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.
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.
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