01—Abstract
Summary
Summary of the 10-K filed March 22, 1999. Cited figures are marked; the original filing is the authoritative source.
Motorola, Inc. (NYSE: MSI) reported 1998 annual results in this Form 10-K for the fiscal year ended December 31, 1998, with total sales of $29.4 billiona and a broad portfolio spanning cellular subscriber and infrastructure equipment, land mobile radios, paging and messaging, semiconductors, integrated electronic systems, and space and satellite systems.
The company is restructuring around its July 1998 'Communications Enterprise' organization, and it is exiting or selling non-profitable businesses and facilities, including several sites in the U.S., Brazil, Costa Rica, Pennsylvania, South Korea, and Taiwan. Aggregate backlog declined modestly to $7.16 billionb from $7.55 billion, with about 95% expected to ship in 1999. Research and development spending rose to $2.89 billion in 1998 from $2.75 billion in 1997.
The filing highlights several concentration and execution risks. Iridium satellite contracts have become a significant share of the Space and Systems Technology Group's revenue, and Motorola remains financially exposed through subcontracts even if Iridium cannot meet its obligations. Nextel, in which Motorola holds a minority stake, is a material customer for iDEN equipment at Land Mobile Products.
Infrastructure customers increasingly demand vendor financing, which can tie up capital. The Semiconductor segment faces cyclical pricing pressure and underutilized capacity, and the company is shifting cellular production from analog to digital, where its market share is lower. Motorola also cites litigation exposure, including Phoenix/Scottsdale groundwater contamination suits and consumer cellular phone class actions, though management believes these will not have a material adverse effect.
The company's full financial statements, MD&A, and five-year summary are incorporated by reference from the 1999 Proxy Statement appendix and are not included in this 10-K text, so investors should consult that document for detailed margins, cash flow, and balance sheet figures. The filing also notes a 2.5%c revenue share from U.S. government customers and a workforce of approximately 133,000 employees.
02—Key points
Key Highlights
- Total 1998 sales of $29.4 billion, with cellular, land mobile, and messaging/media businesses together accounting for about three-quarters of the total under the new Communications Enterprise structure.
- Aggregate backlog of $7.16 billion at December 31, 1998, down from $7.55 billion in 1997, with roughly 95% expected to ship in 1999.
- R&D spending on new product development of $2.89 billion in 1998, up from $2.75 billion in 1997, plus $433 million of customer-funded research.
- Heavy exposure to Iridium: the satellite business is a major contributor to Space and Systems Technology Group revenue, and Motorola remains liable to subcontractors if Iridium fails to pay.
- Customer concentration risk, notably Nextel as a material iDEN customer and reliance on large infrastructure contracts across CIG, LMPS, and SSTG.
- Ongoing restructuring: sales or closures of non-profitable facilities, conversion of analog cellular capacity to digital, and consolidation of semiconductor production into fewer anchor sites.
- Litigation overhang, including Phoenix/Scottsdale groundwater contamination suits and consumer cellular phone and securities class actions, which management says are not expected to be materially adverse.
03—Questions
Frequently Asked Questions
How large is Motorola's business and what are its main segments?
Motorola reported $29.4 billion in 1998 sales. Its main businesses are cellular subscriber and infrastructure products, land mobile two-way radio, messaging and paging, semiconductors (embedded processors and discretes), integrated electronic systems for automotive and industrial markets, and space and government systems. The company had about 133,000 employees at year-end 1998.
What is the risk from Motorola's Iridium involvement?
Iridium contracts have become a significant part of the Space and Systems Technology Group's business, with payments to Motorola over a ten-year period starting in 1993. Motorola has also signed subcontracts for parts of the system and remains obligated to those subcontractors even if Iridium cannot meet its contractual payments, so Iridium's financial health directly affects Motorola's risk.
Is Motorola dependent on a few large customers?
Motorola says it is not dependent for a material part of total business on a single or very few customers. However, specific segments are concentrated: Nextel is a material customer for LMPS iDEN equipment, and the Integrated Electronic Systems Sector depends partly on other Motorola segments and two external customers. U.S. Government agencies accounted for about 2.5% of 1998 sales.
Why are vendor financing and analog-to-digital shifts important to investors?
Network operators increasingly require suppliers to provide or arrange long-term financing, which can be large and can tie up capital, particularly at CIG, LMPS, and SSTG. In cellular, Motorola has a higher share in analog than digital products, so the shift to digital technology poses competitive risk; the company is converting analog plants to digital production, expected to finish in 1999.
Where can investors find detailed financial results?
This 10-K incorporates by reference the financial statements, MD&A, five-year summary, and segment and quarterly data from the appendix to the 1999 Proxy Statement. Those sections are not included in the text provided, so detailed margins, cash flow, and balance sheet data must be obtained from that appendix.
04—Continue