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News Article

Motorola Reports Record Results in Second Quarter and First Half

Schaumburg, Ill. Motorola, Inc. (NYSE:MOT) today reported record sales of $9.3 billion in the second quarter of 2000. For ongoing operations, this is an increase of 22 percent from $7.6 billion a year earlier. Excluding special items, earnings from ongoing operations were a record $515 million, or 23 cents per share, up 91 percent from $269 million, or 13 cents per share a year ago.

Including sales from businesses sold after the second quarter in 1999, sales increased 15 percent from $8.0 billion a year ago. Including the earnings from businesses sold after the second quarter in 1999, second-quarter earnings were up 66 percent from the year-ago figure of $311 million, or 15 cents per share. Including special items, earnings were $204 million, or 9 cents per share, compared with $255 million, or 12 cents per share a year ago. The 1999 figures are restated to reflect the merger with General Instrument Corporation and the June 1, 2000 3-for-1 stock split.

Robert L. Growney, president and chief operating officer, said, "Overall company results continue to show solid improvement in sales and profits. We are particularly pleased by the performance of the Broadband Communications and Network Systems segments. The excellent sales growth and profit improvement in the Semiconductor Products Segment continued, and we made good progress in addressing the profitability issues experienced by the Personal Communications Segment in the first quarter."

In the second quarter of 2000, Motorola reported special items resulting in a net charge of $316 million pre-tax, or 14 cents per share after tax, resulting largely from in-process research and development charges, not deductible for tax purposes, related to acquisitions completed during the quarter. In the second quarter of 1999, the company reported special items resulting in a net charge of $81 million pre-tax, or 3 cents per share after-tax.

In the first six months, sales from on-going operations rose 21 percent to $18.0 billion from $14.9 billion in 1999. Including sales from businesses sold after the second quarter in 1999, sales increased 14 percent from $15.8 billion a year ago. Six-month earnings from on-going operations, excluding special items, were $963 million, or 43 cents per share, compared with $453 million, or 21 cents per share a year earlier. Including the earnings from businesses sold after the second quarter in 1999, six-month earnings were $964 million, or 43 cents per share, compared with $524 million, or 24 cents per share a year earlier.

The impact of business sales and special items on segment results is shown in the segment information tables at the end of this press release.

Growney reviewed the following results of major operations for the second quarter of 2000 compared with the second quarter of 1999. This review is based on ongoing operations, excluding special items, for each segment.

Personal Communications Segment

Segment sales rose 20 percent to $3.3 billion and orders declined less than 1 percent to $3.1 billion. Operating profits increased to $132 million, compared with $125 million a year ago. Operating profit margin in the second quarter recovered to 4% of sales versus 2% of sales in the first quarter of the year and was approximately the same as the year ago profit margin. The improvement in profitability in the second quarter versus the first quarter was driven by improved gross margins from phone products and better overall conversion costs in manufacturing. Sales of wireless telephones increased significantly and orders were unchanged from a year ago. Digital wireless telephone sales represented 97 percent of phone sales in the quarter, with significant sales growth occurring in each digital technology. Orders were up significantly in the Americas, up in Asia and down significantly in Europe. Order growth in Europe was negatively impacted by the company s decision to more selectively pursue orders for lower-tier wireless telephones, and in particular, to de-emphasize older, less profitable models that are being discontinued. In addition, the company began the second quarter with significant backlog on its newer lower-tier models, contributing to a backlog that started the quarter at approximately 120 percent above the prior year.

Backlog at the end of the second quarter remains strong, up over 60 percent versus a year ago. Sales and orders for paging products declined significantly in all regions due to lower unit volumes. Consumer two-way radio products sales and orders were higher.

Motorola shipped pre-commercial General Packet Radio Service (GPRS) phones to several customers for system testing, and is supporting the commercial launch of GPRS systems by both BT Cellnet and T-Mobil in Germany. GPRS is a 2.5G (generation) packet-based digital cellular architecture that allows Global System for Mobile (GSM) Communications systems to provide high-speed access to Internet-based content through a handheld device in GSM networks.

Motorola demonstrated a multiple communication and computing handset platform for iDEN(R) networks that can extend the power of the wireless Internet. The computing capabilities are enabled by the Java(TM)2 Platform, Micro Edition (J2ME(TM)) from Sun Microsystems, Inc.

Motorola s Talkabout(TM) T900 personal interactive communicator began shipping to major two-way messaging operators in North America. Motorola also began shipping two new GSM products, the Timeport(TM) model P7689 and V. model V8088, both featuring a new, improved, list-based user interface and games. Motorola ramped up Talkabout and V. branded models of its "platform products" for GSM and TDMA that offer outstanding value to the consumers, and began shipping Talkabout and V. branded models of these products in CDMA. Motorola also began shipping two of the world s smallest and lightest, Internet-ready phones in CDMA, V. models V8160 and V8162. Motorola began shipping the first product in Motorola s Accompli brand portfolio in China. The Motorola Accompli model A6188 phone is a dual-band GSM phone that features a pen-based touch screen display and Chinese character recognition. The phone also has personal information management applications.

Motorola increased its shipments of Internet-ready wireless phones by more than 6 million units during the quarter. Motorola believes it continues to be the leading unit volume provider of phones with micro-browsers, and its leadership will be a long-term advantage when wireless Internet services become more feature-rich and consumer friendly.

Network Systems Segment

Segment sales increased 23 percent to $2.0 billion and orders were up 37 percent to $2.1 billion. Operating profits increased to $256 million from $169 million a year ago. The second quarter of 1999 included sales of satellite communications equipment. Excluding those sales, segment sales would have increased by 36 percent. Sales and orders of terrestrial infrastructure were significantly higher. In the Americas, sales were up very significantly and orders were higher. In Europe, sales were up significantly and orders were higher. In Asia, sales were higher and orders were up very significantly.

The world s first two GPRS commercial networks were launched for BT Cellnet in the UK and T-Mobil in Germany. The networks operate with technology from Motorola and Cisco Systems Inc. Motorola also received a contract for GPRS core network implementation from Mobilkom Austria. The first live GPRS demonstration in China was completed during the quarter. Several contracts for new or expanded GSM systems were received in China, including contracts from China Mobile for systems in the provinces of Hunan, Hubei, Zhejiang, and Guangxi. Other GSM contracts came from Morocco and Kuwait.

KDDI Corp. launched Japan s first international roaming service over Motorola s cdmaOne network. In Hong Kong, Hutchison Telecom awarded a contract for Motorola s IS-95B CDMA high-speed wireless Internet access solution. Motorola s commercial capacity in this technology, as well as its capacities in GPRS, demonstrates Motorola s wireless voice and data solutions, which positions the company well for 3G (third-generation) systems.

Commercial, Government and Industrial Systems Segment

Segment sales rose 22 percent to $1.1 billion and orders rose 5 percent to $1.2 billion. Operating profits increased to $114 million from $91 million a year ago.

Two-way radio equipment sales were higher in all regions, with very significant growth in Europe. Orders were higher in all regions, with significant growth in Asia. Two-way radio equipment orders were received in Australia, El Salvador, Israel, Korea, Mexico, Puerto Rico, Singapore, Trinidad, the U.S. and Venezuela.

Contracts were received from the cities of Phoenix and Mesa in the U.S. and from Korea High Speed Rail for two-way radio communications systems compliant with the Project 25 standard for digital public safety communications. Motorola also was awarded contracts for equipment based on the TETRA (Terrestrial Trunked Radio) standard for deployment in Malaysia, Nigeria, South Africa and Spain.

Motorola introduced the Harmony(TM) wireless communications system, an integrated system that provides digital two-way radio and wireless telephone services designed to meet the smaller network requirements of commercial operators and service providers.

Motorola was awarded contactless smart card Automatic Fare Collection systems in Ventura County, Calif., and Lanzhou, China, and a multi-application smart card system in Changde, China. Agreements were signed with International Paper for "smart packaging" and with Bopack Systems for "smart labels" that will be based on Motorola s BiStatix(TM) radio frequency identification technology.

The Systems Solution Group formed a strategic alliance with Intelisys Electronic Commerce, Inc., a leader in powering e-marketplaces, to build business-to-business Internet-based trading communities for companies, their customers and suppliers.

Broadband Communications Segment

Segment sales increased 23 percent to $768 million and orders increased 28 percent to $900 million from a year ago. Operating profits rose to $129 million from $78 million a year earlier. Among other factors, primarily sales growth, operating profits continued to benefit from synergies achieved through the merger with General Instrument. Orders were up very significantly in IP (Internet Protocol) Network Systems. They were up significantly in Digital Network Systems and Satellite Broadcast Network Systems, lower in Transmission Network Systems and lower in Analog Network Systems. Sales were up very significantly in IP Network Systems. They were up significantly in Digital Network Systems, higher in Transmission Network Systems and Satellite Broadcast Network Systems and were significantly lower in Analog Network Systems.

Motorola received a contract from Adelphia Communications Corp. for digital set-top terminals, digital headends and cable modems. Adelphia plans to purchase the equipment between now and December 200l. Value of the award is projected to be more than $535 million.

Time Warner Cable selected Motorola as a preferred cable modem supplier and committed to deploy up to 500,000 Motorola SURFboard(R) cable modems within the next two years. Motorola, Hicks, Muse, Tate & Furst Inc. and Liberty Media Corp. launched Digital Latin America. It is designed to accelerate the launch of digital programming and Internet services to cable subscribers throughout Latin America.

Semiconductor Products Segment

Segment sales increased 27 percent to $2.0 billion and orders rose 31 percent to $2.2 billion. Operating profits rose to $166 million from $24 million a year ago. By region, orders were up significantly in Asia-Pacific and higher in Europe, the Americas and Japan. Orders, which increased in all end markets, were up significantly in networking and computing, wireless, and imaging and entertainment, and higher for standard embedded solutions and transportation. A portfolio of DigitalDNA(TM) solutions for motor control systems was introduced, including energy-smart microcontrollers, digital signal processors, systems and software that have the potential to cut energy use in the home by up to 50 percent.

Motorola and Sega Enterprises Ltd. announced an alliance to expand wireless technologies in entertainment applications. A suite of games that Sega developed on the Java(TM)2 Platform, Micro Edition (J2ME) can be played on J2ME-enabled Motorola wireless phones, pagers and personal digital assistants. For short-range wireless networking solutions enabled by Bluetooth technology, Motorola is working with IBM and Toshiba to offer Bluetooth functionality as an option for personal computer customers. The Smart Networks Platform was announced to speed development of next-generation telecom networks. The platform includes a new PowerQUICC(TM) processor family, software and tools. To meet demand for wireless communications products, Motorola tripled the capacity at its gallium arsenide chip facility in Tempe, Ariz. three months ahead of schedule.

Motorola began volume shipments of the DSP56311 digital signal processor. NEC Corp. plans to use the device in its next-generation networking infrastructure systems.

Motorola completed the acquisitions of C-Port Corp., a developer of high-end programmable network processors for optical networks and high-speed Internet switching and routing, and WaveMark Technologies, Inc., a systems provider in imaging markets for web-enabled printing.

Integrated Electronic Systems Segment

Segment sales rose 19 percent to $678 million and orders increased 19 percent to $704 million. Operating profits were $44 million, up from $43 million a year ago.

Telematics Communications Group sales and orders were very significantly higher. The group won a major award from BMW to provide a fully integrated digital phone based on Motorola s StarTac(TM) design. Motorola also announced a strategic relationship with OnStar, a unit of General Motors (GM), and Saturn Electronics and Engineering, under which advanced wireless electronic applications are expected to be eventually offered as an option on virtually every new GM vehicle, beginning on some vehicles with a 2001 model year.

Motorola Computer Group sales and orders were significantly higher, reflecting continued strength in its product offerings for the telecommunications market. Also, alliances were formed with Sun Microsystems, Inc. and Linuxcare, Inc. broadening the group s offerings of high-availability telecommunications applications and board-based solutions.

Energy Systems Group sales were flat and orders were lower due to increased lower-priced product mix on increased volume. The group continued to add new customers and received significant contracts to provide smart batteries to major laptop manufacturers and energy system products for communications and hand-held computer customers.

Automotive and Industrial Electronics Group (AIEG) sales and orders were down from the prior year. AIEG continues to be awarded significant new business in powertrain controls and sensors for model years 2002 and beyond. The Group announced strategic alliances with Eaton Corporation and Amerigon Inc., intended to further expand its position in the automotive market as a provider of electronic automotive systems.

Review and Outlook Christopher B. Galvin, chairman and chief executive officer, said, "This is our eighth consecutive quarter of delivering on our promises to achieve a significant turnaround, improved profitability and a strategic refocusing of Motorola around wireless, broadband and the Internet," he said.

"Given the expected strength of global economies over the next year or so, we intend that Motorola shareholders will benefit from our continued focus on crisp execution and improving profitable growth as we provide the world s best global solutions in semiconductors, embedded systems and communications for the person, work-team, home and car," Galvin said.

Business Risks:

Statements about future purchases by customers, the future of the wireless Internet, and in "Review and Outlook" are forward-looking and involve risks and uncertainties. The company wishes to caution the reader that the factors below and those on pages F-25 through F-28 of the appendix to Motorola s Proxy Statement for the 2000 annual meeting of stockholders and in its other SEC filings could cause Motorola s results to differ materially from those stated in the forward-looking statements. These factors include: (i) demand for products, including products related to new technologies such as Internet-ready phones; (ii) continued gains in the digital wireless telephone market and market acceptance of new products; (iii) the company s success in participating in the lower-tier market for wireless phones; (iv) continued improvement in the semiconductor industry and Motorola s participation in that improvement; (v) difficulties, delays or unexpected liabilities or expenses encountered in connection with the implementation of Iridium s liquidation proceedings or unfavorable outcomes to any currently pending or future litigation involving the Iridium project; (vi) pricing pressures and demand for Motorola s products, especially if economic conditions worsen in Motorola s markets; (vii) the success of alliances and agreements with other companies to develop new products and services; (viii) the cost and availability of components for certain Motorola products, including wireless phones; (ix) unexpected revisions or cancellations to orders for products; and (x) product and technology development and commercialization risks, including for newer digital products.

Contact: Motorola, Inc. Schaumburg George Grimsrud Tel: 847/576-2346

 

Motorola, Inc. Schaumburg
George Grimsrud
Tel: 847/576-2346
 
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