Good morning, everyone. I'm Tommy Moll, Research A nalyst here at Stephens. We appreciate everyone's interest in our conference, and in particular, everyone's interest in Zebra Technologies, where I'm delighted to be joined up front today by CFO, Nathan Winters. Nathan, good to see you, and thank you for your time.
Yeah, it's great to be here. Thanks for everyone showing up.
So just a couple formatting notes for those in the audience. As you know, these sessions run about 45 minutes. I've got questions prepared to keep us busy for the first half hour, but by all means, at the bottom of the hour, if anyone in the audience has a question, just shoot up a hand, and we'll get to all of them we can. Nathan, you know likely already, but I'll just repeat for everyone's benefit, that, given this is a generalist conference, we're gonna have a mix of some investors who know you well, and we wanna make sure to get to some of those next-level questions. But we also have folks in the room who just wanna get a quick introduction to Zebra.
Yeah.
So we're gonna start with some of those introductory questions, and then we'll dive deeper. But just to start, the core strategy that underlies, I think, everything Zebra does, is what you refer to as Enterprise Asset Intelligence. So just give us a quick summary of what does that mean, what's the history, and if you can give a couple tangible examples?
Yeah
... in retail and logistics.
So we empower organizations, really thrive in an on-demand economy, and we do that through our Enterprise Asset Intelligence vision, which is having every worker on the frontline, every asset at the edge, visible, connected, and fully optimized. So think, what does that mean in practical terms? It's, you know... You'll see us every day in a grocery store at checkout, right, in terms of items moving out off the store, to a package being delivered at your home, and when it's dropped off, being notified, that it's there and being delivered, is usually one of our devices. Or customer service, you know, in a retail environment, being provided customer support around, "Do you have an item in stock? Where could it be?" In a lot of cases, those are, those are our devices in the hands of a retail associate.
Or when you're checking in, as a patient at a hospital, and your wristband's usually being printed by a Zebra printer. We've expanded the portfolio in recent years to include things like machine vision, robotics, and retail software to complement the portfolio, as well as help meet our customers, you know, their transformational needs as they're looking to drive automation and digitization within their workflow. So, you know, really, it's about how do we empower and connect associates and assets at the front edge to drive that productivity?
And if you think about the served market growth expectations, this was a big item for a number of years, where you had this, I'll call it, old framework dating back to 2016 or so, and then there were some years where your growth rate accelerated significantly. You refreshed the market to a higher expectation. I think it's in the 5%-7% range in terms of your consolidated revenue. But just give us the before and after there. Where you kind of started when Zebra all came together,
Yeah.
... and then what that evolution entailed.
As we look at our markets, we think, you know, again, serving strong secular trends and the need to digitize and automate workflows because of labor shortages, inflation, those things, you know, are all accelerating, and those items are all accelerating in our customers' environments, and we help find solutions for those challenges. If you look back, you know, the core business, which is, you know, think mobile computing, printing, data capture, scanning, strong positions, number one in all of those markets, and have grown market share over that time horizon, going back to 2016 through today.
And then we complement that with adjacencies, think, you know, supplies that complement our printing business, ruggedized tablets, so larger form factor from mobile computing that we've invested a lot over the last couple of years, and as well as RFID, where we're seeing double-digit growth. And then on top of that, the expansion markets, which I mentioned, mentioned earlier. So as we looked at the framework, the framework going back from the enterprise acquisition in 2016 was 4%-5% growth, which we had exceeded, you know, over that time horizon, really around the core business, growing at 3%-4%, plus taking market share.
We thought, you know, those same dynamics held true, complemented with, you know, higher growth around these adjacent markets, and then even, you know, stronger growth, double-digit growth in the new expansions, got us to the five to seven. The factors we've put in place that led us to that, back a couple of years ago, we think are still there. Obviously, we're in a different cycle here in the short term, but, you know, longer term, the conviction around those longer-term growth trends, we still believe are there, today, once we work through this economic cycle.
Earlier this year, you had a CEO transition, and your current CEO, Bill Burns, took over effective March of this year. He'd been at the company a number of years, though, so in terms of a strategy read-through there, there wasn't a whole lot. He was core to the Enterprise Asset Intelligence strategy for a number of years. With that said, there is a new leader at the company, and so even if it's just in terms of an area of emphasis or something else, what would you point to-
Yeah.
... for investors to reference here with the transition?
Yeah. As you said, you know, Bill had been with the organization for, you know, a long time before making the transition, so the strategy, the vision, has remained intact. But he's doing what you would expect, spending a lot of time speaking with investors, customers, partners, making sure those relationships are there, understanding what's going on and making sure those partnerships are here for the long term. I think the area of emphasis, which is, you know, somewhat, I guess, unfortunate, was also somewhat predicated by the macro environment. So a lot of emphasis around, you know, the cost structure.
And double-clicking particularly areas of the business he wasn't responsible before, you know, by function, projects, initiatives, but also looking at our own product portfolio, and making sure that we're right-sizing the business to the current demand environment, and driving the efficiency, productivity that we need, here as we move forward. So, again, that's obviously been probably the area of emphasis, in the short term, but somewhat driven by the macro. And not that we've lost focus on cost, but now it's, you know, now we're shifting. We're not gonna cut our way out of this, and we're gonna get back to growth, and we believe we will.
It's a lot of effort now on you know, where are there opportunities to grow, and how do we ensure we have the resources allocated appropriately to take advantage of that, particularly as the market recovers?
You mentioned some of the current market challenges, Nathan, and so I'm curious to get your take, just on the general economic environment, where it feels like we sit in this cycle, the kinds of headlines we read about every day: inflation, supply chain, destocking, whatever factors come to mind, and where do you feel like we sit today?
Yeah, it's hard to say where we sit today in terms of the cycle, but just maybe some context for it. You know, coming off of two years of strong growth, 2021 and 2022, and as we went this year, I think a couple of factors at play for our business. You know, one, the relative weakness of the goods economy versus service economy is an outsized impact on our business. So, you know, more things being produced, shipped, and purchased helps our business. And underlying that is, many of our customers, particularly retailers, T&L providers, built out capacity over that timeframe of 2021 and 2022 for what would everyone thought would be much higher growth rate, particularly in e-commerce, for the foreseeable future.
Now that that growth has moderated, many are absorbing the capacity they built out across their entire infrastructure over that timeframe, and that we benefited from. You throw on top of that the macro uncertainty, economic uncertainty, and some of the geopolitical challenges. I think has really, you know, depressed growth here in 2023. And then, you know, that's amplified, and I'm sure we'll talk about later, is as our distributors carry inventory on our behalf or carry their own inventory. As that demand's declined, we've seen an outsized impact from destocking across all of our channel partners. So look, it's hard to say where we're at in the cycle.
What I can say, and we talked about this in our last earnings call, is we have seen demand leveling out, you know, some stability in demand coming out of the summer here through the early part of the fourth quarter, which is, you know, net positive. And then it's, you know, now it's if you look back in economic cycles for us, you know, whether it's 2001, 2009, even the pandemic to a shorter degree, you know, downturns have lasted quarters, you know, where we've had a significant revenue declines followed by, you know, accelerated growth rates for a period before normalizing back out to that longer term growth trend.
So we don't see any reason that would be different this, you know, this cycle, but in every one of those, it's hard to predict exactly when that, when the curve, flips to the other side.
Sure. Well, we'll get into detail in terms of some of those channel dynamics and market dynamics, but I did wanna ask one other introductory question here, just in terms of some of the recent open market purchases. That's not something we often ask about in these firesides, but there have been multiple examples in recent months, including some, I think, as recently as last week.
Mm-hmm.
Your name's been on at least one or two of these, and so, but it includes other members of the C-suite and board, so I'm just curious for any context you can provide there.
No, I think the context is, you know, we think, again, the long-term growth prospects of the company are strong, and we believe in the long-term growth of the company, and feel that, you know, I guess personally, it was an attractive price point to make an additional personal investment. So, you saw that from our Anders, who is now our Executive Chairman, a couple of board members, Bill, and myself over the last month or two.
Yep. So now diving into some of the current aspects of the operating environment. Let's hit on channel inventory, which has been front and center in some of your recent earnings calls. The current expectation is for destocking to be largely complete by the end of the year, and so my question for you is if you can just explain how clear is your visibility,
Mm-hmm.
... to that sell-through data, which is obviously key to having a view on a destocking cycle, and what's your confidence level in terms of where the channel ends up landing in terms of their days on hand? I mean, ultimately, it's their call, and so what's your conviction,
Yeah.
... you know what that is?
Let me just for, you know, for background, a couple things. You know, when we think about destocking, it's the inventory our channel partners hold to run their business. Historically, you know, at a global level, it's about 60 days on hand. So think of the... And that's looking back over the last, you know, looking at it over the last 13 weeks, what's that, you know, how much do they need to support that kind of run rate business? But that varies pretty dramatically. You know, if you go to a place like Brazil, you're gonna have much higher than that, just given the lead times and the complexity of importing into Brazil. You'll see much shorter lead times in other parts of the world and different product families that they know we have short lead times.
So there's a wide array of in that spectrum, but on average, it's about 60 days. And the reason we would never really talk about this in the past is if you looked at our- in a normal environment where you're maybe, you know, growing low single digits, declining low single digits, our growth rate and the growth rate of that, you know, what our channel partners are feeling, are roughly the same within a couple of points. And obviously, all that divergence in the second, where you see just a dramatic decline in such a short period of time, where, you know, in third quarter, you know, the underlying market was down 20, and we were down 30. So we thought it was appropriate to disclose what that amount was, 'cause there was a real fundamental difference in the underlying market versus, versus our performance.
From a visibility standpoint, I know we get feeds every single week from our distributor partners on their end demand, the number of units, the product, the customer, and that's how our—you know, that's how our sales reps, our direct sales force, is compensated. So they're not compensated until it sells to the end user. So I'd like to say I have, you know, from an accuracy, I have a—you know—a lot of people rely on,
Hi.
-a very high, you know, degree of auditors out there, making sure that the distributors are giving us the right information, 'cause that's, you know, that's how their quotas are set,
Yeah.
... and they're compensated. Including in that is, what do they have in their own inventory? So we can see, is a given product family, you know, about to destock, right? Where we can say, "Hey, you need to place an order here," or, "We have an order coming through, but it looks like you already have too much on hand. Is this..." You know, what's... Not that it's their - to your point, it's their business, but also making sure that, you know, there's not too little or too much inventory in the channel, and that's part of their rebate structure is falling within that window. So there's no, you know, they're not too little, too much in the channel.
I'd say what's different, and what we've done here in the you know, in the second half, given the volatility, has been very closely aligned with, where do you want to end? Not so much where do you have today, which we've always done, but where do you want to end at the end of the quarter, your own inventory levels? So what do we see on demand? What's the funnel of activity? And where do you want to be from an ending inventory standpoint, so that, you know, again, we can align our guidance, our planning to that, and, and avoid surprises, which really worked effectively in Q3. We expect to do the same here in Q4.
Yeah.
So I think the visibility's always been there. I think the difference is, again, just being, you know, hyper-focused on ensuring we're both aligned on where-
Yeah.
... where we wanna be as we exit the year and head into next year.
So it sounds like, Nathan, the level of visibility you get in terms of the weekly reports is essentially the same today as it has been historically, but those discussions about where the channel is headed,
Mm-hmm.
... are more robust at this point,
That's right.
It feels like you're getting pretty good transparency.
That's right. Absolutely.
Yeah. Okay. Moving to underlying demand, maybe you could just give us a quick rundown on some of the key end markets. And in particular, you've referenced a few times on the earnings calls the customer deferrals or extended sales cycles. But ultimately, there's got to... You know, these assets that are deployed have limited useful lives, measured in a,
Yeah.
... single-digit number of years. And so at what point does that start to inform the underlying demand?
Yeah, so a couple of things there. One, if we look at maybe the activity we see in the market, I'd say no, no change. You know, the same types of pressures customers have on the extended sales cycles and deferrals. We haven't seen a dramatic shift in that, for better or worse, you know, maybe over the last, you know, several months. But what we do see is, you know, we can look at the, you know, the age of the installed base, you know, that's under our service contract, or just deployments that we know that were out there in the market. But we know our, you know, our customers can... If you think mobile computing as an example, average useful life of four years, but that could extend out further.
And a lot of that depends on, you know, there's multiple factors that go into why a customer would refresh. That could be a technological advancement, whether that's 5G, Wi-Fi 6, where there's, you know, new capabilities and speeds that would allow them to operate better in their environment. Or within the device, if they're adding more applications, more data, you're gonna get to the point where you need maybe more memory, more computing power to support, you know, your operation. Or what, what operating system, you know, upgrade are you at? Where are you at in the life cycle of the operating system? So you're getting the right, security patches and those types of things. And then, the final factor would be, you know, our devices are built to last, but every environment's a little bit different, right?
So again, if you're in a relatively simple environment where there's not a lot of... You know, they're not getting beaten up, you might maybe adding new capabilities. It's, you know, maybe a simple task. You could, you could sweat those assets a little bit longer than, than average. Where if they're in a being used 24/7, lots of complexity, more data, more applications, you may need to upgrade those quicker, to make sure you have the right customer, consumer, and employee experience, for the device. Look, I think that- that's where we feel, you know, feel positive about, we know those customers will come back. The install base is larger than it was today than in, you know, where it was in 2019 or 2016, significantly larger. We know the age of those install base is aging.
So it's not a question of if, it's gonna be when those refresh cycle kicks in, and for us, it's ensuring that we have, you know, through good and bad, we stick with those customers. We're committed to the product portfolio and our channel partners, so that when the opportunity comes back, we're taking our fair share, or more than fair share of the market, when the recovery happens.
Yeah.
So that's, that's what we're intently focused on. It's, you know, spend a lot of time predicting when it could happen, but more importantly, are we lined up so that, you know, the moment that customer has capability, capacity, budget to spend, we're there to,
Yeah.
... we're there to capture it.
Maybe peering ahead into the future a little bit, potential for restocking.
Mm-hmm.
If you think about how these cycles typically run, are there big restocking events on an upturn, historically?
Yeah. Again, the number one driver of destocking, restocking is what's the underlying demand? So if demand, you know, increases, distributors are gonna have to hold more inventory to support that business. But what I would say is, again, and while we don't talk about it, you know, usually is that underlying growth rate would be similar to our growth rate.
Yeah.
If the underlying market's growing five, could we grow six to seven? Sure, right? And there's gonna be some... Some of that also depends on the quarter, the timing of a deal, and when it's gonna happen. But you know, we don't look at it and say: Restocking is gonna be an incremental driver of growth,
Right.
... at some point. It's, and again, if you're seeing a normal decline, I'd say the same thing.
Right.
If the business was kind of declining at 4%, we may be down 5 or 6. But we have this kind of quick, dramatic... It kind of disaggregates,
Yeah.
... the relative growth rates.
So we've spent a lot of time talking about channel, but it shouldn't be lost on folks that you, you still have a, a healthy size direct sales force,
Right.
... that's going, that while those orders may be fulfilled through your channel, you've got good connectivity with some of your largest end users.
Mm-hmm.
And so I'm just curious, in terms of the nature of those planning cycles with large end users, how much visibility do you typically have from them? And then, in this environment, where, as you said, there have been some extended sales cycles, do you have less visibility now, or are there typical conversations occurring?
I'd say we're at. So a normal cycle, and it's no different than today, is for our key, you know, strategic accounts, where we have direct sellers, which is, you know, a significant portion, they'll always have a two to three-year roadmap. You know, what is the customer looking to do? Where are new expansion opportunities? When would a refresh cycle be? Now, is that tied down to the exact month and quarter that the project may happen? But there's always a pipeline, if you will, of what's that roadmap look at over the next several years. From a budgetary cycle, you know, most of the especially large retail customers, their year end is January 31, so the final budget may not be decided until, you know, sometime in the first quarter.
And as we saw experienced this year, obviously, that can change, right? What's in the budget one day may not be there the next, but we've seen the opposite as well, right? Hey, there's, you know, they're growing, the business is outperforming, and there's incremental capacity to invest. So that hasn't changed. That's what our teams are working through now as we plan for next year and set quotas for next year. It's all around what are those opportunities and where are they at? Now, again, the challenge has been, obviously, this year, the predictability of those happening and when they'll happen. But, again, I'd say the visibility is the same. The certainty is a little more in question than it has been in the past.
Yep. Yep. Let's drill down a little bit on the omni-channel retail and e-commerce verticals where you compete. It's well known at this point that some of the larger players in those ecosystems have significantly slowed their spend this year. Though, longer term, these are still secular growth markets. So, you know, we're all trying to figure out when some of that excess capacity is absorbed,
Yeah.
... and it's difficult on the outside for us to really have a view there, but what kind of visibility do you have? What kinds of things should we be watching for?
Yeah. I think, one, if you look from a, as we've, we've talked, you know, large, large retailers, e-commerce providers, is where we started to see the slowdown, even going back to Q4 of 2022, and, and really large deployments, you know, were effectively, you know, kind of dried up, if you will, as we, you know, through the first part of the Q1 this year. So, and those projects were mostly carryovers from, from 2022. And so, and then we saw the, this incremental weakness in the small and mid-sized customers, over the summer.
So we would expect kind of the inverse of that coming out of this, which is larger retailers, once they have, again, more confidence, visibility in their prospects to be, you know, back in first, followed by the small and midsize, and that's what we've seen in previous cycles. I think, you know, as it relates to absorbing the capacity, you know, we're starting to see, you know, again, what level they had in terms of an exact percentage is hard to know where it was in that cycle.
I think, again, this is where staying close with those customers so that when that time comes, you know, we're there to take advantage of those opportunities, and ensure that our solutions are at the top of mind for that refresh, or to help move that refresh along.
Yep. So you mentioned and distinguished between some of the large players and small and mid in these end markets. I'm curious if you think about the medium-term opportunity, is there an increasing opportunity in that small and mid subset, just given that they're a little bit behind on the adoption curve for some of your technology? Is there gon- at some point,
Yeah.
... is there a catch-up cycle, for lack of a better term, that you might see?
Yeah, for sure. If you look, you know, particularly in retail, you know, one of the things we look at is how many... and if you go globally, the, you know, one of the larger opportunities we have is, if you look across the globe, still, you know, the numbers, 40% of frontline workers are digitally connected, which means, you know... Now, if you go to some of the large U.S. retailers, it's a much higher percentage, but still, on average, it's a, you know, small- you know, there's still a large opportunity of how do you get, you know, devices, the right device, that might make it different for everybody.
And when you say: "Why is that important for a retailer?" Not only to provide better consumer experience, so, you know, you can provide real-time, you don't have to call for someone to help, you can get that in, you know, information at your fingertips, but also, you know, I think those who are using in terms of increasing collaboration, direct communication with, let's say, the manager or their peers, has a real impactful benefit to not only their, their, their employee base, but to the consumer. So we think that is a long-term opportunity. I think, is the motivation to buy in the short term playing catch-up, or when do they feel confident in their own business-
Mm-hmm.
... given all the macro, dynamics to make that purchase?
Yep.
I think that's probably the more consequential event,
Yep.
... versus saying, "Hey, I need to, I need to do this to catch up with," you know, whoever that might be in their market.
Right. So I gathered a few anecdotes from recent earnings calls and investor days that I wanted to run through and just kind of get your take, Nathan. And these are all from companies that sell into a lot of the same end markets that we've been discussing. So one of the large automation players called for e-commerce and warehouse spending to be up low single digits in 2024. One of your direct competitors in mobile computers indicated potential for a short cycle recovery the same year, next year. One of the competitors in RFID called for the retail market to grow again in 2024. So there, there's a handful of anecdotes now suggesting that we may see a return to growth in some of these key end markets.
So my question to you is, would you push back on any of these? Would you affirm? Would you give us any kind of maybe Zebra-specific,
Yeah.
... context? What, what could you share with us?
Yeah. So we're not, you know, trying to give you guidance here for 2024, and we haven't. What I would say is maybe some context of what we're seeing. We said this in our last earnings call. You know, I think the positive is we are seeing stability in demand, you know, leveling of demand. We intend, you know, it's hard to say bottoming, 'cause bottoming assumes there's a curve on the other side and predicting that. But in the short term, that leveling of demand was, you know, I think the first step, right? Kind of seeing stability in the end markets. With that being said, we don't see a. It's hard to see today a cursor that says something has changed, for better or worse, that gives us an indication of, you know, how the first half of 2024 will play out.
What we do know is we're gonna be rolling over still some fairly tough comps, particularly in Q1. We wanted to make sure, you know, investors and analysts, everyone kind of thought about that as they were thinking about 2024. By the same token, and we've talked about this before, right? We're also, at some point, because of what we said, whether we don't see projects canceling or going away, that they're not needed. We don't see customers moving away from our solutions. So where customers have, in our service contracts, as we offer, called Visibility IQ, so real-time visibility to your asset, the battery life, the utilization, you know, so they can be more productive with their assets.
We look at that as well and say, you know, the utilization of our devices is still where it was, you know, versus any period in time. So we don't have devices kind of sitting,
Mm-hmm.
... on the sideline. We know the utilization and or the usage of them, the applications are, you know, ever increasing of finding new use cases to use our our solutions in the market. So that gives us all confidence that, you know, the refresh, those refreshes will come, and the recovery will come. I think, you know, anecdotally, could I say, the second half we'd expect to be stronger growth coming off a relatively low baseline and lack of destocking, but that's a little different than, you know, what we're seeing in the underlying market.
Sure. So moving on to some other end markets, Nathan, healthcare is one which in recent years has shown high growth rates, but it's currently a small-
Yeah.
... revenue contribution. What can you tell us about your presence in that end market and some of the limitations on to growth and adoption there?
I mean, in the short term, you know, healthcare is having the same—we're seeing the same phenomenon in healthcare as we are the rest of the market. So, you know, a higher cost of capital, inflation, you know, and healthcare typically has, you know, lower operating margins, so they're faced with the same type of budgetary challenges that we're seeing across other markets. We think long term, you know, healthcare is still a very attractive market. You know, their need to drive increased productivity, have better collaboration across doctors, nurses, the patients, to, you know, improve safety from a drug delivery, you know, are all solutions that we can help provide.
And so again, we think, you know, healthcare is still a larger, you know, a large opportunity for us over time, but different than retail, they're also, you know, more like manufacturing in terms of fragmented buying decisions. You know, their own challenges with, you know, again, each hospital, you know, it's more of a hospital by hospital dogfight, if you will, versus, you know, in retail you tend to get the... If they do for one retail store, they do for all, which is gives that, you know, kind of the scaling ability. So again, still attractive about the long-term prospects, but in the short term, I think similar challenges we're seeing across other markets.
Yep. In manufacturing, what can you tell us there about, and this is not specific to this year, just in general,
Yeah.
... some secular versus cyclical trends there? And if you think about, prior downturns in the industrial economy, to what extent did that customer spend get deferred and pushed to the right?
On that last point, you know, definitely a manufacturing environment, customer can sweat it. You think our printing business, if you're a printer at the end of the line and you had it in your budget to replace, for whatever reason, a printer is built to last, so you can sweat that asset a little bit longer and defer the purchases. I mean, that was, you know, exactly what we saw during the peak of the pandemic, right? And then, you know, there was obviously some pent-up demand from that within small and mid-sized manufacturers.
Yep.
Where we see, from a secular perspective, you know, manufacturing, given, you know, the need to continue to drive automation, the changes happening from a geopolitical and where manufacturing's happening around the world is creating opportunities. And for us, manufacturing is a lower share. You know, relatively, we have lower share in, outside of print, lower share in manufacturing. And then you complement that opportunity with, you know, the likes of machine vision, that gives us a stronger presence, a new use case to talk about with, with manufacturers or robotics on line-side replenishment. Again, new opportunities that we haven't had in the past to, to drive dialogue with the manufacturer, but also talk about the full suite of products.
So that's an area where we are, you know, investing and have shifted resources, and looking, you know, working with new channel partners that really know that space. 'Cause again, we see a lot of opportunity both in our core business, but also in our some of our expansion businesses.
Last question from me, and then we'll be at the bottom of the hour, and I wanna make sure to open up for any audience questions. But RFID, Nathan, I wanted to make sure to mention. We get a lot of questions about Zebra's capabilities and competitive position there.
Yeah.
Maybe you could just give us a quick overview on your RFID business, and then in tandem, assess what, if any, barcode cannibalization risk you see going forward?
So we have a very broad RFID portfolio. So think handheld and fixed readers, we're the market leader in that, in that space, industrial and mobile print, so you can print the RFID, you know, label as well as a labeling business, you know. What we don't have is kind of the tag presence that some of the other providers have, or at least at that scale. And we see, you know, again, tremendous interest in RFID. We grew double digits in RFID this year. We think that's gonna be another, you know, continue to see strong growth as we head into next year....
And I think, you know, customers, like, industry players like Walmart having RFID edicts, not just for themselves, but that, that pushes down to their supply base, or UPS and how they're, you know, utilizing RFID within their operations. Not only are opportunities for us, but also I think, you know, just help drive broader adoption of RFID, and we think that's, again, a nice compelling growth opportunity for, for our business. As it relates to barcode, you know, again, today we think of it as still complementary. So every time there's an RFID tag, there's a barcode, and at some point through the supply chain, you know, you can have RFID, you know, embedded. You know, you guys can put it on the box, but eventually it's gonna get to a consumer.
They're gonna open the box, return it, and you're gonna need a barcode to track that through the life cycle of the product. So today, we see that as complementary, and I think one of our advantages is, if you're making a choice of, "How do I enable an RFID technology versus other offerings?" We can offer that full suite and make—you know, offer what makes sense for that customer and the workflow that they're working in. So again, today, we see that as complementary and incremental growth versus cannibalization of the other.
Any questions from the audience? Shoot up a hand. Be happy to answer any and all. Yeah, there in the back.
Yeah, thanks. So kind of taking a five and 10-year view on the business, kind of a two-part question: are there any... You know, as technological expansion continues, and as you bring up your AI and ML on your product, are there any natural end markets that you see not yet penetrated, but that you could, you know, begin to make an entrance into? And then conversely, maybe substitution effects from potentially robotic-based warehousing and ML, or is that more complementary?
Yeah.
Maybe also on the substitution side, do some of your larger customers start having a more DIY mentality as the importance of inventory and warehousing increases with technology?
Yeah, so,
If you don't mind, just,
Yeah, I'll,
Straight for webcast. Yeah.
So two parts, so,
Long question.
The first part, just from a... Maybe we'll go with the latter, which is, if you look out, where do we see, you know, from a or the short-term opportunities to expand our market with some of the newer technologies, whether it's machine learning or AI? And then the second part of that is, you know, there are competitive threats on that, on the other end of that, from things like robotics or other types of automation. So, as you look at the, maybe the five-year horizon in terms of opportunity... And I'll take it back to the core business, and I'll give two examples.
I mean, there's still opportunities in the market, and I use, you know, Japan as a market we've talked about, and that's not really – they're one of the last major markets to move to Android. And our market share in mobile computing is in the single digits, and it's the second largest market in Asia, and it's probably the fourth, fifth largest market in the world for our types of technology. If you think of, you know, in a Japanese market, you know, our products from a technological quality, you know, tend to check all the marks you need to be competitive in the Japanese market. But there's been local competitors, and, you know, many of them are not wanting to make the investment into Android and coming to us for partnerships.
So, you know, we had an agreement with Sharp to, you know, provide them with the mobile Android mobile computer into their customer base. We landed the largest postal provider in Japan, standalone. So making a lot of strides in Japan as they're starting to move towards Android as a, as a market. So maybe an older technology, but one that still has opportunity to grow. And then the other one, we just announced, and it's, you know, obviously very early in a partnership with Qualcomm on a new chip set that you can use generative AI on our device without going to the cloud.
You say, "What's the value of that?" One is, you know, in many of our operating environments, you know, having, you know, cloud capabilities and, and, you know, the, the transfer of data is, is pretty challenging, given, you know, just the connectivity or the number of, you know, applications that could be there.
But, you know, one simple example would be, you know, with the turnover in a retail environment, being able to use generative AI to say, you know, simple instructions on, "What would I do with a return of X?" Rather than look that up, find someone who knows how to do it, could I go and say, you know, ask and get it, a response back, you know, right at their fingertips of how to do that task if you're a new store associate, with the turnover, we think is a really compelling, value proposition with our customers. And again, that's, another need for, you know, hopefully a reason for an upgrade, to be able to move to that, mobile computer that has the new chip set, that has those capabilities.
So I think that's, you know, where we see as an opportunity to, A, drive refresh or further penetrate into our market. As it relates to, I think, longer term competitive threats or opportunities, you know, you think about something like robotics in a warehouse. You know, I look at it and say, for every dark warehouse that they talk about, there's still thousands of warehouses that are still fairly manual in what they do.
So I think that is still an opportunity, and many of the cases we see, it's not, "Do I need a robot to replace a human?" It's, "I don't have enough people to support my operation, so I have to supplement that with a robot." And I think, you know, when you look at some of the robot capabilities that are out there in, let's say, fulfillment, and we did a study that, in a say, fulfillment warehouse, I think 50-60% of the time is spent just walking. Pick an item in aisle 100, and walk that to shipping. If you can have the robot do that movement, you know, the human pick, drop it in a robot, and then do the transportation, in theory, that replaces workers, but in a lot of cases, those are workers they can't find.
So we think about that as more supplementing and complementing, you know, the technologies that's there today versus a net replacement. So I think that's just an example of... but even a dark warehouse, at some point, you need a scanner, a barcode machine vision technology to really drive that at some point of that, of that supply chain. Yeah?
Do the new machine vision products go head-to-head with, like, Keyence and Cognex, or is it a different application than-
Yeah. Jess, the question is, on machine vision, do they go head-to-head with Keyence and Cognex? Yeah, short answer is yes. I mean, there's multiple applications, right? And the market is... But in the markets where we participate, they're both, you know, obviously the number one and two, depending on which the subsets of the markets. So when we look at machine vision, you know, just maybe for background, we did, we started in early 2022 with organic investments in fixed industrial scanning. So think, you know, one step up from scanning, just at high speeds, you know, on a conveyance system, reading a barcode. So a lot of the same underlying technology with different algorithms and software to support the speeds.
We did an acquisition of Adaptive Vision that gave us software so that we can- you can upgrade those from fixed industrial to machine vision. So not only can you read the barcode, you can also detect, is it-- is the product damaged, right? So kind of, you know, basic, called basic, machine vision. Matrox really operated at the high end of the market, so 50% of that business was supporting semiconductors, so very specific. And, you know, but as a privately owned company, the opportunity was incremental investments in go-to-market to, you know, to, diversify outside of semiconductors. So, and with... You know, we think of automotive, battery electrification as a great opportunity for that business, and we're seeing a lot of traction there, or even transportation logistics.
So to get to your question, yes, we do compete head-to-head with both of those providers, you know, Keyence and Cognex, but it's also an overall market that's growing faster than our core business. And while they are the number one and two players, if you will, there's a long, fragmented number of competitors. So, you know, our game board, if you will, is not say, let's find everywhere to go head-to-head with Cognex and displace them from a... It's we can go after everyone. You know, let's look at everyone else, or where there's a white space or new opportunities or new applications, and those are the opportunities we have to win. And, you know, we're winning our fair share and seeing nice growth outside of semiconductor.
The Matrox business has obviously been impacted here in the short term with the decline in semiconductor, which we knew at the time of the acquisition, but that will rebound as it's a cyclical business by nature. So again, we're really bullish on the machine vision portfolio for the long-term growth and profitability for the company. Yeah.
How's the number of devices per worker changed kind of over the last 5-10 years, and is there an opportunity for that to go higher?
Yeah. So I kind of said earlier, but the, you know, globally average, you know, the number of about 40% of frontline workers, you know, have a device. And so we think that is still a, you know, a huge opportunity both to, you know, kind of you know, grow the market. And part of that is our portfolio of having not every work- you know, not every worker needs the same type of device, right? So if you're in an application where it's more heavy inventory, inventory validation, you may need a little more rugged, where if you're in the checkout line, you may not need all those same type of capabilities. So having a different, you know, portfolio of devices that work together, but, you know, complement the tasks that are around from, you know, in a retail environment.
So that's what we've done from a portfolio standpoint. And really, the software applications, you know, last year at NRF, we launched, at the National Retail Federation, you know, a broad retail portfolio showing how if you have your workers connected, you know, to drive better collaboration, so you're not finding someone who's maybe a couple hours away from you if you need help, to, you know, things like task management. So instead of coming in saying, "Here's the five things I need to do," it's real time. You know, you avoid the cleanup on aisle nine. You just know there is a cleanup, and I know Nathan's the closest worker who is, who's not doing anything. Let me have Nathan go do it.
Versus Lisa, who may be working with a customer or doing some other, you know, restocking inventory that you don't want to pull her off of that task. To workforce manage, do I have the right workers on the right shift at the right time? And then, you know, with Antuit, we added demand planning, which again, do you have the right material planned showing up, particularly for a CPG? So again, we think that is the longer-term opportunity, particularly for mobile computing, not only the refresh, but also the expansion of use cases, and the number of workers.
And again, there are a handful of customers who have, you know, call it 80, 90% plus of their workers have a device, but there's many more that are still will, you know, have a long way to go on that journey. And just... You don't typically say go all, you know, 1 to 9, you know, 1 to 100. It's I have a couple devices for a few applications. Okay, that works. I'm gonna add it for, you know, this department, the tire department. Oh, that worked. I'm gonna add it for this department. So it's more of an evolution versus, I'd say, a, a revolution within a, within a storefront. It's, you know, adoption as they work their way up over time.
Your prediction as to the next sort of killer app or the purchase or ROI based rather than just like a replacement cycle, or, you know, there, there's a clear line, you know, there's a clear benefit here, where it's worth making the investment regardless of where we are in the cycle or the value added. Some new technology making a strategic decision for the customer?
Yeah, I don't know if there's a killer, killer app.
Technological, step, you know,
Yeah.
Step up.
Look, I think, you know, they, it's, you know, the one thing that, you know, obviously can drive the refresh, you know, whether it's an app, just the amount of data that's being collected and moved, and transmitted through our devices. To do that, it requires more and more computing power, you know, the right operating system, and ultimately, that, you know. So I think it's the combination of those, you know, whether that's driven because of things like AI, maybe, but it also just, you know, could be other simpler tasks. You know, that ultimately is gonna be what, you know, I think part of the reason a customer would need to refresh or drive that incremental adoption.
So again, part of it is I see value in having store associates with a device, being able to provide that customer service, you know, that drive, you know, drive, that's driving incremental revenue or maybe drive inventory on the shelf, and the value's there, going, "All right, how do I get that for everyone in the shift, not just, you know, a select, you know, a select few?" So, yeah, I don't. Again, I think it's more of a evolution versus a, you know, a revolution, and I use the... Our previous CEO said this a lot, you know, if someone asked him this eight years ago, "What inning are we in? You know, is this first, second, third inning?" If you, or, or, or, "Where are we at?" He would say, you know, whatever he would've said, it would've been wrong, right?
So he would've said we're in the middle of the innings, using a baseball analogy. You know, it's, so it's kind of always the goalpost or, you know, that line keeps moving out and progressing, so, but I think it's, I think it's more of an evolution than a, "Hey, here's the revolution," like the move from, to Android was back in, you know, 2016 through 2018. But even that, you know, even though the Android transition's been quite a long stage, I mean, Japan still hasn't made the transition. We still sell, the older devices, so some people still have yet to move to Android. So it's, even that, even in that case, we're still, we're still in that transition.
We're at time, so we have time for one more question from the audience, if there is one. Otherwise, we can call it here. All right, we'll call it. Thank you, everyone, for your interest. Thank you, Nathan.
Thank you, everyone.
Enjoyed it. I'll see you guys for lunch.
Yeah.