by Chad Meyers & Richa Gupta | 8/7/2023
Earnings season is in full flow and the VDC team has been tracking results from several leading market players across AIDC, enterprise mobility, and machine vision. Q2 2023 was a rough quarter all around, with market leaders expecting continued weakness through the end of the year. As a whole, large projects have temporarily dried up and the run rate business has taken a hit for vendors and distribution partners alike. Customers want to do more with what they have, so what does that mean for future investment indicators? When can the technology investment community expect to see market recovery? What are some of the bright spots in this otherwise bleak environment? Read on for our key takeaways from market leaders’ Q2 earnings calls.
Global AIDC and enterprise mobility market leader, Zebra Technologies (ZBRA), announced its 2023 Q2 earnings on August 1st. EPS was at $3.29, down 29% compared to Q2 2022. Sales declined more than 17% YoY; Asset Intelligence & Tracking segment (AIT) comprising of barcode label printing, RFID/RTLS products, and supplies dropped 2% YoY, and Enterprise Visibility & Mobility (EVM) comprising of data capture, fixed industrial scanning, machine vision, mobile computing, and workflow optimization solutions decreased 32% from Q2 2022. All regions underperformed, mainly due to a decline in mobile computing sales. EMEA and APAC led the regional decline, revenues decreasing 24% and 17% respectively. The Americas experienced significant drops as well – with an 11% decline in North America and a 6% decrease in Latin American sales.
Weakening demand and cautious end user spending contributed to Zebra’s sales drop. Enterprises made significant investments in data capture and labeling devices over the past few quarters, a trend which has prompted them to leverage what they already have instead of purchasing new devices. Verticals most impacted by the lower demand trajectory are retail, e-commerce, transportation, and logistics – growth in these has reset to pre-pandemic levels. However, RFID, data capture, supplies, services, and software shined as the bright spots in Q2.
Global machine vision market leader, Cognex (CGNX), announced its Q2 2023 results on August 3rd, posting revenues of 245 million and beating EPS expectations by $0.06. Revenues were down 12% from Q2 2022, which includes the reduction caused by global currency fluctuations. Revenues declined across all major regional markets – Americas by 10%, Europe by 8%, China by 8%, and Rest of Asia-Pacific by 27% YoY. Operating expenses declined 13% YoY, which included $20 million in expenses for the factory fire in June 2022. Excluding these expenses, operating costs increased 3% YoY as Cognex invests in its Emerging Customer initiative – with this, the company aims to expand its salesforce to capture greenfield opportunities in the machine vision market. While Cognex checked most of its boxes for the quarter, the company expects weak performance for at least the rest of 2023 due to global market softening (in the industrial supply chain).
VDC’s View & Future Outlook
The global markets for data capture, enterprise mobility, fixed industrial scanning, label printing, and machine vision are impacted by inflationary and macroeconomic pressures, and customers’ reluctance to purchase during (what is largely considered to be) an industry-wide cyclical slowdown. VDC estimates that the cumulative 2023 revenues for these product segments will be nearly $21.8B, with the market expected to grow to just under $23.3B in 2024, a gain of 6.8% YoY, as the downturn ends and organizations ramp up their technology infrastructure investments next year.
Zebra has seen performance weaken across industries and regions due to end users managing their inventory by pushing back orders and repurposing existing devices, causing demand slowdown. VDC sees this as a near-term problem for the global market leader that will diminish as macroeconomic pressures subside, global logistics and manufacturing performance indices improve, and customers are able to set aside bigger budgets for infrastructure-related investments. Backlogged orders are being pushed back and not cancelled, which shows that clients intend to buy in the future especially when inflationary pressures ease. While Zebra does expect conditions to worsen over the next couple of quarters, there are bright spots to look to in the long term from the standpoint of vertical adoption and regional spending. With promising attributes present in pharmaceutical and EV manufacturing as well as government projects across the globe, the decline in end user demand is temporary. VDC believes that through diversification into different markets with its new product lines (particularly fixed industrial scanning and machine vision), coupled with market corrections and stabilizing foreign currency exchange rates, Zebra will return to positive growth.
Cognex performed better than Wall Street’s expectations for the quarter even as negative macroeconomic trends continue in 2023. Sharp declines in consumer electronics and semiconductor industries negatively impacted factory automation spends. EV battery manufacturing is the bright spot currently and also for long-term growth as demand in other sectors weakens across the globe. While key e-commerce players have significantly scaled back on infrastructure investments over the past few quarters, parcel and post organizations can drive growth for Cognex in the future. The company is strategically announcing new products for this market in order to position itself for future growth; VDC finds its concerted efforts around new product development and introduction particularly encouraging. Cognex’s decision to expand its direct salesforce to also target factory automation opportunities within the SMB segment will place it head-to-head against Keyence, its largest competitor in the machine vision market with a formidable direct sales team.