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New York
10 July 2003
Initiation
Motorola Neutral
• We are initiating coverage of Motorola Inc. with a Neutral rating Data Networking & Telco
and a positive bias as we believe the opportunity to expand margins Equipment
and de-lever the balance sheet, coupled with a better outlook for
2H03, slightly outweigh the currently low margins, new competitive Ehud A. Gelblum, Ph.D.
(1-212) 622-6457
pressures, and recently weak track record on execution.
ehud.gelblum@jpmorgan.com
• We believe strong free cash flow will add $7 billion in value to Steven J. O’Brien
(1-212) 622-6554
balance sheet over five years. In addition, we calculate EPS CAGR steven.obrien@jpmorgan.com
of 31% through 2008.
• In 2004, the semis division should turn its first operating profit
in four years. After shutting 19 of its 27 fabs over last three years,
the SPS division sits just below breakeven for first time since 2000
and has close to 65% incremental net margin on new revenue.
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this report. Investors should consider this report as only a single factor in making their investment decision.
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Investment Thesis
We are initiating coverage of Motorola Inc. with a Neutral rating, although our bias
is toward the upside. We believe the opportunity to significantly expand margins and
de-lever the balance sheet, coupled with our better outlook for the second half of the
year, outweigh the currently low margins, new competitive pressures, and
management’s recently disappointing track record in meeting Street expectations.
The good news is that Motorola is still the number-two provider of cellular handsets
globally and the number one in North America and China, with global market share
of 16-18% depending on the quarter. While six new handset model launches in the
first half of the year were far fewer than expected, the company has prepared 30 new
models for the second half, including 17 in China and Asia, which we believe should
help drive top-line and margin expansion in both the PCS and SPS divisions. The bad
news is that Motorola is still trying to crack the code on margins, which remain
stubbornly below industry peers. For example, PCS operating income margin in 1Q
as 4.4%, down from 8.9% in 4Q, versus 22-24% for peers Nokia and Samsung.
Margins for Motorola’s SPS business were negative in 1Q versus 7% for peers Texas
Instruments and STMicroelectronics.
Key Investment Points
Strong Free Cash Flow Should Improve Net Debt Over Next Five Years
We are modeling MOT to generate between $1.5-2.1 billion in operating free cash
flow per year for the next five years. This should raise cash on the balance sheet from
$5.9 billion at the end of 2003 to $8.4 billion by 2008, as debt falls as maturities
come due, from $8.3 billion in 2003 to $3.9 billion in 2008. This translates into a
swing of more than $6.9 billion in net debt over the next five years, worth $3 per
share in value and savings of more than $280 million in annualized interest expense.
We note that this level of free cash flow represents only 5-6% of revenue in the
mid-term years of our model, well below Cisco’s 20-22% free cash flow margin and
even below Nortel’s 8-10%.
New Handsets in 2H03 and European Share Gain Should Drive PCS Growth
While the first half of the year was largely a disappointment for the PCS handset
division, Motorola is introducing 30 new models in the second half of the year and is
pushing a new strategy in Europe to customize and co-brand its handsets with the
major European wireless carriers. Motorola has already announced new handsets
designed specifically for Orange and we expect similar announcements with other
carriers should drive its market share in Europe from approximately 9% in 2003 to
12% in 2004. Together, we expect these events to drive 6% top-line growth in PCS
in 2004, up from a 5% decline in 2003. We also expect a second half resolution of
the excess inventory and SARS issues in China to help boost the top line.
SPS Should Turn Profitable in 2004 for First Time in Three Years
Over the last two years, Motorola has aggressively cut costs, shrinking its fab
capacity from 27 facilities down to eight, and is sitting just below the breakeven
point for the first time since 2000. The company’s existing fab capacity can still
handle 30% more revenue than it is currently generating and the operating leverage
on new business is substantial, as approximately 65 cents of every dollar of
incremental revenue falls directly to the bottom line. We estimate that operating
margins finally turn positive to 2% in 2004 up from a decline of 4% in 2003, and
gradually increase to 11% by 2008.
2
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
From a top-line perspective, nearly 50% of the semis business is directly related to
the macroeconomic environment through autos and standard products, while another
27% comes from the wireless industry making any recovery in the U.S. economy.
Any success MOT generates in the PCS division automatically drives both top-line
growth and margin expansion at SPS. On the cost side, recent conversations with
management have convinced us that it has its finger very close to the cost-cutting
button and would not wait long to reduce capacity and costs further if revenue
growth does not return quickly.
Valuation and Rating Analysis
We view MOT as a margin expansion story with a stabilizing balance sheet. In short,
we believe the company sits between a business model with powerful operating
leverage and a record of weak execution on the top line, hence our Neutral rating. At
the current stock price of $10.25, Motorola trades at a revenue multiple of 1.0x and
an EBITDA multiple of 8.3x on our 2004 estimate of $3.1 billion, well below peers
such as Nokia (2.2x and 9.9x, respectively); Qualcomm (7.4x and 16.0x,
respectively); Nortel (1.3x and 11.2x respectively); and Lucent (1.0x and 13.7x,
respectively). On an earnings basis, Motorola trades closer to peers with a 2004E P/E
of 24.5 versus Nokia at 18.4, Qualcomm at 22.2, and Nortel at 26.3. Given our
concerns, we do not believe MOT will completely close the discount gap over the
next two quarters, although we can see it trading slightly closer to peer valuations.
If Motorola were to show evidence of greater traction with European carriers or
expanding margins that are closer to its peer group, we would consider upgrading our
rating. Conversely, if the company repeatedly missed its operating targets, we would
downgrade our rating accordingly.
Risks to Our Rating
New Entrants Threaten Handset Market Share
Local Chinese vendors such as TCL, Bird, and Haier are changing the competitive
dynamic in the Chinese handset market, a place where MOT has dominated for years
and one that still provides 20-25% of PCS revenue. In addition, Nokia has re-entered
the CDMA market in the U.S. and is attacking China as well, while Korean players
Samsung and LG are gaining increasing traction in North America.
Highly Back-End-Loaded Earnings
Over the past two years, the linearity of Motorola’s earnings have become
increasingly more back-end-loaded, as the company earns over 80% of its annual
EPS in the second half of the year, a worrisome trend. This back-end-weighted trend
began in 2001 and has progressively become more pronounced in the two years
since. On a related note, Motorola has either missed or reduced consensus estimates
in both of the last two quarters, casting doubt on the company’s ability to accurately
forecast its own earnings potential.
Handset Channel Inventory Still High
Handset inventory levels in Asia, especially China, climbed to unusually high levels
in the first half of the year as local manufacturers flooded the market. While
Motorola’s inventory level remained roughly in line at seven weeks, total inventory
in the channel hit 11-12 weeks in Asia overall, and China was higher compared to a
normal range of 6-8 weeks. These levels have pressured average selling prices
(ASPs) across China and Asia and were a root cause of the company’s recent
guidance reduction on June 10.
3
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Company Description
Motorola Inc. is a leading global provider of integrated communications and
embedded electronic equipment. Founded in 1928, the company originally focused
on consumer radio communications. Over the years, Motorola has diversified both its
product and customer base and is a top player in every market in which it
participates. The company breaks down its operations into six segments: personal
communications (PCS), 38% of revenue and 52% of operating income;
semiconductor products (SPS), 17% of revenue and negative operating income;
global telecom solutions (GTSS), 16% of revenue and negative operating income;
commercial, government, and industrial solutions (CGISS), 13% of revenue and 24%
of operating income; broadband communications (BCS), 7% of revenue and 17% of
operating income; and integrated electronics systems (IESS), 8% of revenue and 7%
of operating income. Motorola serves a broad group of customers including
consumers, telecommunications carriers, enterprises, and government agencies.
4
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Wireless Handsets
Motorola’s wireless handset division made up 27% of total 2002 SPS revenues, or
$1.35 billion, down from 24% and $1.38 billion in 2001, and makes chips for
TDMA, GSM, GPRS, CDMA, and 3G/WCDMA phones. Motorola’s own PCS
handset division is not bound to use these chips for its phones, but still accounts for
60-80% of the wireless business at SPS; external customers such as BenQ, TCL,
Siemens, and Alcotech account for the other 20-40%. Interestingly, Motorola has
chosen to use QCOM chips for its CDMA2000 1X phones rather than develop its
own 1X chipset, but it did develop its own 3G/WCMDA chipset, which it is also
selling to Siemens.
Network Infrastructure
Networking and computing chips made up 25% of total 2002 SPS revenues, or
$1.25 billion, down from 28% and $1.43 billion in 2001 and 40% of total SPS
revenues at the peak. Chips fall mainly into two broad categories—those that go into
wireless infrastructure such as base stations and those that go into data networking
equipment such as IP routers and ATM or Ethernet switches. SPS revenues are split
5
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
between wireless (approximately 35%) and data networking (65%), with the total
addressable global market for both categories on the order of $24 billion, according
to Gartner.
Automotive
Motorola’s automotive division made up 29% of total 2002 SPS revenues, or
$1.45 billion, down from 29% and $1.48 billion in 2001, and ships products like
engine management, navigation, and climate control systems to most of the major
U.S. and European auto manufacturers. MOT is by far the largest player in this
market with an approximately a 14-15% share of the roughly $10 billion global
market—nearly three times the next largest player—although nearly all of MOT’s
business is in North America and Europe. The company has been making some
progress of late in China but has almost no presence in Japan and the rest of Asia.
We estimate that approximately 40-50% of all cars globally contain Motorola engine
management systems. Due to the increasing number of uses for semis in autos and
the generally rising trend of new car sales, we expect the total automotive chip
market to grow at a 14% CAGR through 2006. Primary competitors in this division
include Hitachi.
Standard Products
The Standard Products division, which is essentially a miscellaneous catch-all group,
makes chips that go into everything from refrigerators, electronic games, toys, and
musical instruments to industrial sensors and elevator control systems. These
products made up 19% of total 2002 SPS revenues or $950 million, down from 19%
and $970 billion in 2001, and should generally grow slightly faster than GDP as
chips in general find their way into more everyday products. MOT has thoroughly
revamped its product portfolio in the Standards Products group, introducing 160 new
products in 2003, up dramatically from 2002. MOT also launched its new HC08
family of super-low-cost, sub-$1 LVLP (Low Voltage, Low Power) microprocessors
in October that it hopes will help utilize micro-controller technology in more
everyday items. The new HC08 processors are used in everyday products such as TV
remote controls and home smoke detectors.
6
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
1Q, helping push GTSS operating profit into the black. ALLTEL is also a major
GTSS customer.
ACES, in turn, consists of two businesses, powertrain chassis and systems group
(PCSG) and telematics communications group (TCG). PCSG designs and sells
custom electronic solutions to original equipment manufacturers (OEMs) including
foreign and domestic automobile, and heavy and farm vehicle manufacturers. TCG
provides embedded telematics control units, integrated wireless handsets, and
navigation and driver safety products. ESG provides portable energy systems for
wireless handsets, notebook computers, and other portable electronic products. MCG
provides embedded computing technology used in a variety of products, including
telecommunications infrastructure, CAT scanners and MRI equipment, flight
simulators, and semiconductor manufacturing equipment.
7
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Year/Year Growth
Personal Communications 3.8% (5.0)% 5.7% 6.8% 6.8% 5.9% 6.0%
Semiconductor Products (1.9)% (5.0)% 8.2% 7.5% 8.0% 8.0% 7.9%
Global Telecom Solutions (29.2)% (14.0)% 4.8% 3.0% 3.0% 3.0% 3.0%
Comm., Gov., & Industrial (3.0)% 3.0% 3.6% 7.5% 6.0% 5.0% 5.0%
Broadband Communications (27.7)% (21.0)% (10.0)% (10.0)% 0.0% 0.0% 0.0%
Integrated Electronic Systems (2.2)% (3.6)% (0.3)% 2.9% 3.5% 3.5% 3.5%
Other Products (26.1)% (16.1)% 3.2% 0.0% 0.0% 0.0% 0.0%
Total Motorola Sales (8.9)% (5.8)% 4.0% 5.1% 5.6% 5.1% 5.1%
Revenue Contribution
Personal Communications 41.0% 41.3% 42.0% 42.7% 43.2% 43.5% 43.9%
Semiconductor Products 18.3% 18.5% 19.2% 19.7% 20.1% 20.7% 21.2%
Global Telecom Solutions 16.9% 15.4% 15.5% 15.2% 14.9% 14.6% 14.3%
Comm., Gov., & Industrial 13.7% 15.0% 15.0% 15.3% 15.4% 15.4% 15.3%
Broadband Communications 7.7% 6.4% 5.6% 4.8% 4.5% 4.3% 4.1%
Integrated Electronic Systems 8.0% 8.2% 7.9% 7.7% 7.6% 7.4% 7.3%
Other Products 1.8% 1.6% 1.6% 1.5% 1.4% 1.4% 1.3%
Total Adjustments (7.4)% (6.4)% (6.7)% (6.9)% (7.0)% (7.2)% (7.4)%
Total Motorola Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Company reports and JPMorgan estimates.
8
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
GTSS
GTS S GTSS 13.3%
15.7% 14.5%
SP S SP S
17.4% SP S
17.1%
19.8%
9
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Quarter/Quarter Growth
Personal Communications (27.4)% (6.2)% 18.0% 16.9% (19.2)% 1.7% 8.5% 14.9%
Semiconductor Products (14.2)% (2.5)% 5.0% 10.0% (4.9)% 3.5% 0.0% 6.0%
Global Telecom Solutions (22.9)% 4.0% (5.0)% 15.0% (7.8)% 4.0% (5.0)% 15.0%
Comm., Gov., & Industrial (26.5)% 6.0% (1.0)% 30.0% (25.0)% 11.0% (1.0)% 20.0%
Broadband Communications (17.2)% 0.0% 2.0% 3.0% (14.3)% 0.0% 2.0% 3.0%
Integrated Electronic Systems (8.6)% 0.0% (1.0)% 7.0% (8.0)% 3.0% (1.0)% 7.0%
Other Products (26.9)% 7.0% (2.0)% 12.0% (10.0)% 5.0% (2.0)% 8.0%
Total Motorola Sales (21.5)% (1.4)% 6.6% 15.9% (15.5)% 3.7% 2.5% 13.2%
Year/Year Growth
Personal Communications 1.7% (14.5)% (0.2)% (6.0)% 4.5% 13.3% 4.2% 2.4%
Semiconductor Products 2.1% (10.7)% (7.6)% (3.4)% 7.1% 13.7% 8.3% 4.4%
Global Telecom Solutions (12.3)% (21.5)% (8.6)% (12.4)% 4.8% 4.8% 4.8% 4.8%
Comm., Gov., & Industrial 7.6% 2.9% 2.4% 0.3% 2.3% 7.1% 7.1% (1.1)%
Broadband Communications (22.9)% (26.9)% (20.4)% (13.0)% (10.0)% (10.0)% (10.0)% (10.0)%
Integrated Electronic Systems 2.4% (8.0)% (5.2)% (3.2)% (2.5)% 0.4% 0.4% 0.4%
Other Products (11.2)% (21.2)% (17.0)% (14.2)% 5.7% 3.7% 3.7% 0.0%
Total Motorola Sales (2.2)% (13.3)% (2.8)% (4.4)% 2.8% 8.1% 4.0% 1.5%
Source: Company reports and JPMorgan estimates.
Operating Income
Margins Poised for a Turnaround
Motorola’s margins have come a long way over the past two years when the
company’s 27 semiconductor fabs and high overhead (headcount was 147,000)
caused a quarterly operating loss of $274 million in June 2001. Today, those 27 fabs
have been squeezed down to just eight and semiconductor breakeven is down to
$5 billion per year from $7.5 billion at the end of 2000. Total company headcount is
down as well to 93,000, heading toward 90,000 by year-end. Despite the
improvements in cost structure, however, MOT continues to report some of the
lowest operating margins in the wireless handset, semiconductor, and telecom
equipment industries. Even historically, the semis group never broke the 10-11%
margin range in the late 1990s, a period when Texas Instruments and others were
reporting 20-24% margins. However, with all six divisions finally either at or near
breakeven, we believe the model has plenty of operating leverage as the economy
improves and the company drives incremental revenue.
10
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Operating Margin
PCS 7.2% 5.5% 8.0% 8.2% 8.9% 8.9% 8.9%
SPS (5.7)% (3.7)% 1.8% 6.2% 8.2% 8.9% 10.7%
GTSS (0.2)% 3.6% 5.5% 6.8% 8.0% 9.2% 10.4%
CGISS 9.6% 11.5% 12.0% 12.3% 12.5% 12.8% 13.0%
BCS 12.3% 8.4% 8.5% 8.5% 8.5% 8.5% 8.5%
IESS 5.3% 5.8% 6.0% 6.0% 6.0% 6.0% 6.0%
Total Motorola 3.0% 4.3% 6.8% 8.0% 9.0% 9.5% 10.1%
Source: Company reports and JPMorgan estimates.
11
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Operating Margin
PCS 4.4% 2.2% 6.5% 8.0% 5.0% 7.2% 8.8% 10.3%
SPS (6.4)% (7.4)% (4.0)% 2.3% (0.9)% 1.3% 1.3% 4.9%
GTSS 2.4% 3.3% 0.8% 7.2% 3.6% 5.4% 3.1% 9.2%
CGISS 8.0% 10.0% 12.0% 15.0% 10.0% 10.0% 11.0% 16.0%
BCS 6.4% 6.9% 9.0% 11.0% 7.0% 7.0% 9.0% 11.0%
IESS 4.4% 6.0% 5.8% 7.0% 5.0% 6.0% 5.8% 7.0%
Total Motorola 2.2% 1.5% 4.3% 8.1% 4.1% 5.9% 6.5% 10.0%
Source: Company reports and JPMorgan estimates.
EPS
Annual EPS to Show Improvement Despite 2003 Revenue Decline
For the full year 2003, we are forecasting Motorola’s earnings to grow to $0.21 per
share from $0.12 in 2002 on a 6% decline in revenue. A slight improvement in gross
margin and $637 million in operating expense reductions should drive the earnings
growth. The company has stated that it will issue new and lower FY03 EPS guidance
on its July earnings call to update its previous guidance of $0.35-0.40, taking into
account the 2Q impact of SARS and high market inventories in China. Looking out
five years to 2008, we believe Motorola could grow earnings to $0.80 per share,
implying a compound annual growth rate of 31% from 2003.
12
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Income Tax Provision 171 248 535 717 948 1,074 1,249
Effective Tax Rate 38.0% 34.1% 35.0% 36.0% 38.0% 38.0% 38.0%
Diluted shares outstanding 2,282 2,339 2,377 2,415 2,454 2,493 2,533
13
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Growth by Division
Personal Communication Systems (PCS)
PCS is the biggest driver of top-line growth at Motorola and we track it by both
geography and technology. We estimate that a 1% shift in global PCS market share
translates into $615 million of revenue on the top line and a $0.02-0.03 impact to
total company EPS. Therefore, at a market multiple of approximately 20 times P/E, a
two-percentage point gain in sustainable global handset market share would translate
into approximately $1.00 of extra equity value.
14
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
$220
$200
$180
$160
$140
$120
$100
Q1-01A Q2-01A Q3-01A Q4-01A Q1-02A Q2-02A Q3-02A Q4-02A
In the paragraphs that follow, we detail our thought process on industry growth and
Motorola’s handset growth by geography.
15
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
% Market Share
North America 25.8% 28.8% 31.1% 35.7% 39.8% 39.7% 40.2% 40.0% 37.4% 37.4% 37.4% 37.4%
Latin America 10.6% 23.7% 33.6% 38.5% 26.1% 24.7% 26.5% 27.4% 25.5% 25.5% 25.5% 25.5%
EMEA 10.4% 9.2% 6.5% 10.0% 7.8% 7.8% 9.3% 11.3% 12.1% 12.1% 12.1% 12.1%
Asia Pacific 15.6% 17.3% 14.1% 13.4% 10.4% 7.3% 10.3% 9.8% 10.1% 10.1% 10.1% 10.1%
Total MOT share 15.4% 17.2% 16.2% 18.6% 16.8% 15.6% 17.4% 18.0% 17.7% 17.7% 17.7% 17.7%
in 2004. Overall, we forecast Asia to contribute just 14.6 million handsets in 2003,
down 32% from 21.5 million in 2002, before bouncing back up to 22.7 million in
2004. China accounts for the vast majority of Motorola’s Asia-Pacific shipments.
While the company benefits from long-standing distribution channels and carrier
relationships in China, we believe new entrants, primarily Asian manufacturers such
as TCL and Bird, will continue to gain incremental share at the lower end.
Motorola could also see upside from Eastern Europe as the dominant handset
providers are not as entrenched in those markets. Motorola’s new strategy in Europe
for gaining share is to work closely with the service provider, introducing exclusive
and customized versions of its handsets.
17
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Motorola Shipments
by Technology
Analog 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TDMA 0.7 0.8 2.6 3.3 2.5 2.4 2.3 2.7 2.4 2.5 2.5 2.9
GSM (including GPRS) 9.2 9.2 8.5 11.1 8.3 8.0 10.0 11.7 9.1 9.5 10.4 11.9
CDMA 2.1 4.2 4.3 5.6 4.2 4.0 4.8 5.6 4.5 4.8 5.2 5.9
W-CDMA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.4 0.4 0.6 0.7
PDC 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
iDEN 2.1 2.5 1.7 2.2 1.7 1.7 2.0 2.3 1.8 1.9 2.1 2.4
Total MOT Handsets 14.2 16.7 17.0 22.2 16.7 16.2 19.1 22.3 18.2 19.1 20.7 23.8
% Market Share
Analog 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% NM NM NM NM
TDMA 12.3% 13.6% 38.8% 44.4% 54.9% 51.2% 45.5% 47.1% 70.8% 70.8% 65.4% 65.4%
GSM (including GPRS) 16.1% 15.1% 13.0% 14.9% 12.8% 11.9% 14.1% 14.6% 13.9% 13.9% 13.9% 13.9%
CDMA 11.0% 20.4% 19.3% 22.1% 19.2% 17.9% 19.9% 20.6% 20.3% 20.3% 20.3% 20.3%
W-CDMA 0.0% 0.0% 0.0% 0.0% 5.9% 8.2% 10.1% 15.7% 10.9% 10.9% 16.3% 16.3%
PDC 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
iDEN 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Total MOT share 15.4% 17.2% 16.2% 18.6% 16.8% 15.6% 17.4% 18.0% 17.7% 17.7% 17.7% 17.7%
% Contribution of
Motorola Shipments
Analog 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
TDMA 5.0% 5.0% 15.0% 15.0% 15.0% 15.0% 12.0% 12.0% 13.0% 13.0% 12.0% 12.0%
GSM (including GPRS) 65.0% 55.0% 50.0% 50.0% 49.5% 49.5% 52.5% 52.5% 50.0% 50.0% 50.0% 50.0%
CDMA 15.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
W-CDMA 0.0% 0.0% 0.0% 0.0% 0.1% 0.2% 0.2% 0.3% 2.0% 2.0% 3.0% 3.0%
PDC 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
iDEN 15.0% 15.0% 10.0% 10.0% 10.4% 10.3% 10.3% 10.2% 10.0% 10.0% 10.0% 10.0%
Total contribution 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Company reports and JPMorgan estimates.
18
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
PDC/Other
The PDC/Other market category includes all unique wireless technologies such as
the PDC/PAS, Japan’s FOMA, and the other UMTS/WCDMA networks. Motorola
does not compete in these markets.
income in 2002 from 2001, despite shipments growing just 12% and revenues
growing by $406 million.
Scale and In-House Components Could Drive PCS Margins Long Term
We forecast 16.9% compound annual growth in PCS operating income from 2003 to
2008, to $1.28 billion for the year. We expect this increase to come from scale
benefits as shipment volume increases, and cost benefits as Motorola enjoys
favorable in-house pricing on all chipsets for its 2.5G GSM/GPRS and 3G WCDMA
handsets.
Total MOT Handsets shipped 14.2 16.7 17.0 22.2 16.7 16.2 19.1 22.3 18.2 19.1 20.7 23.8
Q/Q growth (18.9)% 17.8% 1.6% 30.5% (24.8)% (3.2)% 18.0% 16.9% (18.4)% 5.0% 8.5% 14.9%
Y/Y growth 12.7% 0.2% 7.6% 26.9% 17.6% (3.4)% 12.2% 0.4% 8.9% 18.1% 8.5% 6.7%
% market share 15.4% 17.2% 16.2% 18.6% 16.8% 15.6% 17.4% 18.0% 17.7% 17.7% 17.7% 17.7%
MOT ASP $169 $160 $160 $152 $147 $142 $142 $142 $141 $136 $136 $136
Q/Q growth (2.9)% (5.3)% (0.5)% (4.9)% (3.4)% (3.1)% 0.0% 0.0% (0.9)% (3.1)% 0.0% 0.0%
Y/Y growth (8.6)% 2.9% (9.1)% (13.0)% (13.5)% (11.5)% (11.1)% (6.4)% (4.0)% (4.0)% (4.0)% (4.0)%
Total PCS Revenue ($M) 2,406 2,684 2,715 3,369 2,447 2,295 2,709 3,165 2,557 2,601 2,822 3,242
Q/Q growth (21.2)% 11.6% 1.2% 24.1% (27.4)% (6.2)% 18.0% 16.9% (19.2)% 1.7% 8.5% 14.9%
Y/Y growth 3.0% 3.1% (2.2)% 10.4% 1.7% (14.5)% (0.2)% (6.0)% 4.5% 13.3% 4.2% 2.4%
PCS cost of sales and opex 2,299 2,512 2,491 3,068 2,339 2,244 2,533 2,912 2,429 2,414 2,574 2,908
Q/Q growth (19.2)% 9.3% (0.8)% 23.2% (23.8)% (4.1)% 12.8% 15.0% (16.6)% (0.6)% 6.6% 13.0%
Y/Y growth (15.4)% (10.3)% (8.6)% 7.8% 1.7% (10.7)% 1.7% (5.1)% 3.9% 7.6% 1.6% (0.1)%
Total PCS operating income 107 172 224 301 108 50 176 253 128 187 248 334
Q/Q growth (48.6)% 60.7% 30.2% 34.4% (64.1)% (53.3)% 248.7% 43.8% (49.5)% 46.5% 32.6% 34.5%
Y/Y growth (128.0)% (188.2)% 339.2% 44.7% 0.9% (70.6)% (21.4)% (15.9)% 18.4% 271.0% 41.0% 31.9%
% margin 4.4% 6.4% 8.3% 8.9% 4.4% 2.2% 6.5% 8.0% 5.0% 7.2% 8.8% 10.3%
20
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
SPS cost of sales and opex 1,353 1,335 1,262 1,333 1,225 1,205 1,225 1,266 1,244 1,259 1,259 1,286
Q/Q growth (7.3)% (1.3)% (5.5)% 5.6% (8.1)% (1.6)% 1.6% 3.4% (1.7)% 1.2% 0.0% 2.1%
Y/Y growth (16.1)% (16.8)% (11.3)% (8.6)% (9.5)% (9.7)% (2.9)% (5.0)% 1.6% 4.5% 2.8% 1.6%
Total SPS operating income (226) (79) 13 9 (74) (83) (47) 30 (11) 17 17 67
Q/Q growth NM NM NM (30.8)% NM NM NM NM NM NM 0.0% 290.1%
Y/Y growth NM NM (104.2)% (103.2)% NM NM NM 233.4% NM NM NM 123.1%
% margin NM NM 1.0% 0.7% NM NM NM 2.3% NM 1.3% 1.3% 4.9%
21
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
See the Appendix on page 39 for Manufacturing Consolidation Is the Main Source of Cost Reduction
a detailed list of Motorola’s As of the current quarter, Motorola operates only 8 eight-wafer fabrication facilities
production facilities.
and two assembly sites, down from nine and three at year-end 2002, and 16 and six at
year-end 2000. While we believe outsourcing manufacturing may limit the potential
margin upside longer term, our projections for 2003 reflect strong profitability
improvements in the near term. See the Appendix for a detailed list of Motorola’s
eight semiconductor production facilities.
22
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
MOT Has Done a Good Job Maintaining Profit in the Weak Market
Motorola lowered its breakeven rate in GTSS to $4 billion on an annual basis. We
expect the 18% GTSS headcount reduction in 2002 and the planned 5% reduction in
2003 to help Motorola reduce operating expenses more quickly than its revenues
would decline. This would result in an above-breakeven operating income forecast
for 2003 (3.6% operating margin), followed by further improvements in profitability
in 2004, with operating margin of 5.5%. By 2008, assuming continued revenue
growth and breakeven revenue remained just below $4 billion, we forecast operating
margin to reach 10%.
GTSS cost of sales and opex 1,136 1,230 1,024 1,232 929 958 933 1,003 961 981 955 1,029
Q/Q growth (24.1)% 8.3% (16.7)% 20.3% (24.6)% 3.1% (2.6)% 7.6% (4.2)% 2.1% (2.6)% 7.7%
Y/Y growth (30.9)% (23.0)% (41.3)% (17.7)% (18.2)% (22.2)% (8.9)% (18.6)% 3.5% 2.5% 2.4% 2.6%
23
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Profitability Improving
We are forecasting steady improvements in operating margin throughout 2003 and
2004, driven by improvements to supply chain management and manufacturing
processes. We are forecasting operating margins of 11.5% in 2003 and 12.0% in
2004 following 2002’s 9.6%. CGISS should also begin to see the cost benefits from
the 10% headcount reduction since the end of 2001.
CGISS cost of sales and opex 751 826 807 1,004 794 823 797 1,001 795 882 864 978
Q/Q growth (26.4)% 10.0% (2.3)% 24.4% (20.9)% 3.7% (3.2)% 25.6% (20.6)% 11.0% (2.1)% 13.3%
Y/Y growth (11.8)% 0.6% (2.1)% (1.6)% 5.7% (0.3)% (1.2)% (0.3)% 0.1% 7.1% 8.4% (2.3)%
24
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
BCS cost of sales and opex 469 493 444 424 379 377 376 379 339 339 338 341
Q/Q growth (6.4)% 5.1% (9.9)% (4.5)% (10.6)% (0.5)% (0.3)% 0.7% (10.5)% 0.0% (0.2)% 0.7%
Y/Y growth (33.0)% (30.6)% (15.3)% (15.4)% (19.2)% (23.5)% (15.3)% (10.7)% (10.6)% (10.1)% (10.0)% (10.0)%
25
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
IESS cost of sales and opex 485 535 516 538 498 490 486 513 482 492 488 515
Q/Q growth (14.5)% 10.3% (3.6)% 4.3% (7.4)% (1.7)% (0.8)% 5.6% (6.0)% 1.9% (0.8)% 5.6%
Y/Y growth (21.1)% (1.8)% (1.5)% (5.1)% 2.7% (8.5)% (5.8)% (4.6)% (3.1)% 0.4% 0.4% 0.4%
26
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Valuation
Sales and EBITDA Multiples Suggest Upside
Motorola trades in line with its peers on 2004 P/E, but at a steep discount in terms of
firm value to revenue and firm value to EBITDA. Hence, we believe Motorola value
expansion is contingent on improving operating leverage and expanding margins. At
the current stock price of $10.25, Motorola trades at a revenue multiple of 1.0x and
an EBITDA multiple of 8.3x on our 2004 estimate of $3.1 billion, well below peers
such as Nokia (2.2x and 9.9x respectively), Ericsson (1.4x and 13.6x respectively),
Qualcomm (7.4x and 16.0x respectively), Nortel (1.3x and 11.2x respectively), and
Lucent (1.0x and 13.7x respectively). On an earnings basis, Motorola trades closer to
peers with a 2004 P/E of 24.5x versus Nokia at 18.4, Qualcomm at 22.2, and Nortel
at 26.3. On a leverage basis, at a 28% debt to capitalization ratio, Motorola is much
more levered than peers Nokia (2%) and Qualcomm (2%), but more in line with
peers Nortel (25%), Lucent (38%), and Ericsson (29%).
27
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
-4-14%. However, if 2004 results cause us to raise our 2005 projections 10%, the
stock could see 18-39% appreciation, based solely on relative peer valuations.
Assumptions:
Current stock price (7/9/03) $10.25
2004E shares outstanding (millions) 2,377
2004E net debt 1,245
Source: JPMorgan estimates.
28
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
See pages 36-37 for our Table 17: Annual Balance Sheet Forecast
quarterly balance sheet $ in millions
projection.
2002A 2003E 2004E 2005E 2006E 2007E 2008E
Assets
Cash & ST investments 6,566 5,941 6,524 7,307 7,289 7,296 8,499
Accounts Receivable 4,437 4,495 4,564 4,828 5,100 5,359 5,636
Inventories 2,869 2,795 2,838 3,002 3,172 3,333 3,504
Other Current Assets 3,262 3,258 3,258 3,258 3,258 3,258 3,258
Total Current Assets 17,134 16,489 17,184 18,396 18,819 19,246 20,897
Net Property & Equipment 6,104 5,263 4,802 4,574 4,442 4,383 4,384
Long-term Investments 2,053 2,053 2,053 2,053 2,053 2,053 2,053
Other Assets 5,861 5,861 5,861 5,861 5,861 5,861 5,861
Total Assets 31,152 29,666 29,900 30,884 31,175 31,543 33,195
Liabilities
N.P. & Current Portion of LT Debt 1,629 940 820 1,820 1,920 945 420
Accounts Payable 2,268 2,174 2,207 2,335 2,467 2,592 2,726
Accrued Liabilities 5,913 5,885 5,975 6,321 6,677 7,016 7,377
Total Current Liabilities 9,810 8,999 9,002 10,476 11,064 10,553 10,523
Long-term Debt 7,189 6,864 6,464 5,064 3,564 3,039 3,039
Other LT Liabilities 2,429 2,354 2,390 2,528 2,671 2,806 2,951
Total Liabilities 19,428 18,217 17,856 18,068 17,299 16,399 16,513
Total Liabilities & Stockholder Equity 31,152 29,666 29,900 30,884 31,175 31,543 33,195
29
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
10
9
2
A
E
02
03
04
05
06
07
08
20
20
20
20
20
20
20
LTM EBITDA Cash Total Debt
30
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Post-retirement plan
Long term rate of return 8.5% 8.0% 7.9% 9.0% 8.0% 9.0% 9.0% 8.0% 9.0%
Discount rate 6.8% 6.8% 6.5% 7.3% 7.0% 7.0% 7.5% 7.5% 7.5%
Unfunded status (553) (527) (7,401) (302) (488) (5,958) (222) (433) (3,685)
Source: Company reports.
Note: Motorola’s unfunded status includes both the regular and officer plans.
Motorola has pared back its guarantees of third-party debt. At the end of 1Q 2003,
the company had $51 million in outstanding drawn commitments, with no undrawn
commitments remaining.
31
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
contempt of court for not complying with the court’s order. In February 2003, the
case was tried to conclusion; no verdict has yet been reached.
In March 2003, an Appellate Court upheld the preliminary injunction supporting the
Illinois fraud allegations. It also found RICO allegations premature pending
determination that remedies offered no realistic chance of property recovery. The
Appellate Court remanded back to the District Court the Uzans’ assertion that Swiss
arbitration was the proper jurisdiction for Motorola’s claims.
On June 12, 2003, the Court of Appeal of England and Wales dismissed a number of
appeals by the Uzans, upholding the Worldwide Freezing Orders. The Court’s
decision assured that $800 million of Uzan assets be preserved pending the
enforcement of the judgment by the District Court for the Southern District of New
York regarding the fraud claim against the Uzans. The Court also affirmed that the
sentences of incarceration for Cem Uzan and Aysegul Akay remain in place.
Switzerland proceedings: In February 2003, the Uzans filed for arbitration against
Motorola in the Zurich Chamber of Commerce. The Uzans acknowledged their debt
but claimed the Turkish economy prevented them from repaying loans. The Uzans
asked for a new repayment schedule. This arbitration is still proceeding. In June
2003, the Uzans filed another arbitration against Motorola. They have claimed
damages of $280.5 million for defective equipment. Hearings are scheduled for
November 2003 and January 2004.
32
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Motorola will have to pay down all maturities over this time period, of which there
are $520 million in 2004 and $400 million in 2005. We are also assuming no further
payments to the company’s pension plan, or further cash restructuring charges over
these years. We believe the nearly $11 billion in charges and writedowns Motorola
will have taken by the end of 2003 should have substantially right-sized its
operations.
BoP Cash, ST and LT Invs 6,162 6,566 5,941 6,524 7,307 7,289 7,296
+ Operating Cash Flow 1,574 1,227 1,482 1,567 1,772 1,903 2,132
+ Investing Cash Flow (439) 222 0 0 0 0 0
+ Financing Cash Flow (484) (1,386) (898) (784) (1,790) (1,897) (928)
+/- Other / restructuring (247) (689) 0 0 0 0 0
EoP Cash and Investments 6,566 5,941 6,524 7,307 7,289 7,296 8,499
Cash burn 404 (625) 584 783 (18) 6 1,204
Source: Company reports and JPMorgan estimates.
33
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Selling, G&A 1,120 1,177 1,105 1,082 897 987 977 953 932 942 959 912 4,727 4,484 3,814 3,745
R & D expense 906 925 948 937 947 948 939 916 860 869 886 842 4,245 3,716 3,749 3,457
Total Op Expenses 2,026 2,102 2,053 2,019 1,844 1,935 1,915 1,869 1,793 1,811 1,845 1,753 8,972 8,200 7,563 7,202
Operating Income (165) 178 287 528 135 91 275 596 258 379 432 748 (692) 828 1,096 1,817
Depreciation & Amort 557 543 502 506 433 403 390 377 342 333 325 317 2,552 2,108 1,603 1,317
EBITDA 392 721 789 1,034 568 493 665 973 600 711 757 1,066 1,860 2,936 2,699 3,133
EBITDA Margin 6.3% 10.5% 12.1% 13.4% 9.4% 8.3% 10.5% 13.2% 9.7% 11.0% 11.5% 14.3% 6.2% 10.8% 10.5% 11.7%
Income Tax Provision (93) 19 68 177 11 0 64 173 64 106 127 238 (358) 171 248 535
Effective Tax Rate 33.6% 32.8% 33.8% 37.8% 34.4% 34.4% 34.2% 34.0% 35.0% 35.0% 35.0% 35.0% 32.8% 38.0% 34.1% 35.0%
Net Income (184) 39 133 291 21 0 123 336 119 198 235 442 (733) 279 480 994
Basic shares outstanding 2,254 2,277 2,296 2,306 2,312 2,321 2,330 2,339 2,349 2,358 2,368 2,377 2,213 2,282 2,325 2,363
Diluted shares outstanding 2,254 2,277 2,308 2,322 2,325 2,334 2,344 2,353 2,363 2,372 2,381 2,391 2,213 2,282 2,339 2,377
Basic EPS ($0.08) $0.02 $0.06 $0.13 $0.01 $0.00 $0.05 $0.14 $0.05 $0.08 $0.10 $0.19 ($0.33) $0.12 $0.21 $0.42
Diluted EPS ($0.08) $0.02 $0.06 $0.13 $0.01 $0.00 $0.05 $0.14 $0.05 $0.08 $0.10 $0.18 ($0.33) $0.12 $0.21 $0.42
Dividend per share $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.16 $0.16 $0.16 $0.16
Total dividends paid 90 91 92 92 92 93 93 94 94 94 95 95 354 365 372 378
Source: Company reports and JPMorgan estimates.
34
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Recurring Net Income (184) 39 133 291 21 0 123 336 119 198 235 442 (717) 279 480 994
- After-tax Special Items 265 2,360 22 117 (148) 50 0 0 0 0 0 0 3,220 2,764 (98) 0
GAAP Net Income (449) (2,321) 111 174 169 (50) 123 336 119 198 235 442 (3,937) (2,485) 578 994
Recurring EPS ($0.08) $0.02 $0.06 $0.13 $0.01 $0.00 $0.05 $0.14 $0.05 $0.08 $0.10 $0.18 ($0.33) $0.12 $0.21 $0.42
- Special items, per share $0.12 $1.04 $0.01 $0.05 ($0.06) $0.02 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $1.45 $1.21 ($0.04) $0.00
(income)/expense
GAAP EPS ($0.20) ($1.02) $0.05 $0.07 $0.07 ($0.02) $0.05 $0.14 $0.05 $0.08 $0.10 $0.18 ($1.78) ($1.09) $0.25 $0.42
Growth Analysis
Q/Q Revenue Growth (17.2)% 11.1% (4.9)% 17.8% (21.5)% (1.4)% 6.6% 15.9% (15.5)% 3.7% 2.5% 13.2% (18.0)% (8.9)% (5.8)% 4.0%
Q/Q Oper. Income Growth NA NA 61.2% 84.0% (74.4)% (32.8)% 203.4% 116.5% (56.8)% 47.0% 14.1% 73.2% NA NA 32.4% 65.7%
Q/Q Net Income Growth NA NA 241.0% 118.8% (92.8)% (97.8)% NM 172.9% (64.6)% 66.3% 19.1% 87.7% NA NA 72.2% 106.9%
Q/Q EPS Growth NA NA 236.4% 117.5% (92.8)% (97.8)% NM 171.8% (64.7)% 65.6% 18.6% 87.0% NA NA 68.0% 103.6%
Margins & Costs as a % of Sales
Selling, G&A 18.1% 17.1% 16.9% 14.1% 14.8% 16.6% 15.4% 13.0% 15.0% 14.6% 14.5% 12.2% 15.8% 16.4% 14.8% 14.0%
R & D expense 14.7% 13.5% 14.5% 12.2% 15.7% 15.9% 14.8% 12.4% 13.9% 13.5% 13.4% 11.3% 14.2% 13.6% 14.6% 12.9%
Operating Margin NA 2.6% 4.4% 6.9% 2.2% 1.5% 4.3% 8.1% 4.1% 5.9% 6.5% 10.0% NA 3.0% 4.3% 6.8%
Pre-tax Profit Margin NA 0.8% 3.1% 6.1% 0.5% 0.0% 2.9% 6.9% 2.9% 4.7% 5.5% 9.1% NA 1.6% 2.8% 5.7%
Net Margin (pro forma) NA 0.6% 2.0% 3.8% 0.3% 0.0% 1.9% 4.6% 1.9% 3.1% 3.6% 5.9% NA 1.0% 1.9% 3.7%
Source: Company reports and JPMorgan estimates.
35
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Liabilities
N.P. & Current Portion of LT Debt 4,937 3,982 2,717 870 1,576 1,529 1,457 1,629 775 1,002 940 940 941 441 820 820
Accounts Payable 2,966 2,761 2,765 2,434 2,197 2,263 2,364 2,268 2,204 1,747 1,848 2,174 1,850 1,889 1,921 2,207
Accrued Liabilities 5,719 6,182 5,863 6,394 5,815 6,035 5,696 5,913 5,478 5,063 5,587 5,885 5,715 5,475 5,808 5,975
Total Current Liabilities 13,622 12,925 11,345 9,698 9,588 9,827 9,517 9,810 8,457 7,812 8,376 8,999 8,506 7,805 8,550 9,002
Long-term Debt 6,673 6,814 6,608 8,372 7,460 7,414 7,450 7,189 7,184 6,884 6,864 6,864 6,864 6,864 6,464 6,464
Other LT Liabilities 2,097 1,718 1,537 1,152 1,198 1,396 1,457 2,429 2,432 1,906 2,032 2,354 1,988 2,061 2,112 2,390
Total Liabilities 22,392 21,457 19,490 19,222 18,246 18,637 18,424 19,428 18,073 16,602 17,272 18,217 17,358 16,731 17,126 17,856
MEDS 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485
Stockholders’ Equity
Total Stockholders’ Equity 16,644 16,786 14,284 13,691 13,021 11,041 11,312 11,239 11,362 11,540 11,244 10,964 11,355 11,390 11,485 11,559
Total Liabilities & Stockholder Equity 39,521 38,728 34,259 33,398 31,752 30,163 30,221 31,152 29,920 28,627 29,001 29,666 29,198 28,606 29,096 29,900
Source: Company reports and JPMorgan estimates.
36
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
37
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
BoP Cash, ST and LT Invs 6,162 6,000 6,487 6,370 6,566 6,365 5,754 5,918 5,941 6,731 6,075 6,540 3,655 6,162 6,566 5,941
+ Operating Cash Flow 177 894 161 342 572 (220) 549 326 884 (62) 581 79 4,717 1,574 1,227 1,482
+ Investing Cash Flow (118) (87) (117) (117) 222 0 0 0 0 0 0 0 2,477 (439) 222 0
+ Financing Cash Flow (292) 75 (109) (158) (952) (166) (175) (93) (94) (594) (116) (95) (1,820) (484) (1,386) (898)
+/- Other / restructuring 71 (395) (52) 129 (43) (226) (210) (210) 0 0 0 0 (2,867) (247) (689) 0
EoP Cash and Investments 6,000 6,487 6,370 6,566 6,365 5,754 5,918 5,941 6,731 6,075 6,540 6,524 6,162 6,566 5,941 6,524
Cash burn (162) 487 (117) 196 (201) (611) 164 23 791 (656) 465 (16) 2,507 404 (625) 584
Source: Company reports and JPMorgan estimates.
38
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Appendix
Table 23: Motorola Semiconductor Facilities and Assembly Sites
Location Name Major Processes Products Wafer size Min. Features
Production facilities
Tempe, Arizona CS-1 Gallium Arsenide RF ICs, MMICs, RF Power Modules, 150mm to 0.35 micron
Digital ICs
Austin, Texas MOS 11 SRAM, CDR1,2, CDR RF BiCMOS, SiGe:C, SRAM, Logic, CDR RF BiCMOS 200mm 0.35-0.32 micron
SMOS7
Austin, Texas MOS 13 HCMOS 2-6 Layer Metal, HiP1-4, HiP5-7 RISC PowerPC, Hi-end MPU, Wireless 200mm 0.35-0.13 micron
Chandler, Arizona MOS 12 HCMOS; DLM, TLM, QLM; Flash, EEPROM,HiP, MCU, DSP, MOS Digital/Analog and 200mm 0.27-0.25 micron; qual. In process to 0.18 micron
SMOS7, CRD3NVM IMOS for auto, comm. applications
Sendai, Japan TSC-6 Silicon Gate HCMOS, Multilayer Metal & Silicide, 0.5 ASIC, MCU, MPU, MOS Digital/analog 150mm 0.65 micron
micron SGF, Sensors
Tianjin, China MOS 17 CDR2, SMOS7 Wireless 200mm TBD
East Kilbride, Scotland MOS 9 HCMOS with embedded non-volatile memory, MCU 150mm 0.55 micron
SMOS5, SMOS5HVP, LDMOS and RFBiCMOS
Toulouse, France MOS 20 SMOS 2.5, 3, 5, HDTMOS Automotive, Wireless, Industrial 150mm 1.4 micron
39
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
Management
Christopher B. Galvin, Chairman and Chief Executive Officer
Christopher B. Galvin, the grandson of Motorola founder Paul V. Galvin, has worked
at the company in various capacities for more than 30 years. He was elected
president and chief operating officer in December 1993, chief executive officer in
January 1997, and chairman of the board in June 1999.
40
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
41
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
42
Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
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Ehud A. Gelblum North American Equity Research
(1-212) 622-6457 New York
ehud.gelblum@jpmorgan.com 10 July 2003
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