FOOL CONFERENCE CALL SYNOPSIS*
By Dale Wettlaufer (TMF Ralegh)

Motorola, Inc.
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1303 E. Algonquin Rd.
Schaumburg, IL 60196
(847) 576-5000
http://www.mot.com

ALEXANDRIA, Va., (July 11, 1997)/FOOLWIRE/ --- On July 8, 1997, Motorola released its second quarter, fiscal 1997, earnings report. Sales increased 10% over Q2 1996 to $7.5 billion. Before a pre-tax charge of $170 million, or $0.18 per share, for exiting DRAM manufacturing, EPS for the quarter was $0.62, up 14.8% year-over-year. On the conference call to discuss the quarter's results were Jeff Stoner and Ed Gams.

The salient points from the conference call, regarding market share, product segments, bookings, and financials, are available on Motorola's website at www.mot.com. The URL for the conference call synopsis is http://www.mot.com/Investor/fd/2q1997.htm. Included on the page as well is a breakdown of order activity from the quarter: http://www.mot.com/Investor/fd/ord2Q97.htm.

We include below the question and answer session from the conference call held on July 9, 1997:

In regard to the situation in Europe with GSM business in Europe, the comparison with last year was not particularly difficult. There is some volatility in the infrastructure business, as we mentioned. We have had a number of announcements in GSM this year, even very recently as we ended the second quarter. Our GSM sales are up strongly year-to-year. The quarterly volatility in Europe is going to resolve itself going forward. We have a very nice position in Europe, which, by the way, is the home market for our two primary competitors (Ericsson and Nokia) in GSM infrastructure. I don't think that anything unusual is going on and I don't think we could make any comments about any individual customers.

The outlook for depreciation expense has been adjusted downward from the outlook given on the Q1 conference call. Depreciation is difficult to forecast not only because of uncertainty on the amount of capital expenditures that will be made during the year but because of the timing on putting into service these fixed assets. While we haven't changed out fixed asset expenditures forecast, the fact that depreciation expense through the first half of 1997 has not increased as quickly as we had originally thought indicates that the overall depreciation expense may come in a bit lower than we were originally anticipating.

The requested delivery dates for cellular infrastructure equipment dictates Motorola's schedule for equipment shipments. As we look at our backlog right now and when customers want that equipment to be installed, we see that there is a concentration of the backlog late in 1997 and into the first half of 1998. Part of what'' driving this, of course, is the fact that in Japan, which is a very important market for us from an infrastructure perspective, we have a significant technology transition underway. We announced earlier this year a very significant award for a nation-wide CDMA system from our two customers in Japan, DDI and IDO. As they prepare for that transition towards CDMA, their purchases of both analog and PDC infrastructure are already beginning to slow down in a significant way, and that is part of what is affecting our present aging of backlog. We have already begun to ship some CDMA equipment to these two customers and that will certainly continue throughout the rest of 1997, but any revenue recognition on CDMA shipments into Japan is probably going to be a very late 1997, more probably early 1998 situation.

At the end of 1996, there were roughly 120 million paging users in the world and about one-third of those are in the U.S., one-third are in China, and about one-third are in the rest of the world. Given our market position, our business reflects that although our market share differs by region.

We've seen the U.S. carriers move from simple inventory reduction to also putting a real focus on making sure they add profitable subscribers. That said, that will continue to have an impact on our growth.

Basically all the international paging markets had good growth in orders again, with the exception of Japan, for the second consecutive quarter, so I think that speaks well to our international business. China is among them and once again continues to experience good order growth. New subscriber placement is higher than last year. We've had some success implementing strategic programs that have enabled us to move up FLEX sales in that market. There is some fierce competition with 38 local pager manufacturers in mainland China. GSM short messaging also impacts some segments of the market. We're trying to emphasize our strengths, driving FLEX into the market, deliver national roaming, stressing some higher-tier applications, delivery of information services, and some of Chinese character display products. Overall, we still maintained a very solid position there in a good market.

Regarding the paging market in China, there is a distinct seasonality there. That seasonality is that the rates off sales tend to weaken in the second half of the calendar year increasingly as we approach the Chinese New Year, which is in January. Looking for continued sequential gains from China as we move quarter by quarter through 1997 is not the normal seasonal pattern. You should be aware of reasonably good year-over-year changes, but not sequential changes. There's a lot of activity in association with the May telecom festival there, so traditionally the third quarter shows a bit weaker demand.

Market shares seem to be reasonably stable in the infrastructure market right now. As far as pricing changes are concerned, I think the one factor here that continues to influence manufacturing margins is the fact that analog sales continue to decline. In analog technologies, we're talking about proprietary technologies that generally carried much higher manufacturing margins than in GSM, which is an open architecture. As the business shifts in sales away from analog towards GSM, the manufacturing margins decline. That's the nature of an open architecture environment.

The recognition of revenue for PrimeCo Personal Communications LP relates to hardware, not software.

The entire decline in corporate manufacturing margin from the first quarter to the second quarter could be attributed to increased sales related to the achievement of milestones on the Iridium system and the fact that those increased sales have most of their gross profit reserved, but we're not able to specifically quantify either the sales or the profit deferral.

The fact that we have seen sequential improvements in order rates and that they're broadly based, and that we're seeing sequential improvements in the backlog, lend very good support to the position that we've had since the end of 1996 that there would be a gradual sequential recovery underway in semiconductors. As that recovery takes hold and as we continue to be very disciplined in operating expenses and in the rate of reinvestment in fixed assets. It's reasonably to expect that operating margins in the semiconductor business, exclusive of unusual items such as the DRAM charge that we just took, should continue to improve sequentially. There would have been some sequential improvement in operating margin, as well as year-over-year, in Q2 excluding the DRAM charge. I think a continued expectation of operating margin improvement, although gradual, with the recovery of the business is a reasonable one.

There is a significant spectrum auction process underway in Brazil and further bids will be opened as the auction goes along. Until we know who the winners of the various licenses are, there's really not much to comment on with spectrum auctions in that country. Motorola is well positioned to participate in the Brazil market, particularly with CDMA hardware, but the level of our participation is going to be dependent upon which companies are the successful bidders. At this point, the government has qualified certain bidders and rejected others, some of whom are appealing those decisions, but it's pretty early in the process.

We're quite pleased with the progress we're making with our GSM product line.

The fact that Motorola is vertically integrated in the sense that we consume a significant amount of our own semiconductor production, internal consumption in non-silicon components such as ceramics, quartz devices, and batteries, is a significant strategic advantage for the company relative to its competitors. When we sell a product like a cellular telephone, the level of profitability for the product overall is much greater than for most of our competitors because our competitors are sourcing those components from other companies who are presumably earning a profit on their sales. When we have improved internal consumption, as we've had some this quarter, it does have a favorable effect on the company's overall profitability. I think if you look at our results exclusive of unusual charge, and the growth rates, I think some of that is evident. We have been going through our own inventory adjustments on semiconductors over the past year or so in our equipment businesses just as the entire semiconductor industry has been going through some adjustments in terms of last year's recession. The vertical integration here is an important differentiating factor in Motorola as an equipment supplier relative to many of its competitors.

We are building manufacturing capacity in Brazil for cellular phones, cellular infrastructure, and a variety of other products as our overall business presence in Brazil is increasing. I don't believe that we have any capacity constraints within in cellular handset business in terms of the assembly of phones, although there have been some shortages of various components for certain types of phones recently, and we're working to clear those shortages. A couple years ago, we announced a major new cellular telephone facility here in northwestern Illinois that has recently begun production and continues to expand. I don't really see any capacity problems here in the cellular telephone business other than in some component product areas.

Sales for the advances messaging group were up solidly in the quarter and also year-to-date. That includes infrastructure plus our advances messaging devices - PageFinder, the Tenor voice pager product, etc.. Most of the advanced messaging sales are being made in the U.S..

We would characterize CDMA as an open protocol. The level of competition for the major CDMA contracts continues to be very intense. We have some very strong competitors here - companies like Lucent, NorTel, Korean manufacturers such as Samsung and LG Electronics, Qualcomm in association with Nortel. The infrastructure market in CDMA is a very competitive one. In the case of the Japanese contract, we were bidding against several competitors whose names are in the above group. The CDMA contract is basically a derivative of IS95. For that technology, there is an open air interface designated between the switch and the base station. We've announced a number of vendors that we'll be working with from a switch perspective - DSC; and Daewoo in Korean; we've announced an agreement with Alcatel; and a supplier in China.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.