Zebra Technologies announced its Q2 2017 earnings on August 8, beating analyst expectations on EPS by $0.03 and revenues by $18.07M. The company saw an improvement over Q2 2016 across all regions with its various product lines; this included 9% sales growth in North America driven by an especially strong performance in mobile computing, 4% increase in EMEA, and an 11% rise in Latin America brought on by exceptionally strong data capture, printing, and supplies sales. Demand from the retail, transportation, and health care verticals continues to surge, bringing with it tremendous growth opportunity for Zebra. Enterprise segment sales (mobile computing and data capture) increased 7.9% to $584M, with double-digit growth in mobile computing driven by high demand for its Android portfolio. Legacy business sales—including barcode printers, card printers, consumables & supplies, and location services—were up 3.7% to $313M. Zebra also saw its gross margin go down to 46.0%, compared to 46.4% in the prior year period due to changes in business and sales mix. The company went live with its consolidated ERP and IT system in May with an aim to fully integrate and standardize its processes across the distributed global operational setup. Zebra believes this will help further increase productivity across the organization while channeling the One Zebra message to its partners and customers.
The following are some of the key highlights from Zebra’s Q2 2017 earnings conference call:
- Zebra attributes the sharp increase in its enterprise segment sales primarily to its performance in North America and Latin America. Ongoing technology investments by retail and e-commerce powerhouses to support evolving consumer purchasing preferences contribute significantly to rising interest in its solutions. The company’s Android all-touch mobile computing portfolio is now at the forefront of this growth with large enterprise end users making the transition to and fully embracing this new operating system environment when they have likely been hesitant to do so in the past. Zebra’s executive team also estimates that the 30 million Windows devices out in the market will upgrade to Android before the 2020 end-of-life of Microsoft’s Windows CE platform. Large customers have been the early adopters for these devices with the channel-based business expected to pick up and have an equally high share of Android in the coming quarters. Zebra’s legacy printer business saw low single-digit growth from Q2 2016, in sharp contrast to its strong performance on the Enterprise side. The company recently rolled out its next generation of industrial thermal printers in an attempt to solidify its growth prospects here.
- From a vertical standpoint, retail and e-commerce continue to drive significant business for Zebra in 2017. While this was primarily coming from North America and Western Europe in the past, the company is now also starting to see strong omnichannel-related investments in countries like Australia and China as well, making it much more of a global opportunity. Warehouse operators’ investments in mobile computers, ring scanners, and mobile printers to support tracking-intensive e-commerce workflows and modernize operations contribute to overall revenue growth. The T&L vertical is an early adopter for Android; the company’s products like TC70/75 and TC51/56 are strong performers here. Health care continues to be the fastest growing vertical for the company; Zebra also announced its collaboration with GE Healthcare to enable hospitals to accurately manage inventory, reduce TCO, and achieve improved capital allocation. Growth within this vertical has also picked up outside of the US in regions like Middle East and the rest of Asia, which is a significant trend. Manufacturing continues to be a core focus for Zebra and it sees its pipeline growing for the Network Connect solution it developed with Rockwell Automation. This specifically addresses the need to facilitate seamless connection of printers and scanners on the shopfloor to the enterprise network.
- Zebra now sees some softness in China, which is a cause for concern especially given its label as the leading “high growth region”. The company is experiencing softness in the data capture and printing segments in the country. VDC’s primary research in these technology markets indicates the presence of several low-cost vendors that compete almost exclusively on price, bringing about significant disruption to the competitive landscape and market leaders within it. Zebra has aggressive plans to build and grow its presence in the country, which includes new product introductions over the next several quarters along with the development of comprehensive, China-focused go-to-market strategies.
- Executives also consistently cite their vision of Enterprise Asset Intelligence (EAI), enabling enterprises to leverage Zebra’s tools and platforms to capture and analyze data to generate actionable insights in real time. The company positions its portfolio of mobile computers, scanners, printers, and other technology infrastructure products as enablers for this vision to grant enterprise-wide operational visibility. Zebra is also empowering its global partner network to deliver these data-driven offerings, in conjunction with their own, to the end user.
From VDC’s perspective, Zebra is now showing considerable strength in performance across product categories in its core markets of Americas and Europe. However, the company has its work cut out for it in Asia where it faces significant pressures from lower cost, local competitors, particularly on the data capture and printing side. Zebra continues to expect growth for the rest of the year backed by a strong pipeline across all major product categories. VDC believes that the company’s efforts to extend its vision of EAI along with the ability to capitalize on significant cross-sell and up-sell opportunities across its product portfolio will serve to present a unified message to both partners and customers. This is especially important as the company looks to strengthen its run rate business beyond mobile computing with its newly launched industrial thermal barcode printers and data capture devices.
For more information on our coverage of the markets in which Zebra competes, download the following - 2017 AutoID & Data Capture Research Outline and 2017 Enterprise Mobility & Connected Devices Research Outline.