t o   o u r   s t o c k h o l d e r s   a n d   o t h e r   f r i e n d s

Motorola's financial performance in 1996 was below the expectations of ourselves and our investors. At the same time, we focused on making changes that are designed to set the stage for an improvement in performance and a renewal of growth in profitability later in 1997.
The first centerpiece of our efforts is a renewed focus on the customer -- knowing what our customers want, and serving their needs better and more quickly than any competitor. The second centerpiece of our ongoing effort is more selective and strategic investment -- in technologies and businesses where we will lead. The pages of this year's report stress the ways in which Motorola enables consumers to improve their lives in ways they might not have expected. Motorola's opportunities have never been greater.
Financial Results Sales in 1996 rose 3% to $28.0 billion from $27.0 billion in 1995. Earnings were $1.15 billion, or $1.90 per fully diluted common and common equivalent share, compared with $1.78 billion, or $2.93 per share, a year ago. Net margin on sales was 4.1% in 1996 and 6.6% in 1995.
The main factor contributing to the decline in earnings and slowdown in sales growth in 1996 was the recession in the semiconductor industry. Other factors included product deficiencies in certain segments of the cellular telephone and modem businesses, slower sales in the U.S. paging business in the fourth quarter, and their impact on related component products such as rechargeable batteries. As the year ended, we began to see signs of improvement in our semiconductor business as the industry cycle turns up and in our cellular phone businesses as a result of introducing leadership digital phone product in the third and fourth quarters of 1996.
During 1996 many of our businesses implemented actions to reduce operating expenses, including workforce adjustments and reductions in work schedules and manufacturing run rates. We also deferred capital expenditures, especially in the Semiconductor Products Sector.
Summary operating and financial results of our various business segments appear on the Condensed notes to consolidated financial statements page. Detailed results appear in the Proxy Statement, as well as on the Internet at www.motorola.com.
Management Transition Anticipating a required age-related retirement from the Motorola Board of Directors in May of 1997, William J. Weisz made a transition from chairman to vice chairman of the Board of Directors at the end of 1996. As part of Motorola's succession planning process, a subsequent series of changes took place in the Office of the Chief Executive.
Gary L. Tooker, formerly vice chairman and chief executive officer, was elected chairman of the Board. Christopher B. Galvin, formerly president and chief operating officer, succeeded Mr. Tooker as chief executive officer. Robert L. Growney succeeded Mr. Galvin as president and chief operating officer.
A number of changes also took place in Motorola's business sectors. James A. Norling succeeded Mr. Growney as president and general manager of the Messaging, Information and Media Sector. Hector Ruiz, formerly executive vice president and general manager of the Messaging Systems Products Group, is to become president and general manager of the Semiconductor Products Sector on May 15, 1997. He will succeed Thomas D. George, who plans to retire later in 1997.
Edward F. Staiano, formerly executive vice president of Motorola and president and general manager of the General Systems Sector, retired from Motorola and became vice chairman and chief executive officer of Iridium LLC, the private international consortium that will operate the IRIDIUM® global wireless communications network. Jack Scanlon was elected president and general manager of the newly created Cellular Networks and Space Sector, Robert N. Weisshappel became president and general manager of the Cellular Subscriber Sector, and Frederick T. Tucker was named president and general manager of the Automotive, Energy and Components Sector. Merle Gilmore, who assumed the role of president and general manager of the Land Mobile Products Sector a few years ago, continues to lead its superb turnaround.
Nicholas Negroponte, a founder and director of the Massachusetts Institute of Technology's Media Laboratory, was elected to Motorola's Board of Directors. Robert L. Growney was elected to the Board in February 1997.
The Future We have made a number of strategic decisions designed to improve our financial performance. They include:

or are cultivating, leadership core competencies.
At the end of 1996, our Semiconductor Products Sector began to experience an improved pattern of orders and sales as the worldwide semiconductor industry entered a cyclical rebound. However, higher year-over-year financial results may not be evident in SPS until later in 1997. We expect only gradual quarter-to-quarter sequential improvement in semiconductor sales and earnings during the first stages of the industry recovery. The industry's long-term outlook remains bright, and Motorola is building on a leading position in fast-growing segments such as automotive, wireless and wireline communications, multimedia, energy and environment, and interactive smartcards.
The long-term outlook for our communications businesses is as promising as ever. However, many of the factors that affected certain of our businesses should continue to have an adverse impact in early 1997. In the longer term, we should see more of the benefits of our investments in digital technologies that enable more efficient use of the radio frequency spectrum for millions of new consumers. Despite its rapid growth, cellular phones and personal communications services are used by only about 2% of the world's population, and the industry is in its early stages. Likewise, we are just beginning to realize the potential of newer messaging services, such as two-way and voice paging. Motorola's promising integrated radio dispatch products are in the early stages of commercial deployment. We also look forward to enjoying the commercial benefits of our investments in areas such as software and cable modems and satellite technology.
Motorola is continuing to invest in programs that create platforms for future growth, such as the IRIDIUM® satellite-based communication system and flat-panel displays, without ignoring substantial investments in our core technology businesses.
The global economic outlook is healthy, especially in emerging markets where Motorola is investing heavily, such as Latin America and Asia. We see balanced growth in the developed world as well.
Although we don't anticipate positive quarter-to-quarter earnings comparisons until later in 1997, we are well into the process of improving the performance of our existing businesses, as well as building on our future technology portfolio to create new business segments. We will continue to create products and technologies that will enable people to improve the way they live and work in ways they never expected. We will lead this company to achieve long-term growth. As it has been since the founding of Motorola in 1928, the long-term Motorola investor is most often rewarded.


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Christopher B. Galvin
Chief Executive Officer


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Robert L. Growney
President and Chief Operating Officer


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Gary L. Tooker
Chairman of the Board continue


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Financial highlights || To our stockholders and other friends || Motorola at a glance || Condensed consolidated financial statements || Condensed notes to consolidated financial statements || Five year financial summary || Directors and management board of Motorola, Inc. || CEO quality awards and Dan Noble fellows || Stockholder reference information