VDC Research: RFID, Barcode, Retail Automation & Self-Service Market Blog

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.

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)

Cognex sells its Surface Inspection division for $160 Million; VDC Speculates What’s Next for the Company

Cognex Corporation (CGNX), a leading vendor in the machine vision and industrial scanning markets, announced the acquisition of its Surface Inspection Systems Division (SISD) on June 8, 2015, as part of a $160 million, all-cash deal with AMETEK Inc., a multi-billion dollar manufacturer of electronic instruments and electromechanical devices. While the transaction continues to be subject to closing conditions and regulatory approvals, AMETEK expressed its enthusiasm to have the new SISD department as the latest addition to its Electronic Instrument Group (EIG) product portfolio, a leader in the design and manufacturing of advanced instruments for the process, aerospace, power and industrial markets, which amassed a total of $2.4 billion in sales in 2014. With the strategic sale of its surface inspection business, a division that generated $60 million in sales in 2014, Cognex plans to sharpen its focus on automating discrete manufacturing applications via its Modular Vision Systems Division (includes machine vision and ID products), which accounts for 84% of organizational revenues as of Q1 2015.

Cognex first introduced the SmartView® surface inspection platform in 2000 after the acquisition of Isys Controls, Inc in 1996, a small company that had developed high-performance machine vision systems to automatically detect and classify surface flaws and defects on high value-added materials. Under Cognex, this division now diversifies across verticals with image processing technology that detects, classifies, filters, and maps specific defects on area surface of metals, paper, plastics, nonwovens and glass manufacturing. In addition to the advanced line scan cameras that enable immediate defect detection in high-speed applications, the SmartView® platform also supports global customers with superior detection algorithms, a range of classification and data management software, and technical assistance spread throughout countries in the Americas, Europe, and Asia, including Japan and China. Asia-Pacific, including Japan, accounted for 40% of SISD revenues in 2014, Americas for 40%, and Europe for 20%. Cognex has installed over 1,000 of its surface inspection systems globally with its customer portfolio including names like AK Steel, USS, Bao Steel, China Steel, TATA, and ArcelorMittal.

Cognex has chosen to sell its surface inspection business despite the 29% sales growth from 2013 to 2014 and record sales levels that this division experienced in Q4 2014, particularly for applications like specialty metal inspection (for Aluminum going into car bodies). VDC believes this can be attributed to the company choosing to exclusively focus on discrete manufacturing and logistics opportunities, coupled with the surface vision division’s relatively lower contribution to overall profitability. SISD gross margin stood at 55% in 2014, which was significantly lower than that of the factory automation division (MVSD) with a 78% gross margin. The complex nature of inspection technology required Cognex to opt for in-house manufacturing at its Hayward, California facility, whereas a majority of MVSD products are outsourced to Asian OEMs (like in Indonesia). This difference in gross margins can also be explained by the high service to product sales ratio in SISD, and the lower yield in margins for service revenues in contrast to product revenues. In 2014, Cognex reported that 30% of SISD revenue was derived from service sales, which included the sale of maintenance & support, training, consulting, and installation. Only 4% of MVSD revenues were from service sales and the remaining 96% were from the higher margin yielding product sales – which include technology systems, hardware, and software.

From VDC’s vantage point, this is a great move by Cognex, which can now focus its attention on existing and emerging opportunities for its machine vision systems and ID products portfolios. The company has experienced much success in the consumer electronics and logistics industries in the past few quarters, a momentum that it can capitalize on going forward by intensifying its product development and sales efforts in these high-growth markets. In its latest earnings call, Cognex outlined the enormous potential it sees with large accounts in these verticals, which the company is very eager to profit from. At the same time, the company will lose out on business in metals in China, which is a particularly appealing market right now because of growth in the automotive sector. That said, revenues from this division have been characteristically lumpy because of timing of deliveries and the impact of revenue deferrals.

Its sale of the surface inspection division will not only make it a more profitable company (higher overall gross margins), but also significantly boosts its cash reserves. Cognex has no long-term debt and, per its most recent annual report, does not anticipate needing debt financing in the near future. This opens up the very distinct possibility of Cognex potentially acquiring another company to achieve one (or more) of the following objectives – boost its engineering talent, grow its logistics customer base, or even build partnerships with leading global material handling systems integrators and solution providers.

(With Jenny Hai, Research Assistant)

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Zebra Technologies’ Stock Pops; Company Soars to New Highs

Zebra Technologies (ZBRA) reported its Q1 2015 earnings on May 13th, beating the market consensus on EPS by 27 cents and that on revenues by $11.37 million. Net sales of $892.3 million for the quarter included the $561 million contributed by the Enterprise business unit acquired from Motorola Solutions, a 6% increase on a constant currency basis. Zebra’s legacy business accounted for $331.6 million, up 15% from Q1 2014, a remarkable increase for what is generally viewed as a stable and relatively saturated market. The company’s gross margin now stands at 45.8%, down from 51.3% for 2014; this is reflective of 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.

Zebra also spent a substantial amount on integration-related activities. The speed with which the company has integrated the two businesses is rather impressive, especially given the size and scale of each of the individual business units. In the past few weeks, Zebra has also launched a new website and hosted its annual partner conference, all with a goal to communicate its new market messaging and value propositions.

Now, here are some key highlights of the company’s first quarter performance:

• The data capture business unit experienced its second strongest quarter ever (following Q4 2013) – with a healthy run rate business and a number of large deals. Its camera-based bioptic scanner product line is doing particularly well, with the value propositions resonating immensely with large retailers in the US.
• North America and EMEA continue to be the strongest regions for Zebra. With sales of $443 million and $291 million in the two regions respectively, the company is re-affirming its market leadership position, especially with its legacy printer products.
• Retail sales were particularly strong in the US as the company saw large deals for printers, mobile computers, and data capture solutions. Healthcare has consistently been a strong performer for Zebra in the past few quarters. The trend continues with growing traction for the company’s solutions to help care providers with medication management, patient identification, and specimen tracking.
• Perhaps the most noteworthy development in Q1 was the company’s price increase announcement in Europe in late March, effective late April (after four weeks). This is a move to counter the impact of the strengthening dollar and weakening Euro on the company’s profitability and bottom line given that the region represents about 25% of overall revenues. Zebra expects high stickiness for its run rate products like printers and data capture solutions.
• Enterprise business unit sales in Asia are in the process of getting back on track after having faltered for much of 2013 due to issues with the sales force and other operational challenges. The company’s efforts to reengage with channel partners in the region and rebuild relationships seem to be paying off with sales in China up sharply for Q1. Overall revenues in the region were at $106 million with sales to customers in logistics and healthcare verticals offset weakness in demand in manufacturing.

The company expects the growth trajectory to continue into the second quarter especially with a strong pipeline for large deals. For Q2, Zebra expects total revenues in the range of $865 to $895 million. The price increase on Euro-dominated sales will start to have a positive effect this quarter and is expected to have a more pronounced impact in the second half of the year.

Following its earnings release, ZBRA’s stock went up more than 12%. This speaks of investor confidence in the company and the efficiency with which Zebra seems to be communicating its “One Zebra” message to its customers and partners. Zebra Technologies’ executive leadership is confident in its market standing and optimistic about market opportunities for the remainder of 2015. At VDC, we will continue to follow its progress and keep our readers updated.

More AutoID Industry Consolidation on the Horizon - Who's Next?

How will the final quarter of 2014 shape up for the AutoID and Data Capture industry? Can the market accommodate or even handle one more acquisition? I believe it can. In this blog, I will highlight my top picks for:

• The company most likely to make an acquisition
• The company (or business division) most likely to be acquired

The AIDC market has had a rather interesting 18 to 24 months with some big name acquisitions. First, there was Honeywell’s acquisition of Intermec Technologies. When this deal closed in September of last year, the Federal Trade Commission (FTC) placed conditions on this proposed merger, taking issue with the competitive impact of this merger on the 2D barcode OEM scan engine market. In order to ensure that Motorola Solutions and Honeywell are not, essentially, the only vendors competing in the US market for this product category, the FTC afforded Italy-based Datalogic the choice of licensing Intermec’s 2D scan engine patents for the next 12 years. That aside, Honeywell now became involved in the development, manufacture, sale and integration of all core AIDC technologies (barcode scanners, barcode printers, RFID, rugged mobile computers, etc.), giving enterprises with AIDC solution requirements a “one stop shop” alternative.

And then there was Zebra Technologies’ rather unexpected acquisition of Motorola Solutions’ Enterprise business unit in April, 2014 for $3.45 billion. This deal continues to remain subject to regulatory approval, although VDC does not anticipate any issues here. Zebra has now gained direct entry into the broader AIDC market, making it a one-stop-shop much like Honeywell. In addition to its leadership position in the thermal label printer market, Zebra inherits Motorola’s leadership position in rugged handheld computing and barcode scanning, segmented entirely complementary to Zebra’s existing solutions portfolio. However, the deal does have us wondering. To what extent was its timing influenced by longtime Zebra partner Honeywell’s acquisition of Intermec and the addition of their printers to Honeywell’s solutions portfolio, rendering its partnership with Zebra essentially unnecessary?

No, I do not expect either of these companies to jump in and make another acquisition anytime soon. The industry veteran I am looking at is Datalogic, part of the “big 3” in the AIDC space, together with Honeywell and Motorola Solutions. The company last made an acquisition towards the end of 2011 when it bought Accusort from Danaher Corporation. Along similar lines, I would not be surprised if Datalogic considered acquiring Datamax-O’Neil (D-O), the printer division of Dover Corporation, a highly diversified manufacturing conglomerate. Datalogic was rumored to be very interested in buying Intermec Technologies. However, the purchase price ended up being too rich for them.

D-O is one of the leaders in the thermal printer market, with strong stationary and portable portfolios. Datalogic is now the only one of the big 3 to which the “one throat to choke” market paradigm does not apply. By acquiring D-O, Datalogic will not only own a comprehensive printer portfolio, but will also have a full solution suite to offer to its industrial automation partner and customer base. D-O’s mobile printer suite will also serve Datalogic well as it sells its mobile computers and scanners into retail and professional service environments.

In the past year, Datalogic has frequently emphasized on its focus on the industrial and logistics verticals. With a sharp focus on product innovation and feature support, D-O is boosting its position in manufacturing and transportation, while also, more importantly, extending its reach into non-industrial markets. The company’s performance in its core hardware category has stagnated in the past two years. Could being part of an AIDC industry behemoth help turn its fortunes?

From VDC’s perspective, a one-stop-shop approach does not necessarily give one company an edge over the other anymore. No data capture vendor is immune to growing enterprise investments in consumer devices, which is essentially taking away from their AutoID budgets. However, such an acquisition would, at the very least, help Datalogic get back on par with its two largest competitors in this market in terms of solution offerings. And that should be enough for now.

Revisiting Our Annual Barcode Predictions with One Quarter Remaining in 2013

With three quarters of 2013 already behind us, the VDC AutoID team thought it would be interesting to revisit the 2013 predictions we made at the start of the year. In this blog post we examine our barcode predictions and offer an update as we head into the final stretch of 2013.    

Prediction #1:

More barcode market aggregation ahead – Expect continued consolidation of the barcode hardware landscape, particularly to achieve growth across product categories, verticals and regions.

Update:  It may not even be over but 2013 will be remembered as another year in which we witnessed a large amount of vendor consolidation. The major acquisition of Intermec by Honeywell will likely be the big story of 2013. That transaction's impact and significance dwarfs all other M&A activities announced to date and more than likely any others that may be completed before year’s end.  Somewhat surprising, however, is that our prediction proved true before the Honeywell/Intermec deal closed as at least five acquisitions were announced by the end of May.

M&A announcements of note during the first three quarters in the barcode market include:

• Honeywell completed the acquisition of Intermec after receiving final FTC approval, adding new or augmenting existing solutions in voice, barcode printing, RFID and mobile computing (September).
• OCR Canada acquired Aurora Bar Code Technologies Ltd. in order to increase its presence in Western Canada and expand its enterprise mobile computers, barcode scanner, RFID and wireless network capabilities (May).
• Barcoding Inc bought Miles Technologies Inc. for an undisclosed amount in a move to increase its presence in the central US (May).
• General Data Company, a leading manufacturer and provider of barcode identification, tracking and data management products and solutions sought to expand its healthcare solutions offerings and acquired Triangle Biomedical Sciences Inc. (TBS), a leading manufacturer and supplier of instrumentation, reagents and consumables for the clinical and research pathology market (May).
• Datamax-O’Neil acquired the thermal printer assets of Source Technologies, a leading provider in specialized printing solutions (May).
• Telenor acquired Liquid Barcodes, the largest provider of mobile coupons in Norway, to strengthen its focus on coupons, value codes and loyalty solutions. Along with the company Valuecodes, in which Telenor has a controlling 51% stake, Telenor will become the leading mobile coupon player in Norway and have a strong foundation for further expansion (March).

Prediction #2:

Barcode vendors will learn to “accessorize” – More barcode hardware players will actively look to enter [or further entrench themselves in] the “accessories” market – developing sleds and/or sleeves with barcode scanner,  payment acceptance or other features that support consumer-grade device usage in retail, healthcare and enterprise environments.

Update: Starting with a large number of vendor products announced and on display at NRF, it was clear in January that “accessorizing with AutoID” was central to many product development strategies. Buoyed by the expanding BYOD trend and focus on lowering total cost of ownership (TCO), several vendors such as Griffin Technology and Honeywell have released new sleeves and sleds suited for enterprise, retail and/or healthcare environments.  

Prediction #3

Future with mobility, not without in [barcode label generation software] market – An increasing number of barcode printing software providers will extend label printing support to portable devices (both purpose-built and consumer-grade) – facilitating mobile applications such as field sales, field service and direct store delivery (DSD).

Update: We give ourselves partial credit on this prediction as the products and capabilities to support mobile printing are available, however, end-user usage of mobile print commands managed and sent from consumer devices remains in the nascent stage. At this point in the year, most barcode label generation software and barcode printer vendors have announced support (i.e., drivers, firmware) for leading mobile operating systems such as iOS and Android.  In our 2013 conversations so far, remote print management and mobile device support remain key software development areas. In fact, expect a leading barcode label generation software vendor to announce enhanced mobile device support as part of a major new product launch in early October.

Prediction #4:

Embracing the tech-savvy consumer – Scanning with and displaying barcodes on mobile device screens will continue to grow significantly among consumers. We predict more QSRs (quick service restaurants), convenience stores, restaurants, theme parks/ entertainment venues and other consumer-facing enterprises will invest in and deploy barcode imagers and consumer-grade mobile devices to interact with consumers (e.g., coupon redemption, payment, loyalty/rewards programs).

Update: This prediction was likely going to come true; however, the quick pace of adoption and strategy migration has taken vendors (and us) by surprise. For example, 2D imager adoption remains strong through three quarters with growth outpacing all other barcode product categories, especially in retail sectors. Providing examples of business strategies focused on targeting and serving  consumers armed with smartphones are supermarket chain Giant and Stop and Shop, drugstore chain CVS, and Australia’s eRX to name a few. In addition, according to their Q2 2013 Trend Report, ScanLife processed over 7 million scans in consecutive months for the first time ever, users tend to scan over 3x per month on average (a 22% increase from a year ago) and scanning from tablets has increased by a whopping 1300% from Q2 2012.

Revisiting Our Annual RFID &RTLS Predictions with One Quarter Remaining in 2013

With three quarters of 2013 already behind us, the VDC AutoID team thought it would be interesting to revisit the 2013 predictions we made at the start of the year. In this blog post we examine our RFID &RTLS predictions and offer an update with just three months left.    

Prediction #1:

Vendors – especially RTLS solution providers – will develop the “healthcare stare” – The use of RFID and RTLS is on the rise in healthcare, most notably in the US thanks to the VA’s announced $540M+ contract to track equipment and supplies at 21 of its Veteran Integrated Service Networks (VISNs)…This spark to the market (and sizeable contract) drew a lot of attention in 2012 and we expect the RFID and RTLS frenzy to continue in healthcare in 2013. However, we caution vendors (especially RTLS providers) to not focus solely on healthcare and to seek opportunities and market development in other vertical markets where the competitive field may be less crowded.

Update: This prediction has come true in that healthcare has been the star vertical for AutoID in 2013, but those with a healthcare-centric focus are actively seeking opportunities in other verticals. Successful, high-profile applications for RFID and RTLS in healthcare include asset management, sample tracking, temperature control in sample fridges and hygiene control. While there is strong growth to be realized in healthcare, the sector is challenge with long sales cycles and tight IT budgets. Over the last nine months I have fielded several inquiries about how to target and penetrate this emerging vertical – from both non-RFID/RTLS solution providers and larger consultancies looking for expansion opportunities. Perhaps more interesting is that I have also had a fair number of exchanges with healthcare-centric RFID and RTLS solution providers seeking market opportunities where their products and services may be leveraged outside of healthcare (i.e., industrial, retail enterprises).  

Prediction #2:

Passive UHF EPC item-level tagging (ILT) in the apparel sector will pick up the pace after a somewhat slow 2012 – This past year was a mild disappointment in terms of retailer deployment of RFID for ILT of apparel. For example, no major reader or printer/encoder orders were delivered, several large retailers remain behind originally announced plans (e.g., Wal-Mart, JC Penney) and some newer programs were pushed to or will start in 2013.  So what to expect in the year ahead? Even more American Apparel stores will go live with RFID (a bright spot for 2012 as well), Wal-Mart will reassess its RFID plans but remain committed, Macy’s will make its anticipated move, JC Penney has bigger worries than RFID, international retailer Zara will play a key role in increasing tag volumes and RFID EAS will become a more critical part of the ILT in apparel conversation.

Update: Retail continues to take strides in advancing item level tagging on a global scale. Numerous companies such as Mersmann and Borsheims are using RFID for solutions against theft of high-priced goods. Kohl’s, on the other hand, is implementing a full item level tagging solution that includes non-apparel items. The successes of many pilot programs have proven the value of RFID in retail and new retailers are joining the fray as a result. The number of RFID-enabled stores and annual tag volumes among existing users are rapidly expanding. RFID EAS solutions are under broader investigation this year as tagging techniques and the cost of tagging comes down.      

Prediction #3:

Embedded RFID keeps the forward momentum – At the end of 2011 we noted the rise of “RFID inside,” or embedded RFID, as a key trend to watch for in 2012.  We are keeping it on the list in 2013 after seeing a great deal of progress in 2012. With price points declining and form factors shrinking, we expect to see solutions and applications such as these expand and new innovations to be introduced in 2013.

Update: As the capability and power of RFID expands, RFID tags are producible thinner than paper, so does the ability to embed. Uses have sprung up for video games, clothing personalization, and even fiber composites. In addition, reader chipset shipments to support embedded RFID applications have grown sharply over the last two years, with 2013 volumes for embedded chipsets likely to outpace those for dedicated, finished readers. Reader module vendors such as ThingMagic continue to innovate and develop new solutions such as RFID-enabling consumer devices such as tablets. Embedded RFID seems to be the future of RFID usage.

Prediction #4:

Honeywell Scanning & Mobility will get strategic on RFID – and quickly – after announcing its first RFID product and the acquisition of Intermec in 2012 – After some exploration of RFID while acquiring several barcode scanner and mobile computing companies over the last few years, Honeywell made some eye-catching RFID moves in 2012. They made a subtle move in introducing an RFID reader and then made a major move in announcing the acquisition of Intermec (a major RFID IP holder and RFID equipment manufacturer). We predict Honeywell will aggressively develop its RFID strategy in 2013, becoming a strong competitor in select verticals and applications that play to the combined strengths of Honeywell and Intermec.  What’s next for Honeywell – RTLS in 2013 or 2014?

Update: Although the EU had approved the acquisition in 2012, the progress had been slow moving through much of 2013 due to challenges by the FTC. In mid-September the acquisition was approved after a decision by the FTC around 2D image engine competition. With the elongated inquiry period, Honeywell’s RFID strategy remains to be seen and we may gain some insight before the year ends. VDC will keep a close eye on the process of integrating Intermec, especially Intermec’s RFID business (and IP portfolio). It may be far too soon to look ahead, but if Honeywell’s vision is to become the true, sole total AutoID solutions provider, then they would need to think about adding RTLS to the mix in my opinion. I am sure, however, that Honeywell is much more focused on making Intermec part of their operations and determining their strategies for new-to-them solutions like thermal barcode printing before they would consider pursuing another new technology such as RTLS.

New AutoID Coverage from VDC: Announcing our Machine Vision Solutions Research Program

After several months of investigation and early market analysis conducted by our AutoID team, VDC Research Group is pleased to announce the launch of our 2014 Machine Vision Solutions Market Research Program. This new research is a natural fit with our legacy coverage of core AutoID technologies such as barcode scanners and imagers, RFID and RTLS as well as our on-going analysis within industrial automation and sensors sectors. VDC’s machine vision program will help AutoID vendors, industrial automation equipment suppliers and machine vision specialists understand the key trends, issues and drivers shaping the machine vision market in industrial and non-industrial sectors. 

Machine vision components and systems sales have emerged as a multi-billion dollar global market opportunity. At its core machine vision is the process of applying a range of technologies and methods to provide imaging-based automatic inspection, process control, robot guidance and much more. As these solutions become a more critical part of automating business processes and operations across industries, we expect broader end-user adoption and market growth in both manufacturing and non-manufacturing sectors.

The research program influencer period is now open for vendors and solutions providers.  Research program influencers help shape our upcoming machine vision market coverage, segmentations, analysis and more. Please contact VDC for more information about becoming a research influencer and gain early access to machine vision insights from our AutoID team. We can be reached at: i[email protected]

Key research program components include the following:

• Track 1: VDC Views: on machine vision solution selection & deployment

• Track 2: Machine Vision Market Analysis reports for:

-    Industrial/Manufacturing Sectors

-    Emerging Markets/Verticals

• Track 3: Vendor Spotlights & Evaluation Guide
• Track 4: Machine Vision End-user Analysis report

 What are some of the key questions answered by this research program?

• Where are the growth centers for machine vision components and solutions in terms of industry sectors, applications and regions?
• Which vendors and solutions providers are leading the machine vision market today? Which companies are considered innovators shaping the future direction of the machine vision landscape?
• Which types of enterprises most frequently deploy machine vision solutions and why?
• How will vendors differentiate themselves from their peers in the highly-fragmented, highly-competitive machine vision market?
• In which environments are the relatively less complex smart camera-based machine vision systems a significant threat to PC-based solutions?