It is all about Retail for Zebra Technologies

by Richa Gupta | 04/28/2014

Company takes a big risk in anticipation of big rewards

Investors turned their heads on Tuesday, April 15th when Zebra Technologies (Zebra) announced its $3.45 billion acquisition of Motorola Solutions’ (MSI) Enterprise division. This will be an all-cash transaction, with $200 million directly from Zebra’s coffers, and the remaining being financed largely via debt. The market’s immediate reaction to this announcement was an 11 percent drop on the NASDAQ, bringing down ZBRA’s price per share to $60.77 from close to $70. Following the shock, brought about by significant upfront cost, investors seem to be now taking a look at this acquisition as Zebra seizing an opportunity to promote long-term growth.

A surface account of the deal might focus exclusively on the benefits Zebra will derive from further expanding their AIDC portfolio. This is a perfectly valid assessment; Zebra, a barcode printer market leader, to acquire MSI’s Enterprise business unit, a barcode scanner and rugged mobile device leader, creating a one-stop shop for those in need of AutoID solutions. VDC has, however, identified another, perhaps more significant, objective of Zebra’s: to further increase its retail market presence.

Zebra seems sure about where future growth will come from

As we discussed in February, acquisitions that Zebra has made over the past year have marked its first steps towards a non-printer-focused solutions play in the retail space. The company began 2013 by purchasing StepOne Systems, a small firm addressing retailers’ in-store application requirements via mobile software solutions. Zebra’s next move in this space took place in December, 2013 with the acquisition of Hart Systems, a cloud-based inventory management solution provider. The company’s “Hardware-as-a-Service” business model involves renting out self-managed inventory solutions, including hardware, to retailers rather than selling them at a fixed price. This presents an interesting solution particularly to the refresh cycle issue facing Zebra’s core hardware business. VDC wouldn’t be surprised if, in the near- to mid-term, Zebra extended this option to its printer customers as well. By implementing this model, the company can now have the opportunity to cut production costs and also boost sales by providing clients with more up-to-date solutions on a periodic basis, all for a recurring fee. Both these 2013 acquisitions clearly indicated Zebra’s push into the retail storefront.

The company successfully outlined its growth strategy in its FY 2013 earnings conference call, and that, coupled with its growing retail focus, seemed to resonate with the investor community. The stock crushed lifetime highs, going up more than 30% in 3 months. With an all-round positive response to its vertical strategy, it seems that Zebra stands firmly behind its retail expansion efforts, which brings us to the company’s latest, multi-billion dollar, acquisition. We believe that this will benefit Zebra not only by allowing them to become a one-stop shop for AIDC solutions, but by also furthering their presence in the retail vertical. In a space where brand recognition and a developed partner ecosystem are key, MSI’s (and erstwhile Symbol’s) colossal brand and strong channel connections will greatly benefit the coalesced superfirm. Additionally, Motorola’s handheld barcode scanner and mobile device portfolios will allow Zebra to simultaneously move further to the front and back of the retail store. The ruggedized component of Motorola’s data capture devices makes them an equally attractive option in logistics and direct store delivery (DSD) types of applications, while also being critical in-store – both at the aisles as well as at the POS checkout stations. Combined with Zebra’s current product offerings, we can see a more holistic end-to-end product line that can all be connected by one of their more recent endeavors, channeling the Internet of Things (IoT) paradigm, Zatar.

Given the nature of this vertical, technology vendors competing for retailer mindshare are expected to “keep up” in order to subsist. This drives us to anticipate that Zebra will update and refresh Motorola’s scanners and mobile computer hardware to keep up with the times and industry demand for next-generation data acquisition solutions. Despite the massive debt and significant toll on cash reserves, VDC anticipates an auspicious future for Zebra. As evidenced by the multitude and strength of distribution channels, broad product portfolio, and current penetration of the retail space, these technology powerhouses could together very well dominate the retail solutions space.


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