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Digital Transformation of Retail Drives Zebra Technologies’ Performance in Q1 2017

15-May-2017
Digital Transformation of Retail Drives Zebra Technologies’ Performance in Q1 2017
Zebra Technologies announced its Q1 2017 earnings on May 8, beating analyst expectations on EPS by $0.07 and revenues by $17.25M. The company saw an improvement over Q1 2016 across all regions with its various product lines; this included double-digit sales growth in EMEA and Latin America and a 5% growth in North America. Strong demand from retail and e-commerce customers contributed to success this quarter that exceeded Zebra’s guidance range. Enterprise segment sales (mobile computing and data capture) increased 9% to $544M and legacy business (including barcode printers, card printers, consumables & supplies, and location services) was up 3% to $322M. The company also saw its gross margin expand by 20 basis points from Q1 2016 to 46.4%, primarily due to its initiatives around trimming product-related costs.

The following are some of the key highlights from Zebra’s Q1 2017 earnings conference call:
  • Zebra attributes the sharp increase in enterprise segment sales primarily to its performance in North America and Europe where demand from its retail and e-commerce customers is especially strong. It has been very successful with its Android-based mobile devices, which now account for about half of the mobile computing sales; VDC’s research shows that the company has a greater than 50% market share in this segment, with 15 of its mobile computing products currently powered by Android. Zebra’s data capture business also generated significant business across verticals including retail, logistics, and healthcare. 
  • Zebra’s legacy printing business has been the mainstay for the company for several years now. The company continues to have a positive long-term outlook for this division; it is looking to strengthen its consumables and supplies sales where it sees significant opportunities. Capabilities like Link-OS that enable seamless integration of Zebra’s printer products with end users’ internal networks help the company differentiate its product line from that of its competitors, which is critical in this highly fragmented landscape. 
  • Brick-and-mortar store closings dampen retailers’ investments in technology solutions; however, at the same time, e-commerce and omnichannel related trends help drive market interest in and purchase of products that are a part of Zebra’s diversified portfolio. In terms of other markets, healthcare is the fastest growing for the company with the transition to electronic health records driving investments in data capture solutions. Zebra is now also seeing growth in this segment outside of the US with company executives highlighting Europe, Middle East, and Asia as the other regions ramping up technology investments in support of healthcare operations. Manufacturing continues to be a core focus for Zebra; its Network Connect solution specifically addresses the need to facilitate seamless connection of printers and scanners on the shopfloor to the enterprise network.From VDC’s perspective, the retail vertical presents significant opportunities for technology leaders like Zebra Technologies as the narrative evolves from physical vs. digital to one that embraces the best of both worlds to create a more engaging and immersive shopper experience. It is encouraging to hear the company raise its guidance for the year on the back of a strong Q1 and a robust sales pipeline going forward. The diversified focus on verticals other than retail and logistics also help position Zebra for continued success. VDC believes that the company’s efforts to extend its vision of Enterprise Asset Intelligence will serve to present a unified message about its various product lines across both partners and customers, thereby helping it improve organizational synergies and engage in new opportunities in subsequent quarters.Executives also cite the One Zebra vision as driving significant cross-sell and up-sell opportunities. The company has made investments in training its salesforce to be comfortable with the broad solution suite while also having introduced compensation plans that reward the sales staff for cross selling. 
  • Executives also cite the One Zebra vision as driving significant cross-sell and up-sell opportunities. The company has made investments in training its salesforce to be comfortable with the broad solution suite while also having introduced compensation plans that reward the sales staff for cross selling. 

From VDC’s perspective, the retail vertical presents significant opportunities for technology leaders like Zebra Technologies as the narrative evolves from physical vs. digital to one that embraces the best of both worlds to create a more engaging and immersive shopper experience. It is encouraging to hear the company raise its guidance for the year on the back of a strong Q1 and a robust sales pipeline going forward. The diversified focus on verticals other than retail and logistics also help position Zebra for continued success. VDC believes that the company’s efforts to extend its vision of Enterprise Asset Intelligence will serve to present a unified message about its various product lines across both partners and customers, thereby helping it improve organizational synergies and engage in new opportunities in subsequent quarters.

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