Zebra Technologies Corporation (ZBRA) Earnings Call Transcript & Summary

Good morning, everyone. I'm Tommy Moll, research analyst 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 upfront today by CFO, Nathan Winters. Nathan, good to see you, and thank you for your time.

That's great to be here. Thanks very much showing up.

So just a couple of 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 going to have a mix of some investors who know you well, and we want to make sure to get to some of those next level questions, but we also have folks in the room who just want to get a quick introduction to Zebra. So we're going to 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 of tangible examples 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 front line every asset at the edge, visible, connected and fully optimized. So I think what does that mean in practical terms? It's -- you'll see us every day in a grocery store at check out, right, in terms of items moving out of the store, to a package being delivered at your home, and when it's dropped off, being notified that it's there, being delivered is usually 1 of our devices or customer service 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 our devices in the hands of a retail associate. Or when you're checking in as a patient at a hospital and your wristband is 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 their transformational needs as they're looking to drive automation and digitization within their workflow. So really, it's about how do we empower and connect associates and assets at the front end 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% to 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, and then what that evolution entailed?

Yes, we look at our markets, we think, again, serving strong secular trends and the need to digitize and automate workflows because of labor shortages, inflation, those things are all accelerating -- those items are all accelerating our customers' environments, and we help find solutions for those challenges. And if you look back, the core business, which is, I think, mobile computing, printing, data capture, scanning, strong positions, #1 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, I think 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 earlier. So as we looked at the framework, the framework going back from the Enterprise acquisition in 2016 was 4% to 5% growth, which we had exceeded over that time horizon, really around the core business growing at 3% to 4%, plus taking market share. And we thought, those same dynamics held true, complemented with higher growth [and these] adjacent markets and then even stronger growth, double-digit growth in the new expansions, got us to the 5% to 7%. And the factors we 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 longer term, the conviction around those longer-term growth trends, we still believe are there today once we work out of this 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 for investors to reference here with the transition?

Yes. As you said, Bill had been with the organization for a long time before making the transition. So the strategy, the vision has remained intact, but he's doing what you would expect. He's been spending a lot of time speaking with investors, customers, partners, make 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 somewhat, I guess, unfortunate, was somewhat predicated by the macro environment. So a lot of emphasis around the cost structure and double-clicking particularly areas of the business, he wasn't responsible before, by function, projects, initiatives, but also looking at our own product portfolio and making sure that we're rightsizing the business to the current demand environment and driving the efficiency, productivity that we need here as we move forward. So that's obviously been probably the area of emphasis in the short term, but somewhat driven by the macro. And not that we lost focus on costs, but now it's -- now we're shifting to go -- we're not going to cut our way out of this, and we're going to get back to growth, and we believe we will. So a lot of effort now on where there are 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?

Yes. It's hard to say where we sit today in terms of the cycle, but just maybe some context for it. Coming off of 2 years of strong growth, '21 and '22, and as we go into this year, I think a couple of factors at play for our business. One, the relative weakness of the goods economy versus service economy is an outsized impact on our business. So more things being produced, shipped and purchase helps our business. And underlying that is, many of our customers, particularly retailers, T&L providers built out capacity over that time frame of '21 and '22 for what would everyone thought would be a much higher growth rate, particularly in e-commerce for the foreseeable future. And now that, that growth has moderated, many are absorbing the capacity they built out across their entire infrastructure over that time frame that we benefited from. And [so] on top of that, the macro uncertainty, economic uncertainty and some of the geopolitical challenges, I think, has really depressed growth here in 2023. And then 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 has 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't say and we talked about this in our last earnings call is we have seen demand leveling out. Some stability in demand coming out of the summer here through the early part of the fourth quarter, which is net positive. And then it's -- now it's -- if you look back in economic cycles for us, whether it's 2001, 2009, even the pandemic to a shorter degree, downturns have lasted quarters where we've had significant revenue declines followed by 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 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 want to ask 1 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. Your name has been on at least 1 or 2 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, 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, I guess, personally, it was an attractive price point to make an additional -- additional personal investments. So we saw it from our Anders, who is now our Executive Chairman, a couple of board members, Bill and myself over the last month or 2.

Yes. 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 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 you know what that is?

I mean just for a background, couple of things. When we think about destocking is the inventory or channel partners hold to run their business, historically, at a global level, it's about 60 days on hand. So thank you -- and that's looking back over the last 13 weeks, what's that -- how much do they need to support that kind of run rate business. But that varies pretty dramatically. If you go to a place like Brazil, you'd 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 growing low single digits, declining low single digits, our growth rate and the growth rate of that -- what our channel partners are feeling are roughly the same within a couple of points. And obviously, you'll have divergence in the second where you see just a dramatic decline in such a short period of time where, in third quarter, the underlying market was down 20%, we were down 30%. So we thought it was appropriate to disclose what that amount was because there was a real fundamental difference in the underlying market versus our performance. And from a visibility standpoint, I get -- we get feeds every single week from our distributor partners on their in demand, the number of units, the product, the customer, and that's how our sales reps, our direct sales force is compensated. So they're not compensated until it sells to the end user. That's why I say accuracy. A lot of people rely on a degree of auditors out there making sure that the distributors are giving us the right information because that's how their quotas are set and they're compensated. Including in that is what do they have in their own inventory? So we can see it's a given product family 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 what's -- not that to your point, it is their business, but also making sure that 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 -- they're not too little or too much in the channel. I'd say what's different and what we've done here in the second half, given the volatility has been very closely aligned with where do you want to end? Not so much where 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 where 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, again, we can align our guidance, our planning to that and avoid surprises, which really worked effectively in Q3. We expect to do the same here in Q4. So I think the visibility has always been there. I think the difference is again just being hyper focused on ensuring we're both aligned on where we want to 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 are more robust at this point. And it feels like you're getting pretty good transparency.

That's right. Absolutely.

Yes. 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 -- these assets that are deployed have limited useful lives measured in a single-digit number of years. And so at what point does that start to inform the underlying demand?

Yes. So a couple of things there. One, if we look at maybe the activity we see in the market, I'd say no change. The same types of pressures customers have on the extended sales cycles and deferrals. So we haven't seen a dramatic shift in that for better or worse, in maybe over the last several months. But what we do see is we can look at the age of the installed base that's under our service contract or just deployments that we know that were out there in the market. But we know our customers can -- if you think mobile computing as an example, average useful life of 4 years, but that could extend out further. And a lot of that depends on the multiple factors that go into why a customer would refresh. That could be a technological advancement, whether that's 5G, WiFi 6, where there's new capabilities and speeds that will allow them to operate better in their environment or within the device. If they're adding more applications, more data you're going to get to the point where you need maybe more memory, more computing power to support your operation or what operating system upgrade are, where 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 our devices are built to last, but every environment is a little bit different, right? So again, if you're in a relatively simple environment where there's not a lot of -- they're not getting beaten up, you're maybe adding new capabilities, it's maybe simple test, you could -- you can sweat those assets a little bit longer than to the average. Whereas 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's where we feel positive about, we know those customers will come back. The installed base is larger than it was today than where it was in 2019 or 2016, significantly larger. We know the age of those installed base is aging. So it's not a question of if, it's going to be when those refresh cycle kicks in. And for us, it's ensuring that we have -- they're 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. So that's what we're internally focused on. I spend a lot of time predicting when it could happen, but more importantly, are we lined up so that at the moment that customer has capability, capacity, budget to spend we're there to capture.

So maybe peering ahead into the future a little bit, potential for restocking, if you think about how these cycles typically run, are there big restocking events on an upturn historically?

Yes. Again, the #1 driver of destocking. Restocking is what's the underlying demand. So if demand increases, distributors are going to have to hold more inventory to support that business. But what I would say is, again -- and why we don't talk about it usually is that underlying growth rate will be similar to our growth rate. If the underlying market is growing 5%, could we grow 6% to 7%? Sure, right? And there's going to be some -- some of that also depends on the quarter and the timing of a deal when it's going to happen. But we don't look at it and say, restocking is going to be a incremental driver of growth at some point. It's -- and again, if you are see a normal decline, I'd say the same thing. 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 the relative growth rates.

So we've spent a lot of time talking about channel, but it shouldn't be lost on the folks that you still have a healthy size direct sales force that's -- while those orders may be fulfilled through your channel, you've got good connectivity with some of your largest end users. 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 in a sort of normal cycle and it's no different than today is for our key strategic accounts where we have direct sales, which is a significant portion, they always have a 2- to 3-year road map. 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 road map look at over the next several years? From a budgetary cycle, most of the -- especially large retail customers, there year-end is January 31. So the final budget may not be decided until sometime in the first quarter. And as we saw experience of this year, obviously, that can change. 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 -- 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 planned 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 has been the predictability of those happening and when they'll happen. So -- 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.

Yes. Yes. Let's drill down a little bit on the omnichannel 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 we're all trying to figure out when some of that excess capacity is absorbed 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?

Yes. I think, one, if you look from a -- we've talked large retailers, e-commerce providers is where we started to see the slowdown even go back to Q4 of '22. And really large deployments were effectively dried up, if you will, as we -- through the first part of the Q1 of this year. So -- and those projects were also carryovers from 2022. And so -- and then we saw this incremental weakness in small and midsized 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 and their prospects to be back end first, followed by the small and mid-sized, and that's what we have seen in the previous cycles. I think the -- as it relates to absorbing the capacity, we're starting to see, again, what level in terms of an exact percentages, it's hard to not where wherever is in that cycle. And I think, again, this is we're staying close with those customers so that when that time comes, 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.

Yes. 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 going -- at some point, is there a catch-up cycle for lack of a better term that you might see?

Yes, for sure. If you look -- particularly in retail, 1 of the things we look at is how many -- if you go globally, 1 of the larger opportunities we have is if you look across the globe, still the numbers, we call it, 40% of frontline workers are digitally connected, which means -- now if you go to some of the large U.S. retailers, it's a much higher percentage. But still, on average, it's -- there's still a large opportunity of how do you get devices, the right device that might may be different for everybody. And you say, why is that important for a retailer? Not only to provide better consumer experience, so you can provide real time, you don't have to call for someone to help. You can get that information at your fingertips, but also, I think, those who have using in terms of increasing collaboration, direct communication with, let's say, the manager or their peers has a real impactful benefit to now on their employee base, but to the consumer. So we think that is a long-term opportunity. I think is the motivation to buy the short-term playing catch-up? Or when do they feel confident in their own business given all the macro dynamics to make that purchase. I think that's probably the more consequential event versus saying, "Hey, I need to do this to catch up with 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 and 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 '24. So there's a handful of anecdotes now suggesting that we may see a return to growth in some of these key end markets. And 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 context? What could you share with us?

Yes. So we're not trying to give you guidance here for '24, and we haven't. What I would say is maybe some context of what we're seeing. We said this on our last earnings call. I think the positive is we are seeing stability in demand, leveling of demand. It's hard to say bottoming, bottoming assumes there's a curve on the other side and predicting that. But in the short term, that leveling of demand was, I think, the first step, right, kind of seen stability in the end markets. What that being said, we don't see a -- it's hard to see today, a cursory there's something has changed for better or worse, that gives us an indication of how the first half of '24 will play out. What we do know is we're going to be rolling over, still some fairly tough comps, particularly in Q1. We wanted to make sure investors and analysts, everyone kind of thought about that as they were thinking about 2024. But at the same time, 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 -- and our service contracts as we offer called visibility IQ. So real-time visibility to your asset, the battery life, the utilization, so they can be more productive with their assets. We look at that as well and say the utilization of our devices is still where it was versus any period in time. So we don't have devices kind of sitting on the sideline. We know the utilization or the usage of them, the applications are ever increasing of finding new use cases to use our solutions in the market. So that gives us all confidence that the refresh -- those refreshes will come and the recovery will come. I think, 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 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 revenue contribution. What can you tell us about your presence in that end market and some of the limitations to growth and adoption there?

In the short term, health care is having the same -- we're seeing the same phenomenon in health care as we are in the rest the market. So we have a higher cost of capital, inflation, and health care typically has lower operating margins. So they're faced the same type of budgetary challenges that we're seeing across other markets. We think long term, health care is still a very attractive market. their need to drive increased productivity, have better collaboration across doctors, nurses, the patients to improve safety from a drug delivery are all solutions that we can help provide. And so again, we think health care is still a large opportunity for us over time, but different than retail. They are also more like manufacturing in terms of fragmented buying decisions, their own challenges with, again, each hospital. It's more of a hospital-by-hospital dogfight, if you will, versus in retail, you tend to get the -- they do for 1 retail store they do for all, which just gives them kind of the scaling ability. So still attractive about the long-term prospects, but in the short term, I think similar challenges we're seeing across other markets.

Yes. In manufacturing, what can you tell us there about -- and this is not specific to this year, just in general, 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, definitely a manufacturing environment, customer can -- we think our printing business, if you are printing at the end of the line and you're having your budget to replace for whatever reason -- and printers built to last. So can you sweat that asset a little bit longer and defer the purchase. I mean, that was exactly what we saw during the peak of the pandemic, right? And then there was obviously some pent-up demand from that [in good and] small and midsized manufacturers. And where we see from a secular perspective, manufacturing, given the need to continue to drive automation, the changes happening from a geopolitical and where manufacturing is happening around the world is creating opportunities. And for us, manufacturing is a lower share relative. We have lower share in outside of print, lower share manufacturing. And then you complement that opportunity with likes of machine vision that gives us a stronger presence, a new use case to talk about with manufacturers, more robotics on line-side replenishment. Again, new opportunities that we haven't had in the past to drive dialogue with the manufacturer, but also talk about the full suite of products. So that's an area where we are investing and have shifted resources and looking -- working with new channel partners that really know that space. Because, 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 want to 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. So 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 handheld and fixed readers -- we're the market leader in that space, industrial and mobile print. So you can print the RFID label as well as a labeling business. 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, again, a tremendous interest in RFID. We grew double digits in RFID this year. We think that's going to be another -- continue to see strong growth as we head into next year. Customers, industry players like Walmart having RFID is not just for themselves, but that pushes down to their supply base or UPS and how they're utilizing RFID within their operations, not only are opportunities for us, but also, I think, just help drive broader adoption of RFID, and we think that's, again, a nice compelling growth opportunity for our business. As it relates to barcode, 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 can have RFID embedded. UPS can put it on the box, but eventually, it's going to get to a consumer, they're going to open the box, return it, you 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 -- 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, would be happy to answer any and all. Yes, there in the back.

So kind of taking a 5- and 10-year view on the business kind of a two part question. Are there any -- as technological expansion continue using those [Technical Difficulty] any natural end market that we see not yet penetrated, but you could begin to make an [Technical Difficulty]? And then conversely, maybe substitution effects were potentially robotic based warehousing, and [they] are more complementary and maybe also on the substitution side, some of your larger customers start having a more DIY mentality is the importance of inventory in warehousing [indiscernible].

If you don't mind, just [Technical Difficulty].

Yes. So 2 parts. So the first part, just from maybe we'll go with the latter, which is if you look out where do we see from a -- in 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 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 maybe the 5-year horizon in terms of opportunity, and I'll take it back to the core business, and I could give 2 examples. I mean, there's still opportunities in the market, and I use Japan is the market we talked about, and that's not really driven by that -- 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 fifth -- fourth, fifth largest market in the world for our types of technology. If you think of, in the Japanese market, our products with -- from a technological, quality, tend to check all the marks you need to be competitive in the Japanese market, but there's been local competitors. And many of them are not wanting to make the investment into Android and are coming to us for partnership. So we had an agreement with Sharp to provide them with the mobile -- Android mobile computer into their customer base. We've [learned] the largest postal provider in Japan stand-alone. So making a lot of strides in Japan as they're starting to move towards Android 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 obviously very early of in partnership with Qualcomm on a new chipset that you can use generative AI on our device without going to the cloud. And you say, what's the value of that? One is, in many of our operating environments, having cloud capabilities and the transfer of data is pretty challenging given just the connectivity or the number of applications that could be there. But one simple example would be with the turnover in a retail environment, being able to use generative AI to say simple instructions on what'll to do with the return of x, rather than look that up, find someone else who knows how to do it, could I go and say, ask and get a response back, right their fingertips of how to do that task if you're a new store associate with the turnover, I think is a really compelling value proposition with our customers. And again, that's another need for hopefully a reason for an upgrade to be able to move to that mobile computer that has the new chipset, that has those capabilities. So I think that's 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, I think about something like robotics in the warehouse. I look at it and say, for every dark warehouse that they talk about, there are still thousands of warehouses that are still fairly manual in what they do. So I think that is still an opportunity. And in many of the cases, we see it's not joining a robot to replace a human, it's, I don't have enough people to support my operations, so I have to supplement that with a robot. And I think when you look at some of the robot capabilities that are out there in [play], fulfillment and we did a study that in say, fulfillment warehouse. So I think 50%, 60% of the time is spent walking, picking an item and isle 100 and walk that to shipping. If you can have the robot do that movement, 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 the technologies that's there today versus a net replacement. So I think that's just an example of -- yes, there is the -- but even in a dark warehouse at some point, you need a scanner, a barcode, machine vision technology to really drive that at some point of that supply chain.

[Technical Difficulty]

The questions on machine vision, do to go head-to-head with KEYENCE and Cognex, yes. Short answer is, yes. I mean there's multiple applications, right? The market is -- but in the markets where we participate, they're both, obviously, the #1 and 2, depending on which -- the subsets of the markets. So we look at machine vision -- just maybe for background. We did -- we started in early 2022 with organic investments in fixed industrial scanning. So then one step up from scanning, just at high speeds on a conveyance system, reading a barcode. So a lot of the same underlying technology with different algorithms and software to support the speeds. And 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 now can you read the barcode, you can also detect is the product damaged, right, so kind of basic -- called basic machine vision. Matrox really operate at the high end of the market. So 50% of that business was supporting semiconductor. So a very specific and -- but as a privately-owned company, the opportunity was incremental investments in go-to-market to diversify outside of semiconductor. So -- and with -- we think of automotive battery electrification is 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 [providing] KEYENCE and Cognex, but it's also an overall market that's growing faster than our core business. And while they are the #1 and 2 players, if you will, there's a long fragmented number of competitors. So 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 out for everyone. You have both look at everyone else, or whether they're white space or new opportunities or new applications and those are the opportunities we have to win. And we're winning our fair share and seeing nice growth outside of semiconductor. And the Matrox business is obviously an impact here in the short term with the decline in semiconductor, which we knew at the time of the acquisition, but that's a -- 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.

How's the number of devices per worker changed over the last 5 to 10 years? And is there an opportunity [Technical Difficulty].

So I said it earlier, but the globally average, the number of -- about 40% of frontline workers have a device. And so we think that is still a huge opportunity both to -- how to grow the market. And part of that is our portfolio of having -- 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, whereas if you're in the checkout line, you may not need all those same type of capabilities. So having a different portfolio of devices that work together but complement the tasks that are around from -- in a retail environment. So that's what we've done from a portfolio standpoint. And really the software applications, last year at NRF, we launched at the National Retail Federation, a broad retail portfolio, showing how if you have your workers connected; a, to drive better collaboration, so you're not finding someone who's maybe a couple of aisles away from you if you need help to things like task management. So instead of coming in saying here's the 5 things I need to do, it's real time, you avoid the cleanup on Isle 9. you just know there is a cleanup, and I know Nathan's the closest worker who's not doing anything. Let me get Nathan go do it, versus Lisa, who may be working with a customer or doing some other restocking inventory that you don't want to pull her off of that task. Two, workforce manager have the right workers and the right shift at the right time. And then with Anders, we had demand planning, which, again, do you have the right material planned showing up from -- particularly for CVG. 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, call it, 80%, 90% plus of their workers have a device, but there's many more that are still have a long ways to go on that journey. And you don't typically see a 1 to 100, it's -- I have a couple of devices for a few applications. Okay, that works. I want to add it for this department, the tire department, how that worked, I don't add it for this department. So it's more of an evolution versus I would say, a revolution within the storefront. It's an adoption as they work their way up over time.

[Technical Difficulty] to the next sort of filter out for the first for ROI [Technical Difficulty] like a replacement cycle or there's a clear [Technical Difficulty] the clear benefit here where it's working investment regardless of where we are in a cycle value-added of the technology [Technical Difficulty].

Yes, there's a killer, killer app.

[Technical Difficulty].

Look, I think the -- its'-- the one thing that obviously can drive the refresh -- whether it's an app, but 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, the right operating system. And ultimately, that -- so I think it's the combination of those, whether that's driven because of things like AI. Maybe, but it also just could be other simpler tasks. That ultimately is going to be what -- I think part of the reason that 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 the device, being able to provide that customer service that drive -- that's driving incremental revenue and maybe drive inventory on the shelf. And the values there going, "All right, how do I get that for everyone in the shift, not just a select few." So I don't -- I think it's more of an evolution versus a revolution. And I'll use the -- our previous CEO said this a lot. If someone asked him this 8 years ago or what inning are we in? Is this first, second, third inning or where are we at, he'd even say, whatever even said it would have been wrong, right? So we said we were in the middle of the innings using a baseball analogy that's -- so it's kind of always the goalpost or 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 2016 through 2018". But even at -- even though the [endpoint] transition has been quite a long stage. I mean, Japan still hasn't paid the transition. We still sell the older devices. So some people still have yet to move to Android. So it's -- even in that case, we're still in that transition.

We're at time. So we have time for 1 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.