Motorola 2008 Annual Report Download - page 74

The segment had operating earnings of $1.5 billion in 2008, compared to operating earnings of $1.2 billion in
2007. The increase in operating earnings was primarily due to an increase in gross margin, driven by: (i) the 5%
increase in net sales, (ii) a favorable product mix, (iii) the absence in 2008 of an inventory-related charge in connection
with the acquisition of Symbol Technologies, Inc. (“Symbol”) during the first quarter of 2007, and (iv) a decrease in
SG&A expenses, primarily related to savings from cost-reduction initiatives. The increase in gross margin was partially
offset by increased R&D expenditures, primarily due to developmental engineering expenditures for new product
development and investment in next-generation technologies. As a percentage of net sales in 2008 as compared to
2007, gross margin, R&D expenditures and operating margin increased, and SG&A expenses decreased.
Net sales in North America continued to comprise a significant portion of the segment’s business, accounting
for approximately 57% of the segment’s net sales in 2008, compared to approximately 62% in 2007. The regional
shift in 2008 as compared to 2007 reflects 19% growth in net sales outside of North America and a 4% decline in
net sales in North America. Our products and services are sold worldwide to a diverse set of customers, including
customers involved in: government and public safety (police, fire, emergency management services), military,
utilities, retail, transportation and logistics, manufacturing, wholesale and distribution, and healthcare. The
segment’s backlog was $2.4 billion at December 31, 2008, compared to $2.3 billion at December 31, 2007.
In the government and public safety market, we see a continued emphasis on mission-critical systems as we
face ongoing natural disasters and world-wide terrorist-related events. We have led new innovations in the market
this past year, through the continued success of our MOTOTRBO line and the introduction of the APX
TM
family of
products, an industry first in many features. While spending by the segment’s government and public safety market
customers is affected by government budgets at the national, state and local levels, we have seen the scope and size
of systems requested by some of the segment’s customers continue to increase. We have had many significant wins
across the globe, such as several city and state-wide communications systems in the United States, several
competitive TETRA system wins with major international airport customers in Europe and Asia, and our largest
award ever within Asia for the digital migration of the Royal Malaysian Police. These larger systems are more
complex and include a wide range of capabilities that our technological innovations are able to provide.
We are also a market leader within the commercial enterprise markets. We continue to help our customers
move information where it needs to be, as in the product launch of the MC75, an enterprise digital assistant
targeted to the mobile workforce.
During 2008, the segment also: (i) acquired a controlling interest in Vertex Standard Co., Ltd., a global
provider of two-way radio communication solutions, and (ii) completed the acquisition of AirDefense Inc., a
leading wireless local area network (WLAN) security provider.
Segment Results—2007 Compared to 2006
In 2007, the segment’s net sales increased 43% to $7.7 billion, compared to $5.4 billion in 2006. The 43%
increase in net sales was primarily due to increased net sales in the commercial enterprise market, driven by the net
sales from the Symbol business acquired in January 2007. Net sales in the government and public safety market
increased 6%, primarily due to strong demand in North America. On a geographic basis, net sales increased in all
regions.
The segment had operating earnings of $1.2 billion in 2007, compared to operating earnings of $958 million
in 2006. The increase in operating earnings was primarily due to an increase in gross margin in both: (i) the
commercial enterprise market, driven by net sales from the Symbol business acquired in January 2007, and (ii) the
government and public safety market, driven by strong net sales in North America. This improvement in gross
margin was partially offset by: (i) an inventory-related charge in connection with the acquisition of Symbol, and
(ii) increases in SG&A and R&D expenses, primarily due to expenses from recently acquired businesses, partially
offset by savings from cost-reduction initiatives. As a percentage of net sales in 2007 as compared 2006, gross
margin, R&D expenditures and operating margin decreased, and SG&A expenses increased.
Net sales in North America continued to comprise a significant portion of the segment’s business, accounting
for approximately 62% of the segment’s net sales in 2007, compared to approximately 63% in 2006. The
segment’s backlog was $2.3 billion at December 31, 2007, compared to $2.0 billion at December 31, 2006.
During 2007, the segment completed the acquisition of: (i) Symbol Technologies, Inc., a leader in designing,
developing, manufacturing and servicing products and systems used in end-to-end enterprise mobility solutions,
and (ii) Good Technology, Inc., a provider of enterprise mobile computing software and services.
66 MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS