MOTOROLA INC - (Year 2000 Disclosure) Quarterly Report (SEC form 10-Q) August 3rdgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
This is a bit to swallow but well worth the read. Motorola has the best Y2K disclosure I have seen. Lots of interesting stuff. The obvious message I read in this is that they are mostly conserned about the legal aspect of the problem. Not that it is their only problem, power supply and transportation also is a big consideration. Plus an interesting section about embedded chips - systems that is well worth taking a look.
Motorola is also setting up multiple Y2K *bunkers* that will have independent power, communication and enviormental supplies. There is lots of consern about international sites
I have not edited this for brevity as certian folks like to read the retoric also. But as it stands the Y2K bug seems to still have Motorola's attention. And time is running out.
MOTOROLA INC - Quarterly Report (SEC form 10-Q)
August 3, 1999
Year 2000: -
Motorola has been actively addressing Year 2000 issues since 1997. A Year 2000
Enterprise Council was formed and is responsible for coordinating and
facilitating activities across the Company. The Year 2000 Enterprise Council
reports to the Company's President and Chief Operating Officer and its progress
is reported to the Audit and Legal Committee of the Board of Directors. The
Board of Directors also receives periodic updates on the Company's Year 2000
The Year 2000 issue refers to the risk that systems, products and equipment
having date-sensitive components will not recognize the Year 2000. Throughout
this disclosure the Company uses the generic phrase "year 2000 ready" to mean
that a system, product or piece of equipment will perform its intended functions
on or after January 1, 2000 the same as it did before January 1, 2000. The
Company also has a specific definition of Year 2000 Ready for Motorola
products described below.
The Six-Phase Year 2000 Program
Motorola developed the Six-Phase Year 2000 Program to ensure a thorough and
standard approach to addressing the Year 2000 issue across the Company.
The Program summarizes the tasks to be completed while leaving each business
to tailor actions specifically to its environment, to identify the goals of each
phase, and to schedule their targeted completion dates. The six-phases are
Preliminary (identify the issues, create awareness, and dedicate resources);
Discovery/Charter (inventory, categorize, and make initial cost estimates); Scope
(refine inventory and assess business impacts and risks); Conversion Planning
(determine specific implementation solutions through analysis, formulate
strategies, and develop project and test plans); Conversion (make program
changes, perform applications and acceptance testing and certification); and
Deployment and Post Implementation Review (deploy program and software
changes, evaluate and apply lessons learned).
The Company's Readiness
All of the Company's sectors and groups have completed Phases 1-4, all but one
of the groups also have substantially completed Phase 5 and all but two of the
Company's groups also have substantially completed Phase 6. All of the
Company's sectors and groups are expected to complete the Six-Phase Program
by the end of the third quarter of 1999. The work being completed in 1999 is
being separately monitored and tracked with appropriate target completion dates.
Contingency plans are substantially complete for all sectors and groups, and
those plans are focusing on matters not resolved through the Six-Phase Program
at this time that may have a material negative impact on Motorola's final "year
2000 readiness". Discussion of contingency planning is included below.
As part of the Company's overall program and to ensure adequate means to
measure progress, Motorola has established five functional categories to be
reviewed by each business as follows:
Products. While addressing all five functional categories, the Company has
placed a high priority on ensuring that Motorola products are Year 2000 Ready
and is completing a comprehensive review of the Year 2000 Readiness of
Motorola products. The results of these reviews are being made available to
Motorola customers and third parties through the use of a Motorola Year 2000
website and are supplemented with additional written communications. The
Motorola definition of "Year 2000 Ready," which is the standard Motorola uses
to determine the Year 2000 Readiness of Motorola products, is as follows:
Year 2000 Ready means the capability of a Motorola product, when used in
accordance with its associated documentation, to correctly process, provide
and/or receive date data in and between the years 1999 and 2000, including leap
year calculations, provided that all other products and systems (for example,
hardware, software and firmware) used with the Motorola product properly
exchange accurate date data with it.
Manufacturing. Some of the tools and equipment (hardware and software) used
to develop and manufacture Motorola products are date-sensitive. The Company
believes, based on the results of the Six-Phase Program to date and based on
assurances from its suppliers, that the critical tools and equipment used by it to
manufacture products will be "year 2000 ready" or will be made ready through
upgrades by the suppliers of the tools or equipment or by using alternate sources
of supplies. As a result, the Company does not expect significant interruption to
its manufacturing capabilities because of the failure of tools and/or equipment.
Non-Manufacturing Business Applications. Throughout the business the
Company is fixing and testing all non-manufacturing business applications such
as core financial information and reporting, procurement, human
resources/payroll, factory applications, customer service, and revenue, and does
not expect any significant Year 2000 issues in this area.
Facilities and Infrastructure. The Company also is fixing and testing its facilities
and infrastructure (health, safety and environment systems, buildings,
security/alarms/doors, desktop computers, networks) to ensure they are "year
2000 ready" and does not expect significant interruption to its operations because
of Year 2000 issues with its facilities or infrastructure.
Logistics. The Company has devoted significant resources to ensure that its
operations are not disrupted because of services or products supplied to the
Company. In addition, the Company has requested assurances from its joint
venture partners and alliance partners of their "year 2000 readiness."
Of critical importance to the Company's Year 2000 Readiness is the readiness of
suppliers and the products the Company procures from suppliers. Motorola has
many thousands of suppliers and has a comprehensive program to identify and
obtain Year 2000 information from its critical suppliers. The program includes
awareness letters, site visits, questionnaires, compliance agreements and
warranties as well as a review of suppliers' Year 2000 websites. If a supplier is
determined to entail a "high risk" of Year 2000 non-readiness, the Company is
developing contingency and alternate sourcing plans to minimize the Year 2000
As described in the Company's discussion of most reasonably likely worst case
scenarios, the Company is particularly concerned about energy and transportation
suppliers. Many of these suppliers are unwilling to provide assurances that they
will be "year 2000 ready."
Unique issues related to the readiness of the Company's major businesses are
discussed in more detail below.
Year 2000 Costs
Motorola estimates that the expected total aggregate costs for its Year 2000
activities from 1997 through 2000 will be in the range of $250 million to $300
million. These costs do not include estimates for potential litigation.
Approximately $135 million of the total estimated costs relate to internal
resources. Total costs incurred through July 3, 1999 were approximately $180
million, of which approximately $105 million were for external costs. Of the
remaining costs, the majority relate to installation of software upgrades of certain
infrastructure equipment, installing software upgrades to internal semiconductor
manufacturing equipment and assessing the Company's critical suppliers. The
Company does not believe the cost of addressing Year 2000 issues will have a
material adverse effect on the Company's consolidated results of operations,
liquidity or capital resources.
The Company reviews and updates data for costs incurred and forecasted costs
each quarter. As the Company continues to assess the last phases of the Year
2000 Program, estimated costs may change. These costs are based on
management's estimates, which were determined based on assumptions of future
events, some within the Company's control, but many outside of the Company's
control. There can be no guarantee that these estimates will be correct, and if
actual costs increased by a sizeable amount, the Company's actual results could
be materially adversely impacted.
Most Reasonably Likely Worst Case Scenarios for the Company and Company
The Company has and will continue to devote substantial resources to address its
Year 2000 issues. However, there can be no assurances that the Company's
products do not contain undetected Year 2000 issues. Further, there can be no
assurances that the Company's assessment of suppliers and vendors will be
accurate. Customers of Motorola could be impacted by Year 2000 issues causing
them to reduce purchases from the Company. In addition, many commentators
believe that there will be a significant amount of litigation arising out of "year
2000 readiness" issues, especially for product liability. Because of the
unprecedented nature of this litigation, it is impossible for the Company to predict
the impact of such litigation although it could be significant to the Company. In
addition to the unique reasonably likely worst case scenarios described by the
specific businesses and potential litigation, the Company believes its scenarios
include: (i) corruption of data contained in the Company's internal information
systems; (ii) hardware failures; (iii) the failure of infrastructure services provided
by government agencies and other third-party suppliers (including energy, water,
and transport); and (iv) health, environmental and safety issues relating to its
facilities. If any of these were to occur, the Company' operations could be
interrupted, in some cases for a sustained period of time. These interruptions
could be more severe in countries outside the U.S., where the Company does
The Company's contingency plans focus on customers, products, supplies and
internal operations. Each sector is establishing emergency operations centers at
key locations. These centers will be staffed ahead of the Year 2000 rollover and
well into the Year 2000. During critical times they will be staffed 24-hours a day.
The first priority of these centers is to ensure the performance of a customer's
network or system.
Critical facilities have been identified and the Company's plans prioritize their
continued operations. These sites will be supported by generators capable of
maintaining health, safety, communications and environmental operations if
locally provided power sources fail. These sites will have a number of means of
communicating including Intranet, pagers, cellular phones, and satellite phones.
The businesses are identifying key individuals in a variety of functions to be
on-site at the Company's facilities to monitor the rollover to the Year 2000.
Additionally, the Company is establishing rapid response teams that can be sent
to major customer locations when and if needed in connection with the rollover.
There are also plans to shift operations to different facilities if there are
interruptions to operations in particular areas, countries or regions.
The plans also include procedures to maintain and recover business operations
such as stockpiling critical supplies, identifying alternate supply sources,
inspecting critical functions, reporting operational status, communicating with
interdependent operations, and operating in contingency mode until a return to
The sectors and groups continue to perform various tests, including on
manufacturing production lines and internal networks. Each business will also be
testing its contingency plans during the third quarter of 1999. In addition, the
Company has planned a test of its overall contingency plans for the third quarter
Personal Communications Segment
The Personal Communications Segment includes both the Personal
Communications Sector (PCS) and the iDENr subscriber business. PCS, which
designs, develops, manufactures and sells Motorola cellular telephones, paging
subscriber products, and paging infrastructure equipment has completed its Year
2000 product review.
All Motorola wireless telephones, cordless phones and accessories ever placed on
the market by Motorola either: (i) do not contain internal date storage, processing,
or display capabilities and thus are not impacted by the Year 2000 date change; or
(ii) contain internal date storage, processing, or display capabilities that are Year
2000 Ready. In addition, PCS has systems in place to ensure that future
telephones and accessories sold by the Company will be Year 2000 Ready.
Paging products currently being shipped are Year 2000 Ready. The paging
business has identified customer system upgrades required to enable certain
infrastructure equipment in Asia to be Year 2000 Ready. [These upgrades are
scheduled to be complete by August 1999.] Paging has posted on its website and
sent in printed form to inquiring customers lists of all its products that have no
internal calendars or clocks and are not materially impacted by the Year 2000, all
products that have such clocks and calendars and are Year 2000 Ready, and a
third group of products that have reached the end of their supported life and,
therefore, have not been tested for Year 2000 Readiness. Certain infrastructure
products that require an upgrade to be Year 2000 Ready have been listed on the
Paging's management believes the worst case scenario is that a mission critical
page may not be sent or received as a result of lack of Year 2000 Readiness of
messaging software, infrastructure or pagers and the Company is sued.
Management believes that its efforts at communicating to paging customers the
potential for such failures should reduce the likelihood of this occurring.
Network Solutions Segment
The Network Solutions segment includes the cellular infrastructure business, the
satellite communications business and iDEN infrastructure products.
The cellular infrastructure business designs and develops, manufactures, installs
and services wireless infrastructure equipment for cellular and personal
communications networks. Certain cellular infrastructure products operate with
date sensitivity. The business has developed appropriate hardware modifications
and new versions of software to address the Year 2000 issue. The business has
made upgrades (i.e., hardware modifications and/or new software versions, as
appropriate) available to most of its operator customers. The business sells
systems throughout the world and trained technicians are in the process of
installing these upgrades.
The cellular infrastructure business has communicated to customers and company
customer contacts "work-arounds" for certain systems that will not be upgraded.
A "work-around" gives the operator necessary procedures to keep the system
operating on and after January 1, 2000. If a customer does not follow the
recommended procedures it is likely that the system will not recognize certain
dates properly, affecting the accuracy of certain data. The business has concluded
that some of its systems are too old to either upgrade or provide a work-around
for Year 2000 issues. It has notified customers with outdated systems.
Additionally, a website provides Year 2000 information on certain discontinued
products. Some customers of discontinued products have been notified that their
system will not work and information has been provided on needed upgrades
and/or replacements. The business has sent out second notices and has asked for
confirmations back from these customers.
Management believes that its most reasonably likely worst case scenario related to
the Year 2000 issue is its inability to upgrade all systems before January 1, 2000
due to the significant number of customer locations to be visited and to delays by
customers in scheduling upgrades. As a result, system performance could be
affected and certain data routinely available from those systems could be
inaccurate on and after January 1, 2000 until upgraded. As a result, the business
could incur cost, and potentially be sued as the supplier of those systems,
although its efforts to identify its customers and provide software solutions
should reduce these risks.
The satellite business designs, develops, manufactures, integrates, deploys,
operates and maintains space-based telecommunication systems and related
ground system components. At present, the business consists of one operating
system known as the Iridiumr System. This system contains date- sensitive
functions. The business has made all necessary hardware and/or software
upgrades available to customers by July 1, 1999. The business anticipates that it
will need to supply technicians to install any such upgrades, and does not
presently anticipate any difficulty in meeting any potential installation needs.
Management believes that the most reasonably likely worst case scenario related
to the Year 2000 issue is a temporary interruption of the Iridium System due to
the inability of the ground segment to communicate with the satellite
constellation. As a result, the satellite business would incur costs in correcting
such a failure. Management believes adequate efforts are in place to identify
potential hardware/software problems and to implement and test solutions.
Some iDENr infrastructure products operate with date sensitivity. The iDEN
system became Year 2000 Ready when a new system release was completed on
June 30, 1999. While the business expects to deploy this release in a timely
matter, it will confront the same resource and installation issues facing the
Company's infrastructure businesses.
Commercial, Government and Industrial Solutions Segment
The segment, consisting of the Commercial, Government and Industrial
Solutions Sector ("CGISS"), manufactures and sells two-way voice and data
products and systems for a variety of worldwide applications. Principal
customers for two-way products include public safety agencies (police, fire,
etc.), utilities, diverse industrial companies, transportation companies and
companies in various other industries. Additionally, CGISS includes the System
Solutions Group (SSG), excluding its satellite business, that is engaged in the
design, development, and production of advanced electronic communications
systems and products.
All two-way products currently shipping from factories are Year 2000 Ready
with a few minor exceptions. All customers buying exceptions are fully informed
that these products are not Year 2000 Ready before purchases are made and
products shipped. Some older products operate with date sensitivity, including
legacy Special Products (SPs) and "911 Systems." CGISS has notified or is in
the process of notifying customers of certain of its "911 Systems" in the U.S.
that their systems are not fully Year 2000 Ready. New software for these
systems and the code were available in December 1998 and a test installation of
such software was made in late December 1998. Regular customer installations
will continue through the end of third quarter 1999. SPs are communication
systems designed specifically for particular customers. CGISS cannot assess
whether those systems are Year 2000 Ready because the systems must be tested
where they are located. CGISS is contacting customers and developing solutions,
usually software upgrades, to make these systems Year 2000 Ready.
Management believes that the most reasonably likely worst case scenario
involving its business is the failure of a public safety system on January 1, 2000
(or thereafter). As a result, the two-way radio business could potentially be sued
as the supplier of those systems. Management believes that its efforts to identify
the customers of these systems and provide software solutions or "work
arounds" should reduce these risks. SSG has conducted a comprehensive review
of all products and systems sold under contracts and purchase orders executed
since January 1, 1990. Through that process it has been determined that relatively
few of SSG's products or systems contain date-sensitive functions that are
expected to be adversely affected by the Year 2000 issue. SSG is addressing each
of the few products or systems affected in one of four ways. First, SSG has
developed, or is in the process of developing, fixes for some of the Year 2000
issues discovered and is offering those fixes to its customers. Second, in some
cases, SSG is working directly with customers who have funded specific testing
and corrective actions to products or systems they purchased or are purchasing
under contracts with SSG. Some of these customer-funded fixes are not expected
to be complete until the middle of 1999. Third, "work-arounds" have been
communicated to certain customers when a more elaborate fix is not necessary for
them to keep their products or systems operating on and after January 1, 2000.
Finally, SSG has concluded that some of its products and systems are too old to
either fix or provide a work-around for Year 2000 Readiness. SSG has notified
(or made reasonable efforts to notify) customers of those products or systems for
which fixes or work-arounds will not be available.
SSG believes the most reasonably likely worst case scenario related to the Year
2000 issue is the failure of a product or system to operate for a short period of
time after January 1, 2000. As a result, SSG may be sued as a manufacturer of
products or systems that failed. Many of these products or systems were sold to
government customers. Management believes it generally does not have legal
liability to these customers.
Semiconductor Products Segment
The segment, consisting of the Semiconductor Product Sector ("SPS"), has
completed an extensive review of its products to determine if they are Year 2000
Ready. The vast majority of these products are Year 2000 Ready. A limited
number of products that contain a real-time clock function are identified as having
a potential Year 2000 issue with the manner in which years are tracked. In
addition, it is possible that an SPS semiconductor may experience "year 2000
readiness" issues due to the manner in which a customer has programmed the
semiconductor or due to the manner in which the semiconductor is incorporated
into a customer system or product. SPS is also making information available to
its customers on these potential Year 2000 readiness issues.
Literature on the Year 2000 issue references what is referred to as the "embedded
chip" Year 2000 issue or the "embedded systems" Year 2000 issue. (The word
"chip" is a short-hand reference for a semiconductor product.) Many common
electronic products contain "chips" or "systems" containing chips that are
incorporated or "embedded" into the product. If these "chips" or "systems"
experience Year 2000 readiness issues, due to the manner in which they are
programmed, the product may malfunction. Because this programming is
customer defined, the extent to which the malfunctioning of these products may
occur due to a Year 2000 Readiness issue with a SPS semiconductor is unknown
at this time.
With relatively few internal items from the global multi-phase approach remaining
to be fixed, validated, and solutions deployed throughout the organization, SPS,
in conjunction with the newly formed High Tech Consortium - Year 2000 and
Beyond, is focusing on assessing external critical suppliers, including utilities
and critical transportation. This effort is global in scope. In addition, SPS is
taking actions to make information available on the potential Year 2000 issues
with the real time clocks and the customer programming of SPS semiconductor
products. Finally, the business is reconfirming the readiness of its environmental
health and safety systems.
Integrated Electronic Systems Sector (IESS)
The Integrated Electronic Systems Sector (IESS) manufactures and sells
automotive and industrial electronics, energy storage products and systems,
electronic fluorescent ballasts and computer system products.
IESS has completed formal assessment of "Year 2000 Readiness" of its products
manufactured within the last eight years and its manufacturing facilities. Other
than embedded board and system products, and Global Positioning System
receivers, these products do not contain date-sensitive functions, excluding
customer provided software incorporated in such products, for which IESS does
not have sufficient information in most cases to conduct an evaluation of whether
such functions are included. Motorola has advised its customers that
responsibility for evaluating this software is that of the customer. The sector is
substantially complete with the Six-Phase Program. The remaining projects relate
to a few internal systems and pieces of manufacturing equipment that the sector is
working to ensure that will be ready.
In the case of Global Positioning System receivers, engineering analysis is
complete on the most current version, and the products are Year 2000 Ready.
The operation of such receivers is dependent on the proper functioning of the
Global Positioning satellite system maintained and operated by the Federal
government, and is outside of the control of Motorola. There is a second
date-related issue for these products, relating to the "1024 weeks" method of date
calculation used in the satellites, which will potentially impact the GPS in August
1999. The products are believed to be Year 2000 Ready based on completed
engineering evaluation and simulator testing on all but some older products.
Simulator testing of older products will be undertaken when representative
samples are identified.
In the case of embedded boards, systems and software products that are
manufactured by the Motorola Computer Group (MCG), some of the older
products do not meet Motorola's definition of Year 2000 Ready. In many of
these cases, MCG has made fixes available to its customers to cure the problem.
Although it is difficult to measure any potential liability from non-Year 2000
Ready products, MCG believes the risks are relatively small based on the
following. Since October 1, 1998, MCG has ceased shipping any products that
are not Year 2000 Ready without a waiver from the customer. Fixes have been
made available for products that may remain under warranty after 1999. Many
products which are outside the warranty period, have been updated over the years
with products that are Year 2000 Ready. Other potential liability may arise in
cases where it is not known in what applications the products are being used.
There is always the possibility that some products have been incorporated by
customers into critical use applications. All of the known cases are being
evaluated but Motorola believes that this is the customer's responsibility.
The business has reviewed the year 2000 readiness of its key suppliers.
Suppliers that are considered "high-risk" vendors because of Year 2000 issues
have been identified. The sector continues to assess these suppliers and has
developed contingency plans that may include the use of alternate suppliers to
minimize any potential risk.
Internet and Networking Group (ING)
ING manufactures and sells modems, data communication devices and
equipment that enables voice, video and data communications over private and
public networks. All data communications equipment and modems currently sold
by ING are Year 2000 Ready. Some of the older products, including some
network management and router software products, do not meet Motorola's
definition of Year 2000 Ready. In many of these cases, ING has made fixes
available to its customers. Some products have also reached the end of their
supported life and, therefore, have not been tested for Year 2000 Readiness.
Management believes that the most reasonably likely worst case scenario
involving its business is the failure of a mission critical or financial
communications system on January 1, 2000 (or thereafter). As a result, ING
could potentially be sued as the supplier of the communications equipment.
Management believes that its efforts to notify its customers of products with
issues and provide software solutions should reduce these risks.
The Company has made forward-looking statements regarding its Year 2000
Program. Those statements include: the Company's expectations about when it
will be "Year 2000 Ready"; the Company's expectations about the impact of the
Year 2000 issue on its ability to continue to operate on and after January 1, 2000;
the readiness of its suppliers; the costs associated with the Year 2000 Program;
and worst case scenarios. The Company has described many of the risks
associated with those forward-looking statements above. However, the Company
wishes to caution the reader that there are many factors that could cause its actual
results to differ materially from those stated in the forward-looking statements.
This is especially the case because many aspects of its Year 2000 Program are
outside its control such as the performance of many thousands of third-party
suppliers, customers and end-users. As a global company it operates in many
different countries, some of which may not be addressing the Year 2000 issues to
the same extent as in the United States. As a result, there may be unforeseen
issues in different parts of the world. All of these factors make it impossible for
the Company to ensure that it will be able to resolve all Year 2000 issues in a
timely manner to avoid materially adversely affecting its operations or business or
exposing the Company to third-party liability.
-- Brian (firstname.lastname@example.org), August 11, 1999
Well, if nothing goes wrong, they do seem to be on track as far as time versus money spent.
I sure hope they pull through real well. We may need a few new chips next year.
-- Jon Williamson (email@example.com), August 11, 1999.
Am I correct in assuming that this is the most open and thorough, and apparently honest evaluation of their readiness that we have received from any major corporation to date? From what I've seen on the 'net, I would commend them on their degree of forthrightness. Wish we could get that from other corporations, and the government, national and local!
-- Elaine Seavey (Gods1sheep@aol.com), August 11, 1999.
Motorola is the best evaluation I have seen in a Y2K disclosure from the SEC filings. That doesn't make it the best on the net as there are alot of companies. The link below is testimony from Philip Morris to the Senate. It is also a good one.
You are right though, this kind of detail is needed to see that there is a big problem, and what is at risk. I would think that few would bother reading what is out there to begin with. There aren't many pictures in these documents.
Mr. Kevin Click, Director of Worldwide Y2K Corporate Compliance Efforts Philip Morris Companies Inc.
What really shocks me is the need for other companies, entities to replace mototola equipment and the lack of time to impliment those changes as stated above. There is simply to much to be done.
-- Brian (firstname.lastname@example.org), August 11, 1999.
Good post Brian. I sent the link to a Y2K skeptic buddy of mine at Motorola. Haven't heard back from him yet. Guess he'll have some cause to think more soberly about it since his own company is preparing.
-- cynic (email@example.com), August 11, 1999.