially offset by a decrease in
gross margin percentage in the Mobile Devices and Home and Networks Mobility segments. The Company’s
overall gross margin as a percentage of net sales can be impacted by the proportion of overall net sales generated
by its various businesses.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses decreased 15% to $4.3 billion, or 14.4% of net sales,
in 2008, compared to $5.1 billion, or 13.9% of net sales, in 2007. The decrease in SG&A expenses reflects lower
SG&A expenses in all segments. The decrease in the Mobile Devices segment was primarily driven by lower
marketing expenses and savings from cost-reduction initiatives. The decreases in the Home and Networks Mobility
and Enterprise Mobility Solutions segments were primarily due to savings from cost-reduction initiatives. SG&A
expenses as a percentage of net sales increased in the Mobile Devices segment and decreased in the Home and
Networks Mobility and Enterprise Mobility Solutions segments.
Research and Development Expenditures
Research and development (“R&D”) expenditures decreased 7% to $4.1 billion, or 13.6% of net sales, in
2008, compared to $4.4 billion, or 12.1% of net sales, in 2007. The decrease in R&D expenditures reflects lower
R&D expenditures in the Mobile Devices and Home and Networks Mobility segments, partially offset by higher
R&D expenditures in the Enterprise Mobility Solutions segment. The decreases in the Mobile Devices and Home
and Networks Mobility segments were primarily due to savings from cost-reduction initiatives. The increase in the
Enterprise Mobility Solutions segment was primarily due to developmental engineering expenditures for new
product development and investment in next-generation technologies. R&D expenditures as a percentage of net
sales increased in the Mobile Devices and Enterprise Mobility Solutions segments and decreased in the Home and
Networks Mobility segment. The Company participates in very competitive industries with constant changes in
technology and, accordingly, the Company continues to believe that a strong commitment to R&D is required to
drive long-term growth.
44 MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS