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PART I
Throughout this 10-K report we "incorporate by reference" certain information in parts of other documents filed with the Securities and Exchange Commission (the "SEC"). The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information.
We are making forward-looking statements in this report. In "Item 1A: Risk Factors" we discuss some of the risk factors that could cause actual results to differ materially from those stated in the forward-looking statements.
"Motorola" (which may be referred to as the "Company," "we," "us," or "our") means Motorola, Inc. or Motorola, Inc. and its subsidiaries, or one of our segments, as the context requires. "Motorola" is a registered trademark of Motorola, Inc.
Item 1: Business
General
We provide technologies, products and services that make a broad range of mobile experiences possible. Our portfolio includes wireless handsets, wireless accessories, digital entertainment devices, set-top boxes and video distribution systems, analog and digital two-way radios, wireless and wireline broadband network products, and end-to-end enterprise mobility products. With the rapid convergence of fixed and mobile broadband Internet and the growing demand for next-generation mobile communications products by people, businesses and governments, we are focused on high-quality, innovative products that meet the expanding needs of our customers around the world.
We operate in the following businesses:
Motorola is a corporation organized under the laws of the State of Delaware as the successor to an Illinois corporation organized in 1928. Motorola's principal executive offices are located at 1303 East Algonquin Road, Schaumburg, Illinois 60196.
Business Segments
We report financial results for the following three operating business segments:
Mobile Devices Segment
The Mobile Devices segment ("Mobile Devices" or the "segment") designs, manufactures, sells and services wireless handsets, including smartphones, with integrated software and accessory products, and licenses intellectual property. In 2009, the segment's net sales represented 32% of the Company's consolidated net sales.
Principal Products and Services
Our wireless subscriber products include wireless handsets and related software and accessory products. We also license our intellectual property. We market our products globally to carriers and consumers through direct sales, distributors and retailers.
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Our Industry
In 2009, total industry shipments of wireless handsets decreased approximately 6% compared to 2008, primarily as a result of the global economic downturn. This was the first annual decline in handset industry unit shipments since 2001. The economic downturn resulted in slower growth in the emerging markets and lower replacement sales in highly-penetrated markets, primarily in the U.S. and Western Europe. By the fourth quarter of 2009, the industry began showing signs of recovery with positive quarterly year-over-year growth.
With many customers maintaining tight inventory management during 2009, a strengthening global economy and improving consumer demand, the recent handset market recovery is expected to continue through 2010. Analysts are predicting total industry handset shipments to increase approximately 9% (on average) for the full-year 2010 compared to 2009. Growth is expected to be driven from new subscribers in emerging markets and increasing demand for smartphones.
Smartphones are expected to be the fastest growing and the most profitable segment of the mobile handset industry over the next several years. Key drivers of this growth include: (i) consumer desires for feature-rich devices that provide access to mobile Internet, media, social networking, navigation and messaging at anytime and anyplace, (ii) operators drive to increase data ARPU (average revenue per user) to offset declining voice ARPU, (iii) the trend toward open operating systems that provide computer-like functionality to handsets, and (iv) the evolution of networks to support high-speed Internet access (3G and 4G).
Our Strategy
The Mobile Devices segment is focused on delivering compelling, mobile experiences to consumers while becoming the hub of people's lives and the gateway to the mobile Internet. With the Android operating platform and our MOTOBLURTM software solution and MotoDEV application development program, we intend to provide applications and services to support end-to-end, customizable solutions desired by consumers.
As the market evolves to reflect the emergence of converged wireless devices, mobile Internet, media/video, social networking, navigation and messaging, the shift from voice-centric devices to data-centric devices continues to accelerate. These devices, which include smartphones developed on open platforms, deliver unique consumer experiences and require complete end-to-end solutions that incorporate various applications and services. By utilizing the smartphone, we are able to deliver computer-like functionality, such as web browsing and email, across our portfolio. We believe that open platforms foster innovation and encourage the development of applications suited to consumers, wherever they are located.
Our primary smartphone development is based on the Android operating system (a Google-developed, royalty-free open platform). The Android platform is a modular operating system which enables multiple simultaneous operations. It provides a well-developed ecosystem that continues to grow with a broad range of applications.
We are differentiating our Android smartphone experience through our unique MOTOBLUR software solution. MOTOBLUR utilizes cloud-based services to help ensure that our users digital lives can be accessed from anywhere. It combines content-forward, deeply integrated software applications and a unique interface with a server-based back-end solution that gathers, organizes and delivers fresh content and data automatically. In addition to MOTOBLUR, we are enabling third-party solutions through our MotoDEV application development programs. MotoDEV leverages partner ecosystems to deliver customizable content to consumers. This content can be pre-loaded, embedded or downloaded on Android-powered devices. In some markets, as in China, we offer our SHOP4APPS application store to provide consumers additional applications and service choices.
As the segment creates stronger software solutions and capabilities, we continue to invest in next-generation technologies for wireless devices based on High-Speed Downlink Packet Access (HSDPA) and Long-Term Evolution (LTE). These investments provide opportunities to differentiate our products as we develop smartphones that support the migration toward higher network bandwidth.
In addition to our smartphone portfolio and focus on delivering key experiences, we are also (i) maintaining our technological leadership in our proprietary iDEN technology, (ii) focusing on priority markets, (iii) selectively offering voice-centric devices through third-party original design manufacturer ("ODM") development, and (iv) leveraging companion products to deliver complete mobile experiences.
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The Mobile Devices segment continues to maintain a strong market position with its iDEN technology. Increased demand in North America, as well as internationally, drove iDEN growth in 2009. Our iDEN strategy aligns with our focus on priority regions.
We are increasing our focus in priority markets, which include North America, parts of Asia, including China, and Latin America. Historically, these are regions in which we have experienced strong market share and brand position. In other regions, we will prioritize and make investments commensurate with the competitiveness of our portfolio. In the long term, we plan to compete in all major markets. In order to successfully compete in our prioritized regions, maintain brand awareness and provide products at multiple price points, we are working with ODM partners to generate lower-end, voice-centric devices. Along with our mobile handset initiatives, we will leverage our companion products portfolio to extend smartphone experiences through companion devices.