Zebra Technologies beats EPS but integration to come at a higher cost

Zebra Technologies reported its Q3 2015 earnings on November 10th beating analysts’ EPS estimates by $0.16 while missing on revenue by $2.22 million. The company’s revenues grew 3% from Q2 2015. Net sales of $916.27 million for the quarter included $605.1 million contributed by the Enterprise business unit acquired from Motorola Solutions, a 5.6% increase from Q3 2014. Zebra’s legacy business (including barcode printers, card printers, consumables, location services) accounted for $314 million, up from $303.3 million in Q3 2014. The company’s gross margin now stands at 45.2% for the first 3 quarters in 2015, down from 50% for 2014; this is reflective of rebranding of legacy Motorola product, the change in product mix and the contribution of Enterprise solutions to the overall revenues, which tend to have a lower margin than legacy Zebra products. Although Zebra managed to exceed analyst expectations in EPS estimates, company shares have fallen almost 12% since the Q3 earnings release.

Here are some key insights from the company’s 2015 third quarter performance. 

  • Zebra experienced a strong quarter for its data capture business unit driven by the increasing migration from 1D to 2D imagers and it plans to build on this momentum by actively engaging its installed client base. In addition, Zebra’s printing business experienced continued growth which was driven by the increased sales of table top and desktop printers.
  • OS migration continues to play a major role in driving sales growth this year as Android-based mobile computer sales have increased by 170% through September this year in comparison to the same time period last year.
  • North American sales were flat quarter on quarter with 3% growth. The company accomplished a number of new wins for mobile computers in retail and manufacturing engaging the Tier 2 & 3 markets. Growth for data capture came from Zebra’s scan engine business as more organizations transition and upgrade their scanning solutions to 2D imagers and the printing business continues to generate growth with the increased sales of tabletop and desktop printers. Zebra’s Latin America business was the only region to experience a decline this quarter with a 16% decline as a result of difficult currency and microeconomics challenges. The company plans to reengage the market once the regional economy improves. 
  • EMEA sales were stable at 3% this quarter as anticipated with typical European slowdown during summers, in contrast to the unusually strong Q3 in 2014. Zebra’s price increase back in April 2015 appears to have had limited impact on European demand as the company achieved new wins across retail, manufacturing and government sectors.  Sales remained strong for mobile computers in Europe with Germany and UK leading the way while the company saw a slowdown (even decline) in parts of the Middle East and Eastern Europe due to geopolitical reasons.
  • Asia Pacific led the way for most year-over-year growth with 23% in the quarter. In Asia, Zebra’s Enterprise division experienced strong sales in China, India, and Southeast Asia. The company saw success in the retail space for its mobile computing and data capture solutions driven by e-commerce adoption and upgrades. Increased sales of desktop printers to the healthcare and T&L verticals contributed to the positive growth for the printer business in Asia.
  • The company continues to gain traction with e-commerce, mobility and OS transition leading the way for growth. Hardware upgrades and e-commerce have driven retail sales growth for both mobile computers and scanners. Printer sales were also strong as desktop printers saw increased deployment across health care and T&L verticals. Ongoing printer hardware refresh at some of Zebra’s largest clients is also a key growth driver.
  • Zebra will continue to spend a substantial amount on integration and synergy operations. The company has expects synergy related expenses to increase to $180 million - $200 million which would see the company through to 2017 in its efforts to reduce costs and perform as one complete unit. Acquisition and integration related costs were $42.7 million this quarter, an increase from $35.2 million in 2014. As a part of its ongoing integration efforts, Zebra has carried out the removal of hundreds of Enterprise IT applications and Motorola service agreement items and is now focusing on the implementation of a companywide IT infrastructure and transitioning the Enterprise business onto Zebra Systems.  

With additional cost savings and cost controls being implemented, Zebra expects its positive growth to continue and plan to end on a high note in the fourth quarter. The company expects total revenues in the range of $945 million to $975 million. Zebra Technologies’ executive leadership is confident in its market standing and optimistic about market opportunities for the remainder of 2015.

Like we’ve mentioned in our previous posts, Zebra has its work cut out for it from a distribution and execution standpoint and needs to manage expectations via well-crafted messaging to both partners and customers. We will continue to follow the company’s progress and keep our readers updated.

(with Richa Gupta, Senior Analyst)


AutoID Market Shakeup: TSC Acquires Printronix’s Thermal Printer Business

Leading barcode printer vendor TSC AutoID Technology (TSC) announced on November 9 that it has signed a definitive agreement to acquire the thermal printing business of Printronix, a company focused on serving the industrial supply chain with its rugged, high-performance thermal label printer product line. This acquisition is expected to close in January 2016. I find this development equal parts interesting and refreshing. It has been a while since the market saw an acquisition by a vendor other than one of the AIDC conglomerates (Datalogic, Honeywell, Zebra Technologies, and the former Motorola Solutions).

TSC had a strong 2014, as indicated in VDC’s recently published 2015 Stationary Thermal Barcode Printers report, and has grown at consistently high rates in recent years while also outperforming overall market growth. The company is an especially strong competitor to Honeywell, SATO, Toshiba TEC, and Zebra Technologies in the Asian market. While TSC has made some headway into EMEA in recent months, its performance in the Americas left much to be desired. This will change with its Printronix acquisition as this vendor earns 90% of its revenues from the Americas and Europe. Printronix exclusively targets application environments in the industrial supply chain with its line of thermal label printers. The company had a lackluster 2014 in terms of sales growth, but saw a leadership change early in 2015 and started laying the groundwork for a new approach to building channel relationships. It is making its way into the low-end industrial market with its entry-level T2N series, priced aggressively at less than $1,000 for the 203dpi model. The company also recently released its second portable printer, M4L2, which is designed for use in industrial and warehousing environments. All of its recent investments prove its commitment to differentiating its product line from both Honeywell and Zebra. Printronix is also the only vendor that offers industrial label printers with in-line verification capability, giving the vendor a distinct advantage over its peers in industries like retail with strict labeling compliance requirements.

Market consolidation and over-distribution has given way to pent-up frustration with what is viewed as weak qualification criteria for premier partnership status especially as channel organizations look to enter/exit deals on a profitable note same as hardware vendors. With Printronix, TSC will now be able to take advantage of the company’s defensible niche position in the industrial label printer market. I expect more systems integrators and solution providers – including Lowry Solutions, Peak-Ryzex, and Supply Chain Services – to now seek out a partnership with TSC with an aim to broaden their solution offerings and include newer brands as part of the portfolio, especially if they can get better price exceptions and deals while also meeting unique customer requirements in the industrial supply chain with all-in-one products.


NFL Roundup: Zebra Technologies Makes a Big Play in Pro Sports with Embedded Sensors in Jerseys

With the 2015 NFL season underway, coaches, analysts, and fantasy football fans are hungry for the latest and most accurate stats for making vital decisions on and off the field. The NFL looks to have found an answer. Enter Motionworks by Zebra Technologies’ Sports Solutions Division. Created by the company’s Location Solutions group, Motionworks is a radio-frequency identification (RFID) tracking system which aims to bring better accuracy and insight into player performances than ever before. RFID systems have traditionally been used to track and trace items throughout the supply chain to enhance overall operational efficiencies but now the NFL and Zebra are tapping into this technology to create a better Football experience.


Image Source: Zebra Technologies

Zebra’s Motionworks system is an Active RFID Real Time Locate System (RTLS) which uses tags and receivers to track the players’ performances. Players have two tags embedded under their shoulder pads, which emit a unique electromagnetic wave frequency in order to differentiate each player on the field. The frequencies are collected by multiple receivers to triangulate each player position and then stored in datahubs. The data is instantly analyzed using an advanced algorithm and presented to users who are able to see player location and on-field performance in real time. NFL and Zebra present the data as Next Gen Stats, which includes performance analytics like player speed profiles, fitness graphs, play by play running routes, and more. Motionworks RFID player tracking system uses multiple unique RFID tags that are processed simultaneously and quickly by the receivers with very little energy and do not require tags to be in the line of sight allowing uninterrupted data collection. The system is used by all 32 NFL teams and is implemented across 31 stadiums, including London’s Wembley stadium, where six teams are set to play during the 2015 season.

Pic2 motionworks

Image Source: Zebra Technologies

We would not be surprised to see Zebra extend its reach with the Motionworks solution to other major sports and leagues, with stat-intensive sports such as Soccer and Basketball likely targets. Current alternatives to this solution in the market include Opta and Matrics. Used by Barclays Premier League in England, the World Rugby Cup, the Copa America, and the T20 Cricket league, Opta relies on global collection centers where local experts analyze video footage and information to provide up-to date stats of players and games. Opta’s data is used by some of the biggest media, channels, betting sites, teams and brands. The other big analytics provider is Matrics which is officially used by FIFA. Matrics utilizes three HD cameras to recognize all the players, referees and soccer ball on the field. The system tracks the coordinates of the objects between the three cameras and the data is relayed to the work center where analysts analyze the data and footage. Both Opta and Matrics mainly provide halftime analysis and post-game analysis due to camera based solutions requiring analysts to view video footage first and then recording statistics. In contrast, for Motionworks there is no lag between the data collected from the tags and the stats being broadcast. Looking ahead, Zebra plans to release tags in 2015 that will contain both RFID and Bluetooth communication technology enabling the integration of physiological sensing technologies such as heart monitors with real-time data transmission.

Motionworks differs from these camera-based systems in that it does not require cameras for analysis and its software can be overlayed on video to show real-time stats. This RFID technology brings a new dimension to the game with instant data communication and accuracy. Currently Zebra Technologies offers potential Motionworks clients a number of additional services including implementation and optimization of all hardware, gameday operations and maintenance to ensure 100% system performance, and analytics using its Time-Difference of Arrival algorithm (TDOA) application. This algorithm records the time of arrival of a distinct RFID signal from a player’s tag at separate receivers around the stadium. It then uses the time references of the signals to calculate the location, speed and direction of travel of the player throughout plays in real-time.

VDC believes Zebra Technologies can work with solution partners and sports governing bodies to offer its data collection and analysis platform to a broad range of application environments including:

  • Educational Institutions –Provide the Motionworks tracking solutions to schools, colleges and universities to be used by their respective sports teams and to organizations like the National Collegiate Athletic Association. Schools can use Motionworks like the NFL to track player performances in practice and in games and use the data for team and player improvement.   
  • Media and Broadcasters –media outlets, print media and sporting magazines can approach Zebra for its analytics platform to gain access to data feed services and widgets.
  • Gaming– with betting and the fantasy sports market growing, gaming organizations can use Zebra’s Motionworks analytics platforms to access accurate player stats and live data feed which they can use and integrate into their sites.

In addition, with its expertise in autoID and data capture solutions Zebra has the potential to engage the growing consumer market for fitness wearables and smart watches in the future by developing tracking sensors for athletic apparels and consumer devices such as the Fitbit and Jawbone Up. Consumer devices such as the Fitbit are popularly used for tracking health-related information such as sleep cycles, heart rate and steps travelled. Some models utilize NFC technology to communicate data quickly over to other NFC-enabled devices. NFC technology is a subset of RFID and operates via the same frequency as High Frequency RFID tags and readers. According to a recent interview by Zebra CEO Anders Gustaffson, the company has held discussions with athletic clothing manufacturers about potential partnerships to bring sensing and tracking technologies to their apparel lines. There is an opportunity for the company to partner with manufacturers such as Nike, Adidas, and Under Armor to produce smart clothing and wearables through the development of tracking technology which can measure movements and communicate between smart apparels and devices anywhere without the need for dedicated receivers. In its current iteration, Zebra's Motionworks technology is restricted to usage in a defined space (it requires both receivers and tags to measure movement), which it makes it unsuitable for consumer wearables that can measure movement anywhere and transmit data via Bluetooth and/or NFC. However, VDC believes this market represents a tremendous opportunity for Zebra going forward.

Ultimately, Motionworks looks to be the next big step in sports analytics and Zebra Technologies’ entrance into the sports industry displays the company’s versatility as a data capture solutions provider. The company has already expanded to sports beyond the NFL including Nascar and Soccer and has plans to add more to the mix.

(With Richa Gupta, Senior Analyst)


Socializing the AIDC World

(VDC breaks down AIDC solution providers’ use of social media and outlines best practices for success - download Executive Brief)

AIDC solution providers mentioned in this report - Barcoding Inc., Barcodes Inc., Cognex, Datalogic, Honeywell Scanning & Mobility (now part of Honeywell Sensing & Productivity Solutions), Lowry Solutions, SICK AG, System ID, Wasp Barcode, and Zebra Technologies

Social media continues to be a relatively under-explored and under-utilized avenue for digital marketing within the AIDC community. In our bid to transform how AIDC solution providers use social media platforms, VDC just published a report on current usage trends and statistics along with detailed insight into best practices that can help them achieve their objectives for social media engagement. The report focuses on four platforms – Facebook, LinkedIn, Twitter, and YouTube – and 10 AIDC solution providers’ presence, outreach, content generation consistence, and engagement on each. VDC believes each chosen organization is influential in the AIDC space due to their technology and market development and their established presence on one or more social media platforms.

(The chart below highlights Engagement Rate statistics for 10 data capture solution providers, part of VDC's latest social media-focused report.)

Engagement rate aidc social media

Leading vendors are starting to take steps by hiring talent exclusively dedicated to managing content creation for these platforms and having targeted, specific, and measurable goals outlined for social media engagement. While short-term returns associated with social media activities may be limited, consistently posting the right type of content for the target audience (on each individual platform) will help generate an attractive ROI – in terms of (potential) lead generation and higher levels of engagement (with customers, partners, and employees).

We explore these themes in the Social Media report and also talk about the opportunity in front of AIDC solution providers to extend their reach and enhance their levels of engagement on these popular social media platforms. While this report is available to existing clients for free, non-clients can download this Executive Brief and contact us to learn how they can access the full report.


Barcode Scanner Vendors Entering Consumers’ Homes? Looks Like We’re Almost There!

What is the next step in the evolution of the barcode scanner market? Are vendors going to be restricted to B2B transactions or is there a potential consumer device opportunity for them here? In this blog post, VDC will focus its attention on two at-home scanning devices – Hiku Labs’ Hiku and Amazon’s Amazon Dash (both the wand and the button).

Hiku, an in-home barcode scanning solution designed by Silicon Valley startup Hiku Labs, is a 1D barcode scanner with a built-in microphone to help consumers build grocery and shopping lists. The product can be used at home to generate these lists by either scanning barcodes on everyday items or speaking into the device. It was first introduced to the market in October 2013 and is compatible with both Android and iOS.

What VDC finds particularly interesting is that Hiku’s executive team considers this to be a reference design or proof-of-concept while placing more value in the “smarts” built into the device (as opposed to the hardware itself). This start-up is open to having OEMs build devices that leverage its cloud-based platform, which includes barcode lookup, voice transcription, and data synchronization. Its platform enables users to scan and recognize items by retailers that do not make their UPC codes available to the public – by crowd-sourcing barcode label information and uploading it to the cloud.

As it stands today, the company’s decision to launch an in-home scanner with a 1D linear imager is purely based on the fact that most barcodes in circulation today (as part of product identification labels) are 1D. The mic allows users to add items that, for instance, they may not have around to scan. The Hiku hardware also has a magnet by which a consumer can place it on their fridge or any such surface in the kitchen. Forgoing the traditional Bluetooth connection, Hiku supports a wireless b/g/n connection to connect to the internet and user’s phone. Items which are scanned or picked up through the microphone are sent up to the cloud platform, where the item is recognized and then added to the user’s shopping list. Hiku Labs wants the product to be device-agnostic, with the ability to upload across a variety of different types of hardware and OS platforms. Hiku’s creators want OEMs to leverage their APIs and platform for at-home scanners – essentially creating hardware that plugs right in with Hiku’s solution and its capabilities – all while keeping overall costs in mind. The goal is to have consumers always pay a flat price for these products – no recurring fees or subscription-based models.

The device, as it stands today, is being piloted by notable supermarket chains – Waitrose in England and Cole’s Supermarkets in Australia; the company also announced a full rollout by French supermarket chain Chronodrive in March 2015 – marking it the first commercial availability of Hiku in the world. The device and API support multiple languages as Chronodrive customers are mainly French speaking. While Hiku is successfully piloting its products internationally, the company is yet to announce any major tie ups in the US. With the vision of providing what Hiku calls “frictionless shopping,” the company wants to reduce the steps involved in replacing items that consumers run out of. Via its partnership with Chronodrive, Hiku has enabled seamless scanning and listing of items through the device to the retailer’s app, and a mobile/e-payment option, and then having consumers simply picking up the desired items from the store-of-choice.

What VDC views as one of the primary adoption deterrents is the fact that this solution, at least for now, is designed to support only one retailer at a time, making it quite an expensive proposition for consumers looking to ease the shopping list creation process. Hiku has dropped its price per device from $79 to $29 (special promotion), making it slightly more palatable, but costly nevertheless. Most, if not all, shoppers shop at more than one store at a time. Hiku’s “exclusivity” clause with retailers could be detrimental to its future growth, making it something the company needs to work on.

Along similar lines, Amazon introduced the Amazon Dash (wand) in 2014, aimed at Amazon Fresh customers in California and Seattle. Like the Hiku device, this wand scans barcodes and is also capable of transcribing voice commands – connecting to smart devices (smartphones, tablets, laptops) via Wi-Fi, and automatically adding items to the customer’s basket on Amazon Fresh. Customers have access to everything from groceries to electronics, household tools, and games via their Amazon Fresh subscription. From VDC’s perspective, Amazon is likely to be more successful with this product than any of its competitors in the marketplace because Amazon.com is a one-stop shop, capable of fulfilling all of a consumer’s shopping requirements – plus, available for free. For now, however, its limited availability (by invitation only) is potentially holding back consumer use.

Amazon also revealed its Dash button 5 months ago, again as an “invitation only” product, but made it available to all its Prime members on September 2nd. This product is designed to help consumers instantly order more of a single product at the press of a button, pushing a confirmation notification on the phone before it ships. The company now has more than 29 CPG brands (including Bounty, Clorox, Hefty, Tide, and Ziploc) and 500 products that can be ordered with the click of a Dash Button.

The at-home scanning market still has a long ways to go, of course, but it is interesting to talk about and follow all these developments. Leading AIDC market participants are eager to learn more about how they can potentially target the end consumer with their products, and this certainly sounds like the right kind of opportunity. Potentially. While there certainly is an OEM scan engine opportunity here, can traditional barcode scanner vendors do more from a (final) product design, development, marketing, and innovation standpoint? Or is the smartphone going to be the primary at-home scanning device for consumers? Would it be more judicious for retailers to integrate voice recognition and enterprise-grade barcode scanning types of capabilities into their consumer device application itself?

VDC will explore this topic while discussing products like the Amazon Dash and Hiku in its Mobile Scanner report scheduled to publish in Q4 2015.

(With Shahroze Husain, Research Associate)


Can Scandit’s new Proof-of-Delivery (POD) system break through the rugged handheld-dominated logistics and delivery industry?

Zurich based mobile image processing and cloud computing software vendor Scandit recently announced the launch of its new mobile Proof-of-Delivery (POD) System for the logistics and transportation industry such as logistics providers, couriers and postal services. POD apps are designed to track the delivery of products through the delivery chain by scanning barcodes on packages and collecting signatures upon delivery. POD solutions are designed to improve efficiency, reduce paperwork, and eliminate errors.

Designed to enable mobile workers to use consumer grade smartphones and wearables in logistics applications, the POD solution is an all-in-one logistics suite. The system includes Scandit’s proof-of-delivery app, along with its Enterprise Mobility and Data Capture Cloud software. The app which is both Android and iOS compatible, carries features including navigation, geotagging, signature capture, and barcode scanning, supporting both 1D and 2D symbologies.

Scandit is leveraging its barcode scanner SDK and has created an app suite for transportation and logistics (T&L) around it. In addition to its Proof-of-Delivery solution, Scandit also has customizable apps for Shipping & Receiving and Asset Management in its suite of logistics solutions. The customizable apps can be leveraged by the development community to create end-to-end solutions for T&L enterprises that can customize these apps to fit their needs.

  POD system

Image Source: Scandit.com

The image above highlights Scandit’s POD solution architecture. It works through an interconnected system where the customizable POD app, integrated with Scandit’s barcode scanner SDK installed on a smartphone, is connected to Scandit’s Enterprise Mobility and Data Capture Cloud service, which in turn is connected to clients’ current IT infrastructure with existing data sources. Scandit’s POD solution integrates with existing IT infrastructure in place for logistic providers, couriers and postal services and can connect client’s Enterprise Resource Planning, Transportation Management Systems and Warehouse Management Systems to the mobile workforce. It can also be downloaded to corporate devices or by third party contractors, allowing transparency to the full delivery chain to track progress and location in real time. Scandit’s Enterprise Mobility and Data Capture Cloud software offers device management of devices on the field, a built-in analytics dashboard, and additional configuration and management options while deliveries are being made.

Currently, the T&L industry’s primary solution for field operations is rugged devices with major companies such as FedEx, UPS, USPS, and Royal Mail all employing rugged handheld devices for their product tracking and delivery needs. The decision to go with rugged devices such as Zebra’s MC9500 (FedEx) or TC75 (Royal Mail), and the custom Mobile Delivery Device by Honeywell (USPS) is based on these devices’ usage scenarios – for making more than 100 stops per day, and the need to withstand drops, dust, water, and other outdoor conditions. Due to concerns surrounding ruggedness, companies like FedEx have traditionally stayed away from deploying consumer-grade devices for field operations but have considered using consumer grade devices with rugged cases for applications in hubs and stations. Companies in the T&L space carry out refreshes for these solutions every 4-5 years.

Scandit’s new solution may break this traditional mold as its platform uses a device’s built–in camera to capture barcode information from any angle, with high read rates and offering the same level of scanning efficiency as dedicated barcode scanners (or mobile computers with integrated scan engines) while decreasing the overall TCO as compared to dedicated solutions. Adoption rates will depend on acceptance of and investments by major logistic providers and courier services as they evaluate ROI implications.

Innovations in smartphone design and improved ruggedized casing for protecting consumer grade devices in harsh environments will play a role in the adoption of Scandit’s POD solution in the market. Scandit will likely have to wait but the company has already taken a step towards maybe bringing a big change to the T&L industry. As a result, we may soon see such solutions leveraging consumer grade devices being used beyond the hubs and stations of delivery companies in this vertical.

VDC will explore this and other mobile scanning solutions further in an upcoming VDC Report on Mobile Scanning Solutions. Stay tuned!


Zebra Technologies – Is the “Better Together” campaign really working?

Zebra Technologies reported its Q2 2015 earnings on August 11th missing analysts’ EPS estimates by $0.13 while beating on revenue. Net sales of $889.8 million for the quarter included $573 million contributed by the Enterprise business unit acquired from Motorola Solutions, a 2% increase from Q2 2014. Zebra’s legacy business (including barcode printers, card printers, consumables, location services) accounted for $320.8 million, down 3.2% from Q1 2015 but up from $288.4 million (11.2%) in Q2 2014. The company’s gross margin now stands at 44.2%, down from 49.3% for 2014; this is reflective of rebranding of legacy Motorola product, the change in product mix and the contribution of Enterprise solutions to the overall revenues, which tend to have a lower margin than legacy Zebra products.

All in all, the investor community is not pleased with the results, sending the stock down almost 24% in a day. From VDC’s perspective, this reflects the market’s reaction to the significantly lower gross margins, lower-than-expected Q3 guidance, and the $3 billion debt that Zebra Technologies has on its hands. Investors are still getting used to the new normal at the company especially given how robust its legacy business performance has been in the past few quarters, especially for what is generally viewed as a stable and relatively saturated market.

The VDC team was invited by Zebra Technologies for a day-long analyst event a few weeks ago to take a sneak peek at some (relatively) new and emerging solution offerings from the company since its acquisition of Motorola Solutions’ Enterprise business unit. VDC was privy to innovative proof-of-concepts and solution capabilities that we are not at liberty to discuss, but there certainly are products and services that we can share here on this blog.

  1. MPact Marketing Platform – This is Zebra’s customer engagement offering that leverages the company’s locationing technology to generate highly personalized and (potentially) customer-specific marketing analytics and insight. This platform is designed to enable decision makers in customer-facing application environments to enhance engagement levels using information available on the MPact dashboard, giving them high levels of visibility into customer movement and providing actionable (and customizable) insights. From VDC’s perspective, the biggest potential drawback to this solution is that all of this information is only available IF customers opt-in to receive in-store or indoor notifications AND also turn on Bluetooth on their mobile devices. While this is an effort to close the gap between online and brick-and-mortar retail in terms of promotions and product recommendations, VDC does not see any material enhancements to the platform since its launch more than a year ago.
  2. SimulScan Document Capture – This was, perhaps, one of the most interesting product demonstrations at the event. The API is designed to extract critical data from documents, automating data entry even with character recognition, helping organizations make the switch from paper-based tracking to one that is fully available electronically. With the ability to also capture information from multiple barcodes at the same time, VDC believes SimulScan has the potential to significantly enhance productivity, providing chain of custody of all material to improve supply chain efficiencies. Zebra now has SimulScan as part of its Mobility DNA suite which also includes Workforce Connect Push-to-Talk, RhoMobile, and Swipe Assist among others. VDC believes extending this SimulScan capability to purpose-built handheld barcode imagers will give the company a big leg-up over its competition in the highly fragmented scanning market.
  3. Zebra One Care and Operational Visibility Service (OVS) – Zebra also officially released a new integrated service portfolio, Zebra OneCare – primarily offering break-fix, repair, and maintenance services for Zebra- and Symbol-branded devices. The portfolio is a combination of Zebra’s previous Zebracare and Motorola Solutions’ Service from the Start. OVS is designed to provide insight into device health, location, and utilization, and to deliver the data and analytics required to optimize device efficiency and is included for no additional charge in the Premier package of Zebra Onecare. This is a big step in Zebra’s efforts to integrate the new acquired division with its legacy business. The company is making a concerted effort to communicate the value proposition and benefits afforded by these new service portfolio extensions and enhancements enabling partners to resell and rebrand the OVS for deeper customer relationships. From VDC’s viewpoint, it will be interesting to see how the company differentiates this offering from Honeywell’s device management software for scanning and mobile devices, Remote MasterMind®.

It was interesting to see all these solutions and innovative product ideas coming from the erstwhile Motorola Solutions Enterprise unit. However, despite the branding efforts and the combined partner program launched at the Global Partner Summit in May, VDC finds the messaging to be a little disjointed. Product innovation and development continue to be largely restricted to the way things were conducted prior to the acquisition. That said, it has been less than a year since the two businesses came together. While Zebra executives may certainly be professing the “better together” mantra, we believe the market will only be convinced once it sees integrated product development and marketing initiatives from the company.

There is, obviously, a lot more to come from Zebra Technologies. The company’s messaging to its partners and customers needs to match up to expectations from a distribution and execution standpoint – a tough ask, especially given the sizable acquisition (and debt) that it has undertaken. Zebra’s (re)branding efforts in the past few months have certainly been very commendable; it is now up to the company’s leadership to take it to the next level with extensive collaboration across its two “divisions” so they really are viewed as better together by key stakeholders.


Cognex Stock Plunges 20% Day After Q2 Earnings Call; Weak Q3 2015 Outlook to Blame for Sharp Decline

On August 3rd, Cognex (CGNX) published its second quarter results ending July 5, 2015 and recorded a historic winning second quarter for the corporation, ranking the second highest for any quarter in its history. The revenue from continued operations amounted to $143.8 million in the past three months, a 56% growth from the year ago quarter and a 42% sequential increase from Q1 2015. Income from continuing operations from last year and the previous quarter rose 92% and 123% respectively. This quarter’s revenue and income calculations excluded sales from the discontinued Surface Inspection System Division (SISD) operations, which generated $11.2 million in revenue in Q2 of 2015. With the strategic sale of its surface inspection business in early July, Cognex plans to sharpen its focus on automating discrete manufacturing applications with the high-margin yielding machine vision and ID product lines. You can read more about our thoughts on the acquisition here. RD&E and SG&A expenses grew 8% from the previous quarter due to new product development costs and legal fees related to Cognex’s recently-resolved patent dispute with Microscan.

Despite global currency exchange rate fluctuations, Cognex’s operational margins rose to 36%, a 14% increase from the prior quarter. Factory automation revenue contributed $137 million or 95% of total quarter two revenue; majority was accounted by the large volume orders from the consumer electronics industry. Cognex has experienced much success in the European market in the past few quarters; this continued in Q2 with Europe’s consumer electronics sector making significant investments in the company’s factory automation solutions (both machine vision as well as ID products). Asia, excluding Japan, witnessed another solid quarter. The company continues to see success in China, despite the economic woes that the country is presently facing. Cognex is doing particularly well in consumer electronics and electronic components manufacturing industries and is fully committed to generating growth in the long-term. However, from VDC’s perspective, it is the company’s performance in and outlook for the Americas that is most disturbing for the broader investor community. The company is now seeing much lower-than-expected growth from the region with customers pulling back on their factory automation-related investments. Reasons for this “stagnation” as outlined by the company include a strong US dollar, macroeconomic uncertainty, and company-specific considerations especially with “large postal and parcel providers getting pushed out for financially-driven reasons”.

In other not-so-good news, contrary to the company’s growth trajectory in the past few quarters, Cognex has set conservative guidance below market expectations for Q3 2015. Revenues are estimated to be between $106 million and $109 million, a range notably trailing both Q3 2014 (and Q2 2015) figures as well as Wall Street analyst expectations for $144 million. The company also expects a slight decline in gross margin percentage to the mid-70s due to a higher percentage of services-related revenues, consistent with its guidance for Q2 2015 as compared to Q1. Operating expenses will decrease 5% sequentially, helped by the Microscan resolution and lower internal employee-related overheads.

Unimpressive revenue growth in the Americas, timing fluctuations of large projects, and the related uncertainty has some investors questioning the long-term growth potential of the company, leading to a sharp decline in its stock price on August 4th, the day after its earnings call. Cognex’s growth in the logistics vertical in Europe, a relatively undeveloped market territory, has also been deferred to 2016 due to timing and financial drivers. Demands for factory automation in non-automotive industries are forecasted to decline in the Americas.

While factory automation investments are typically soft in Q3, it is important for Cognex to not be overly reliant on a few large customers to meet its growth and profitability targets. From VDC’s perspective, it is important for this leading machine vision solutions vendor to diversify its offerings and further expand its presence in non-electronics markets that have a lower tendency to exhibit massive cyclical fluctuations. What Cognex certainly has going for it is its strong competitive positioning and its market leadership in this space from a product development innovation standpoint. The company is actively looking to acquire – with a focus on enhancing its technology expertise and product feature set, which help keep its gross margins high in an industry that is inundated with vision-based options for automation. Interesting times up ahead for Cognex as it grapples with a certain loss in investor confidence but seeks to build it back with its innovation, new market focus (including life sciences), and potential acquisition(s).

(With Jenny Hai, Research Assistant)


Digimarc makes a splash in Retail with Walmart Partnership; Stock UP Nearly 45% in a Month

Big news for Oregon-based inventor of the ‘invisible’ barcode as Digimarc made headlines last week when Walmart’s CEO Doug McMillon posted a photo on Instagram, which shows testing of Digimarc’s invisible barcode on a packet of chips.

Since 2014, Digimarc has made great strides in its bid to make its patented Digimarc Barcode the next big thing in the retail space. Taking the traditional UPC barcode, Digimarc makes it invisible to the naked eye using digital watermarking technology and places the barcode all over the printed packaging of the product. This allows for image-based cameras that are used to scan items to quickly pick up the barcode in record time, removing the need to rotate/move around the packaging. Currently, Digimarc’s partner Datalogic offers the capability to read Digimarc Barcode on every imager across both stationary and handheld form factors, with other partnership announcements expected in coming weeks.

Since its launch, the technology was first adopted by supermarket retail chain Wegmans, which incorporated the Digimarc barcode on its private label products. Digimarc was also on the news in May, 2015 when mobile app Shazam, announced the integration of Digimarc’s patented print and audio identification technology to its app. This was followed by the announcement by SAM Group, a leading POS services provider that works with major POS vendors that it will integrate Digimarc Barcode recognition to its product offerings.

Digimarc has also continued developing its Digimarc Digital software enabling barcode scanning using smartphones and other mobile devices from home and outside the retail store. It is a highly relevant and timely technology introduction in the industry as retailers look to enhance their levels of engagement with customers at home to increase customer loyalty. As these consumers scan products at home, information including their purchase history and items they scan can provide retailers with a wealth of information on customer buying habits and trends.

Currently, the Digimarc barcode is at the proof-of-concept stage with Walmart, unlike Wegmans that has printed it on its private labels offerings. Retailers are fully aware of the ‘mixed basket’ challenge as not all products in the store will bear the Digimarc code (at least not in the near term). Products without the invisible code will have to be scanned using the traditional method, which will result in varying levels of checkout efficiency. Impacted by the declining use of traditional cash currency, expiration of licensing deals and consumers moving to electronic forms of payment, this could potentially open up a much needed revenue generating opportunity for Digimarc.

Since Walmart CEO Doug McMillon’s Instagram post last week, the Digimarc stock has climbed to $44.76 as of June 30, 2015. With one of the world’s largest retailers testing its solution, Digimarc can expect great things. However, adoption rates will depend on acceptance of and investments in new camera-based imagers by major retailers that are particularly wary about ROI implications of their technology investments.

VDC took a deeper dive on this rather interesting topic – Digimarc and its “invisible” barcode – last month. You can download the report here.


NCR puts itself up for acquisition; VDC breaks down the “retail” reasons why

On April 22nd, The Wall Street Journal announced the news that ATM-maker NCR is eyeing strategic alternatives as they face lagging stock prices and shareholder pressure. A potential spinoff, sale of assets, or a full acquisition/buyout - all seem like very viable possibilities. On June 2nd 2015, news broke of NCR asking for first-round bids from prospective buyers and on June 16th, two large private equity firms, Blackstone Group LP and Carlyle Group LP, have paired up in a $10 Billion leveraged buyout (LBO) offer for NCR, including debt.

Started by John H. Patterson in 1884, the National Cash Register Company was the maker of the first mechanical cash registers. Moving forward to 2015, the company is now known simply as NCR, and sells transaction services, automated solutions, software and consulting services to clients across a wide array of industries including financial, retail, hospitality, travel and government. The company facilitates over 550 million transactions a day. NCR divides itself into four major segments: Financial Solutions, Retail Solutions, Hospitality Solutions, and Emerging industries.

  • Financial Services provide ATM and payment systems along with software and services for cash management, digital banking, maintenance, and management.
  • Retail Solutions provide retail-oriented solutions and systems including POS terminals and software, barcode scanners, self-checkout solutions and kiosks, printer media and software – all in support of an omnichannel experience. In addition, this division provides professional services including installation, integration, device management, and maintenance for some of the company’s largest clients.
  • Hospitality provides systems and solutions for restaurant chains and venues including POS hardware and software along with professional services and printer media. 
  • Emerging Industries which is targeted towards newer industry verticals including telecommunications and technology, and travel includes maintenance and professional services for third-party hardware for certain manufacturers. It also provides small business-specific systems and solutions including comprehensive POS terminals, software and professional services.

In order to remain competitive and adapt to changing market conditions and consumer trends moving online, NCR made large acquisitions, buying companies like Retalix and Radiant Systems to strengthen its Retail Solutions division and enter the Hospitality segment respectively. However, since then, NCR has failed to integrate and generate sufficient growth from the acquisitions and now carries debt of $4 billion. In this blog, I will shine the spotlight on NCR’s acquisitions of these companies, thereby highlighting the company’s present (unenviable) position from a Retail and Hospitality standpoint.

To expand its Retail Solutions business, NCR acquired Retalix, an Israeli vendor of retail, marketing, supply chain and logistics software solutions. The company was purchased for $650 million with the aim of cross-selling to a combined, larger client base, improving margins through its software model while also leveraging R&D best practices. However, NCR did not successfully leverage Retalix’s strengths to position itself as a leader in the next-generation retail solutions segment – from a mobility and e-commerce standpoint. The division has faced challenges with slowing demand from retail customers as they increasingly embrace mobile devices to support transaction processes and cloud-based solutions for their e-commerce initiatives. Retail Solutions has seen revenue declining quarter-on-quarter since Q1 2014 with the latest Q1 2015 results showing a 9% decrease in revenues, at $445 million. This, coupled with an operating margin of 7.7% in 2014, which lowered from 10.1% in 2013, continues to negatively impact overall profitability. The company’s inability to move with the times, especially as it relates to fulfilling its retail customers’ growing focus on e-commerce and online order fulfillment, along with its increasing liabilities are significant contributors to its declining revenues and profitability.

Acquired in 2011, Radiant Systems was a specialized provider of hospitality POS software and solutions which allowed NCR to become competitive in the Hospitality segment. NCR’s hospitality segment makes up only 10% of revenues and has seen declining quarter-on-quarter revenue growth since the first-quarter of 2014. During Q1 2014, revenue growth was 14% quarter-on-quarter, which has dropped to a 1% decline in Q1 2015. The division has also seen its operating margin drop from 16% in 2013 to 13.8% today. Like retail, the hospitality segment encountered slower sales with customers moving away from traditional POS terminals to mobile and handheld solutions, highlighting the massive gap in NCR’s core product line(s). This part of the business has also been affected from the move to mobile POS, as restaurant POS vendors such as Vend and Touch Bistro use subscription-based models for restaurant POS systems to lower capital expenditures. Furthermore, the increased availability of mobile devices has led to smaller restaurants using these solutions to offer greater flexibility and varied payment acceptance, especially as restaurants begin to accept electronic wallets like Apple Pay, which is proving to be a big miss for a company like NCR.

In a positive move for the company, NCR updated its NCR Silver platform, a cloud-based POS solution for the iPad and iPhone that is aimed at serving small businesses. To stay current with evolving market trends, NCR integrated payment alternatives including PayPal, Apple Pay, Bitcoin and LevelUp along with providing enhancements to facilitate safer and more secure transactions. The company has also priced the service more competitively with NCR Silver offered at $59/month, aimed at small businesses, and a NCR Silver Pro Restaurant Edition priced at $129/month. NCR’s Emerging Industries division is also looking to introduce chip and PIN capability later in 2015. With these latest updates, VDC believes NCR is embracing change while staying competitive with offerings in the marketplace today.

NCR’s retail and hospitality-focused acquisitions have not performed according to market (or even company) expectations. Ineffective strategy execution has also resulted in little-to-no organic growth while prompting the company to take on a large debt for financing these sizable acquisitions, in both the retail as well as financial services sector. NCR’s less-than-optimal performance in recent quarters has pushed its largest shareholders to look for strategic alternatives. Will it better for investors to buy parts of the company as opposed to the whole? That remains to be seen. But, for the company to re-invent itself and get back to its glory days with its retail and hospitality divisions, NCR will have to make a concerted research and development effort to introduce innovative products and solutions that align themselves well with end users’ evolving profitability goals and customer engagement initiatives. The company has a great foundation to build off of; it’s now time to change up the structure and better position its business for current and emerging growth opportunities.

VDC will explore this topic further in an upcoming VDC View. Stay tuned!

(With Richa Gupta, Senior Analyst)


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