Motorola 2010 Annual Report Download - page 15

7
A large portion of the patent portfolio which we owned prior to the Separation was allocated to Motorola
Mobility. Each entity will remain licensed to use the entire portfolio in its own products. However, we will not have
the right to enforce against others the patents that are owned by Motorola Mobility, and Motorola Mobility will
not have the right to enforce against others the patents that are owned by us. Notwithstanding the transfer of
patents to Motorola Mobility, the expiration of certain patents and the resulting potential for increased competition
for some of our products in the future, we believe that our remaining patent portfolio will continue to provide us
with a competitive advantage in our core product areas. Furthermore, we believe we are not dependent upon a
single patent or a few patents. Our success depends more upon our proprietary know-how, innovative skills,
technical competence and marketing abilities. In addition, because of changing technology, our present intention is
not to rely primarily on patents or other intellectual property rights to protect or establish our market position.
However, the segment continues to litigate against competitors to enforce its intellectual property rights in certain
technologies and has favorably settled one such lawsuit in 2010. For additional information relating to patents,
trademarks and research and development activities with respect to this segment, see the discussion under “Other
Information.”
Inventory, Raw Materials, Right of Return and Seasonality
The segment’s practice is to carry reasonable amounts of inventory to meet customers’ delivery requirements in
a manner consistent with industry standards. The segment provides custom products which require the stocking of
inventories and large varieties of piece parts and replacement parts in order to meet delivery and warranty
requirements. To the extent suppliers’ product life cycles are shorter than the segment’s, stocking of lifetime buy
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 2010, the segment had a higher
inventory balance than at the end of 2009, as the Company increased inventory to address worldwide supply
shortages and increased lead times on key components.
Availability of materials and components required by the segment is relatively dependable; however,
fluctuations in supply and market demand could cause selective shortages and affect results. We currently procure
certain materials and components from single-source vendors. A material disruption from a single-source vendor
may have a material adverse impact on our results of operations. If certain single-source suppliers were to become
capacity constrained or insolvent, it could result in a reduction or interruption in supplies or an increase in the price
of supplies and adversely impact the segment’s financial results.
Natural gas, electricity and, to a lesser extent, oil are the primary sources of energy for our manufacturing
operations. Each of these resources is currently in 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 during 2010 and
impacted our manufacturing and shipping costs. Labor is generally available in reasonable proximity to the
segment’s manufacturing facilities. However, while not likely, difficulties in obtaining any of the aforementioned
resources 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; however, certain distributor partners within the commercial enterprise markets do maintain limited
stock rotation rights. 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 buying patterns in the markets we serve, sales
tend to be somewhat higher in the fourth quarter.
Our Facilities/Manufacturing
The segment’s primary offices are located in Schaumburg, Illinois and Holtsville, New York. Our other major
facilities are located in: Penang, Malaysia; Reynosa, Mexico; Krakow, Poland; and Berlin, Germany. A portion of
the segment’s manufacturing is done by a small number of non-affiliated electronics manufacturing suppliers and
distribution and logistics services providers, most of which are outside the United States. The segment relies on these
third-party providers in order to enhance its ability to lower costs and deliver products that meet consumer
demands.