Zebra Technologies Corporation (ZBRA) Earnings Call Transcript & Summary

All right. Good morning, everyone. I'm Tommy Moll, research analyst here at Stephens. We appreciate your taking the time to come to Nashville to attend our conference this week. One of the companies I cover here is Zebra Technologies. We're delighted to host from the company, the CFO, to my left, Nathan Winters, as well as Mike Steele, Vice President of Finance and Investor Relations seated here in the front row. Nathan and Mike, thank you for taking the time to come to Nashville this week. We appreciate the insight.

Yes, it's great to be here.

So for those in the audience who don't know Zebra very well yet, I've got about 20 minutes of high-level Q&A prepared to give a pretty good I hope overview of what the company does. The second half of our session though, we should lean in to the extent we can on audience participation. So if you have any question, by all means shoot up a hand. If you have 3 questions you want to ask, ask all 3, the more interactive, the better. But just to kick us off here, Nathan, the company vision here is to enable intelligent operations. That was a new one for me. You used to have a different way of describing the business, but I was corrected and so sketch for us, what do you mean when you talk about enabling intelligent operations? What is that reference and what is the history here?

Yes. So the -- I think the history is our vision we had talked about asset intelligence or enterprise asset intelligence going back to the Motorola acquisition in 2015. And to some extent, we kind of -- I think that term was somewhat made up at the time, where -- and obviously, the portfolio has dramatically changed from where we were 10 years ago. And so I think now the vision around intelligent operations, think of enabling frontline operations everywhere to be digitized, automated and intelligent, which is how we've talked about the company for the last couple of years. And so it's just formalizing that, and we thought it was time, again, with the portfolio, how we talk about the company, how we think about the opportunity is restating the vision to -- to actually how we talk about it and how we think about it from the vernacular we used over a decade ago.

And I think it was -- yes, it was last quarter, perhaps associated with this new branding, you had a resegmentation where you reallocated some of your businesses from one segment to the other, which I know you know, but I will say again today, analysts get really, really excited or grumpy when we see one of those around earnings. But I want to give you a chance to tell us what should we take here? Clearly, you're also communicating the business differently to the investing audience. And so what would you highlight for us here?

So we again, resegmented from 2 new operating segments: connected frontline, asset visibility and automation. Again, similar to the strategy and the vision around intelligent operations, it's -- I'd say it's really more of reflecting what the company is today versus what it was 10 years ago around the segments and give us a more intuitive way to talk about the company the old segments, quite frankly, were just combinations of different products, and that's how we really talked about the company versus now talking about what's the strategy around a connected frontline, how do you bring the portfolio together to be a better experience for our customers on that connect of mobile computing. Now with Elo tied to software and AI to bring a better experience to the frontline worker. And then on asset visibility, again, it's how do you give assets to digital voice, whether that's through RFID tag, a barcode and then visibility throughout the supply chain, whether that's with, again, RFID, machine vision or scanning. So again, a better way to talk about the company, I think a more intuitive way. So we can talk about what's happening in those segments that I think makes logical sense versus jumping directly into product by product. And appreciating it was a lot of change at once, but it kind of coincided with the new vision, a little to do with the Elo acquisition. It was more just with the new vision where we at. We thought it was appropriate to get it out there. And kind of reset things as we go into 2026.

You've mentioned Elo a couple of times, so I want to make sure to hit on that. It was a $1.3 billion deal closed last month. And some of the key served verticals there like retail and hospitality, Zebra has been known for a while in terms of automating the frontline workforce. Elo historically had been known more for automating interactions with the end customer like in a point-of-sale context. What's the strategic rationale for bringing these 2 together?

Yes. So the really, the strategic rationale is about how do you enhance that frontline experience, as I just mentioned. I mean, we've -- and we've known Elo now -- we've been looking at Elo as a potential target for several years. Just the timing finally came together around the right time and the right valuation. They have a very similar business model to our core business, meaning they sell through Tier 2 distribution, the personas within the customers, meaning the buyers are very similar from our traditional core products and Elo. So just the overlap and synergies, again, we were on a diligence call and you just say they are us in terms of how they operate, how they run their business. So it's, again, a very natural fit within the portfolio, $400 million of revenue. It's incremental accretive on day 1. We can drive material synergies from both cost but also commercially in terms of expanding their portfolio outside the U.S. But the real value proposition comes from think of if today, if you have Zebra mobile computers and then you have, whether it's Elo or some other type of digital display self-serve checkout point of sale. They are likely -- well, they are run on 2 different -- even if they're Android, 2 different Android instances, which means you're maintaining 2 different instances, your security patching both from 2 different vendors. If you have the same application that you want to run both on a fixed and mobile device, it has to be maintained in 2 instances. Well, now over time, we can bring those together and provide that uniform back platform to support both fixed and mobile applications. Customers have been asking for this. We launched a kiosk last year organically, our KC50. And it was really around a request from customers saying, "Hey, we love the Android platform. We use it across all of our mobile applications. We'd like to add these fixed applications on that same platform, how can you help us do it. And so obviously, this gives us a way to accelerate it. They bring to us a presence in quick-serve restaurant, which we like in terms of identifying incremental opportunities. We're excited about taking Elo globally. They've been predominantly in North America, different parts of Eastern -- or excuse me, Western Europe, but we look at markets like Australia, India, Germany, very small presence, where we can leverage our infrastructure and our commercial relationships to gain some real traction here over the next couple of years. So again, we're really excited about driving meaningful growth for the company and really just a natural fit into the core portfolio.

Let's talk about the demand environment here, Nathan. Last year, around this time, phrase is being thrown around, included continued momentum, broadening recovery this year, or I should say, this most recent earnings season, you talked about uneven macro signals. A lot of investors, in particular, leading up to third quarter earnings were looking for any sign of a recovery in some of the short-cycle markets here in North America in particular. Is there anything you can point to? Where does it feel like we sit in the cycle today?

Yes. If I take a step back, what I would say is the long-term secular trends we see in the business remain intact, meaning go back to the need to digitize and automate workflows and how customers are thinking about driving productivity hasn't changed. The conversations we're having with our customers are the same. I think what we -- when we've see an uneven demand, you look at our Q3 results, I think, are a perfect picture of it, meaning really strong results out of North America, particularly in retail and e-commerce. Asia Pacific had another strong growth quarter. Our Latin America business, which is relatively small had its highest quarterly revenue in the history of the company, which again, all positives. But on the other side, you see declines in Europe, kind of tepid demand across the region particularly in markets like Germany, French retail, in particular. So large markets of ours that are challenged. And then think about manufacturing, kind of, again, lagging growth across the portfolio. So -- and then you just overshadow this with, I'd say, just the macro uncertainty, whether that's what's going on from a geopolitical perspective or tariffs here there? What's the rate and we see that playing out with our customers in terms of how they're thinking about their capital purchases and then what's the consumer going to behave here at the end of the year. So that we see as uneven demand, real pockets of strength and that continued demand and continued momentum again, with some areas of the portfolio that are still lagging and struggling here in the moment.

So you mentioned the customer capital planning cycle. In a typical year-end period, so I'm thinking calendar year-end here, how much visibility do you have on the size and in particular, the timing of customer deployments for the following year? And how does this year compare in terms of that visibility?

I'd say this year compares similar to prior years in terms of one of the key ingredients our teams use with our largest, most strategic customers is we have a 2- to 3-year road map with every one of them in terms of how are they thinking about their budget cycle, the refreshes of the portfolio where are we at from a technology perspective in terms of what additional features, functionality and offerings we can bring to their environment. And that's no different, right? And that obviously leads out to what kind of looks like could be 26 projects versus 27 and 28. So that feels very, very similar. I think where you -- it's still back to just the certainty of when they're going to move forward. And quite frankly, sitting here today, it's the same situation we're in every year, which is there's a pipeline of 12 projects. We need 4, 5 or 6 to have a good year. I don't know which one of the 4, 5 or 6 they're going to move forward, but you had confidence that they ultimately will. And we've had years in the past, whether it's 2018 or 2021, where we get more than our fair share within that year and projects are accelerated or moved ahead, whatever -- whatever you might call it. And we've had years in '23 and early part of '24, where they can be pushed out or deferred and delayed. So I think it's again, the conversations are still ongoing and happening. You'd like to get to a point where there's a bit more certainty around the overall economic environment, whether that's tariffs, interest rates, whatever it might be. So that customers can move ahead. I mean if you look at this year's example, I mean, this year is playing out pretty much as we expected. The guidance has been relatively unchanged. If I look at first half, second half, this is more or less how we how we planned the year. And so projects that were in the pipeline have kind of moved ahead if they were in the budget, customers aren't backing away or pulling back on those projects. But what we're not seeing is, I think because of that uncertainty is accelerating and spending more, meaning they're not moving ahead with something that might be in next year's plan or on the cusp from above the line, below the line. And that's -- I think that's where we haven't seen either the acceleration we were hoping for and that many were hoping for, which is kind of that -- again, some of that uncertainty abating so that folks move ahead with those projects. It doesn't mean they're not out there. It doesn't mean they're not in the pipeline that the teams are actively working. It's -- but we've got to find the right moment for those customers to move forward.

Yes. You mentioned the first half versus second half dynamic, Nathan. And this is a question I've gotten a lot from investors, so I want to lay it out and let you let you attack it head on here. But point taken that the second half outlook hasn't changed meaningfully, it does sound like there was some shift in terms of volumes that maybe came in 3Q versus originally you had penciled in 4Q. The point is the implied 4Q trend is a flattish volume environment. And so the question I've gotten a lot is what are we to make of that? The big picture message is, think about it in terms of the halves, but the leading-edge indicator is that flattish trend in 4Q. I don't think you were wanting to communicate something going forward with that outlook necessarily, but I do get asked the question, and so to the extent you can help us unpack it, we'd appreciate it.

Yes. Like I said earlier, that's definitely not the intent. Again, I think the Q4 guide we think was and believe is still balanced given the macro uncertainty. You see that with some of the more recent earnings announcements that have come out. And so what you see in the macro economy. With the pipeline we had going into the quarter around where customers were planning or thinking they would spend some of their year-end budget, which effectively is flat to where it was in the prior year, which was a relatively strong Q4 in 2024. So I think the current quarter just reflects what we're seeing here in the quarter and there's a lot of moving parts and uncertainty out there. But look, I think I'll go back to long-term, we still believe in the fundamental growth drivers of the company, the pipeline of opportunities we have, the conversation around with our customers. And you look back on the year, we'll deliver 6%, nearly 6% organic growth, 17% EPS growth for the year. On top of that, we'll fully mitigate tariffs, which I'm sure we'll talk about exiting going into '26. We've deployed $300 million of share buyback through the year and committed to another $500 million over the next 12 months. I think we added -- adding the Elo acquisition gives us a scaled $400 million of revenue that's accretive on day 1. So again, we feel good about the execution in the year. Obviously, we'd love to have a -- see a higher growth rate here in the quarter. But look, I think we're executing and when the customers are there. I mean the good news about our business is if those budgets open up, if they see year-end spend coming strong and they have some budget to spend, we're one of the first places they call because we can deliver a pretty short timeframe, whether that's end of this year or early next year, but we can capitalize on that upside if and when it comes and then keep executing and be there for our customers, and that's going to deliver the long-term growth we expect.

So if we zoom out a bit to the served market growth rates that you've talked about, 5% to 7% is the long-term compound annual growth rate. This is another common question I get from investors. If you use a pre-pandemic gear as a base, let's just say, 2018 or 2019 and look at that average compound rate through, let's say, 2025. You're going to come in a little bit light of that 5% to 7% range. The year you start and the analysis can change the answer dramatically because there was quite a bit of volatility in between those 2 points in time. But just for that first cut that a lot of investors take where you come in a little bit light of the 5%, how would you address the skepticism there?

Yes. And maybe just to start with the overall 5% to 7% construct. If you look at how you break that down, we've got our core business includes our mobile computing business, data capture, printing. If you include Elo in that now, it's a $20 billion served market. We're the market leader across the portfolio, and we expect that to grow 4% to 5% again, over the cycle. And we think of -- even as a market leader, plenty of opportunities to continue to take market share and grow whether that's geographic expansion in places like Japan, Southeast Asia, where we have lesser market share or places like manufacturing or what has driven a lot of our growth over the last several years within mobile computing is how do you enable more frontline workers with technology with different form factors. Again, not every frontline worker like a greeter needs a fully ruggedized TC7, might a little bit overkill for that application. So having different form factors where you still want the technology, so you can have the communication, the customer service that enables those are all again incremental opportunities we see within that -- opportunities we see in that 4% to 5%. Then you have our near adjacencies. So think ruggedized tablets, our supplies business, I think more importantly, the RFID business, which has grown double digits here for the last couple of years, again, growing high single-digit mix. And then the expansion business, whether that's software or now really predominantly around the machine vision business, growing multibillion-dollar markets, still a relatively small part of the portfolio, but growing over time, double digits. So it's the mix of that to get to the 5% to 7%. Now if you look back over the last 5 years, we always say over a cycle, and the only thing about the last 5 years, it's been anything but a normal cycle, meaning we've had obviously, 2 extraordinary years in '21 and 2022. I mean '20 to '21, we grew $1 billion from $4.5 to $5.5 million in 1 year. And then coming out of that, you had absorption of all that capacity built out across the industry. And again, a gradual recovery out of that, but still, I'd say, not back to fully recovered, whether we look at areas like manufacturing that still lag behind pockets within T&L. I mean, obviously, a lot of the T&L providers are going through a lot of restructuring and recalibrating of their business. And I'd say we're still not back to what I would say a normalized level of large deal kind of refresh activity. We've had a few, but a lot of those refreshes that happened in '21 and 2022 are still out there is incremental opportunity. So look, we look at where we're at today moving forward around the 5% to 7%, I'd say a couple of key drivers. One, if you look at our mobile computing business, still the largest portfolio, it grew -- the installed base grew 35% from 2019 to today which kind of puts you in that 5% to 6% CAGR. Obviously, a lot of that happened in a 2-year timeframe. But that's a huge installed base to mine, to refresh, and we think of opportunities, again, to drive that sustainable growth here over the coming years. RFID and machine vision are a more meaningful part of the business today. Both with, again, we think, double-digit growth opportunities as we look out. And then I'll go back to no matter where you are in the technology adoption, we provide the tools that enable customers to digitize, automate, drive productivity and efficiency across their business. And again, that's not going away. So that still gives us that belief that you can always pick the point you want to start from to start the analysis, but we look here moving forward that there's no reason we shouldn't be able to continue to grow 5% to 7% and drive attractive earnings growth on top of that.

Any questions from the audience so far? All right. Well, feel free to shoot up a hand and ask anything on your mind as we progress here. Nathan, you mentioned tariffs. At the peak the expectation you had for gross profit headwinds in 2025 was $70 million. Most recently, you revised that down to less than $25 million. So suffice to say, there's been some progress in mitigating the impact there. What are some of the moves you made here in terms of both price and cost. And as you move forward? Is it fair to assume that you've essentially mitigated all of the headwind, assuming no change to current policy?

I think this is one we're really proud of in terms of -- I think the team has done a phenomenal job of being proactive going back into late last year as kind of once you kind of knew where the pendulum is swinging from an administration to start thinking ahead of what moves do we need to make because these aren't easy transitions, but -- we will substantially mitigate this year, kind of the net $25 million impact substantially mitigate as we go into '26. And that's a combination of the price actions we took in April, which are generating about a $60 million of annualized benefit. Plus, we'll go to less than 20% of our North America volumes now out of China, which was over 80% pre-pandemic. So again, a lot of work diversifying the supply chain, moving around different parts of Southeast Asia, I think not only has it helped mitigate the tariff exposure, but also, I think, built a more resilient supply chain in terms of having multiple sources and multiple areas to produce that, I think as we've learned, it's there will be something next and not having that production diversified isn't that good thing from a long-term sustainability. So -- and the team has done a good job working with our suppliers to drive productivity and pricing where we can to help additionally offset. So I think we have a tracker going back to whether it's 2018, '19, mitigating and doing this here now within less than 12 months. And it's still obviously a dynamic environment. Hopefully, as we were talking to investor earlier, we don't have to talk about it next year, but that -- but I think the team is ready for whatever might come, we'll take action to preserve profitability and mitigate as short as a timeframe as humanly possible.

I want to talk about AI. What are some examples you can give where you have deployed the technology in your organization and where do you feel you sit on this journey?

Within the organization? Yes, I'm really excited. We're -- I think the team -- we started out early on building our own applications in terms of letting teams kind of utilize the tool, using whether it's Microsoft Copilot now using Gemini enterprise from Google. We have a our service center, repair depot, our repair centers have used this a lot in terms of driving incremental productivity. And look, I think where I sit here today is I think it's just a journey in terms of how you drive incremental productivity from Excel to a macro to an RPA now to how do you leverage AI for the next evolution. I mean we're using it in how do we prepare for earnings calls in terms of what questions could be asked, what's the right way to answer. So a good Copilot to help out Mike in terms of how we prep about potential questions. We're using it in how do we provide better service on internally on -- I have a question about AP. I have a question about T&E, I don't need to ask a finance person, I can go directly to large language model to get that answer and response. So again, there's a lot of -- and then we're looking at different applications of how can you automate different parts of AP that are more complex and whatnot. So -- and then the team is using it across our software development of again, how you drive real productivity and how we think about how we develop our own internal software. So I think there's a lot of great momentum, both bottoms up and tops down around folks being curious of how can help provide -- again, I think if everyone is 10% more productive across 10,000 people, that's pretty powerful force multiplier.

And if you think about your early initiatives to commercialize the technology for your customers? What are some examples you can give? And what's the pipeline look like?

Yes. So I think we're -- again, we're really excited about the opportunity we have delivering AI solutions to our customers. And we think we're uniquely positioned to help deliver that for frontline applications. We're not going to be the large language model hyperscaler, but developing applications that are unique and pointed towards a frontline worker. We're in a unique position to that, given our presence, particularly with our mobile computing platform. And we demonstrated some of this early at NRF last year, so the National Retail Federation trade show in January. We have multiple active proof of concepts in the market in terms of -- we think about our Zebra companion agent. So think of how do you provide better product recommendations, again, with a device, you don't have to be connected to the cloud, which is obviously a pretty big expense. If you have a bunch of store associates connecting to the cloud every time you tap into the model. But what wine do you recommend if you're an associate working in a wine store, how can you give that real-time product? What's a good cabernet that's at a price point of X. You don't hope you find the right guy or gal, you can -- someone can provide that. At NRF target showed a similar, which is they told the story around a store associate who is a high schooler happens to be walking down the baby aisle. A mother asked what's a good formula for a baby with an upset stomach terrified high schooler today, tomorrow could be someone who goes, what's a good formula, not only gets the response but gets a picture, what shelf is it on? If it's not on the shelf, what's the price point and being able to do that real time at their fingertips. The other one that's, I think, pretty exciting is taking a picture of a shelf instantaneously, you can get -- there's 3 items out of stock, send the task directly to the back of store to be fulfilled. No one needs to touch that workflow, what thing needs a price check. So again, take a picture, it can give you the 10 tasks and automate those directly to who's the right person to execute. And then there's some really cool applications for frontline delivery that we're piloting with some large T&L providers of again, proof of delivery. Obviously, when a package is delivered is an important deal and one thing is to take a picture and upload it. It's another thing, but you still have to check the box around proof of delivery that, that package was delivered to Nathan's doorstep. What if you just take the picture with the package with Nathan's door, and it knows it was my door. That was the right package, and it automatically completes that workflow without that delivery driver touching another button. So think of 20, 30 seconds, times every package, it's pretty -- again, it's a lot of productivity you can generate. So again, those are all just, I'd say, different applications. And I think the beauty is no different than what we do with anything. Some of these are going to be -- customers are going to do that themselves and build it themselves, and that's okay. We're going to provide the APIs and the platform to do that on. We may develop some of that ourselves for those customers or could be partners doing it. And I think that's the beauty of the portfolio and the interoperability across those different applications that ultimately, if they're doing it on our platform, that means they need our mobile computer. That probably means they need a new mobile computer with a higher processor and more memory in terms of an uplift and a higher price. As well as monetizing -- again, that's kind of what we're working through is what's the monetization model where we develop it, we maintain it. What's that monetization model look like that's going to be for certain customers as well.

I want to pause again in case anyone in the audience wants to shoot up at hand and ask a question, please do. All right. We'll keep going here. You've mentioned RFID a couple of times, Nathan. That one, I think, has created some confusion among investors over the years. So maybe level set for us as to why you're excited about the trend there?

Yes. I mean, look, we think RFID is a great growth opportunity. It's been growing double digits now for the last several years. And if you look, we have one of the broadest, if not the broadest set of portfolio around RFID in the market, meaning we have fixed and mobile readers printers that can print the tags with the inlays and embedded chips. We have our own tag business. And then we have a work with a whole host of ISV partners that can provide the solution that tie it all together. And look, I think we -- whether it's an Impinj and Avery or others in the market, we partner with them, sometimes compete a little bit, but I think it's all within our best interest to expand the market -- the addressable market, identify new use cases together because we don't produce a chip. We're not the inlay provider, but we want to read all of those and we do and work together on how do you bring those best solutions to our customers so that they can realize the value and continue to further adopt the technology. So I think about -- and it's unlocking use cases that just quite frankly aren't available without it, meaning RFID is one of the only things where you can, again, think of theft and now I can -- we can read with proximity going, not just read it, but no, is it walking out the door or in the door because just reading it and seeing it in general, doesn't tell you a lot. But if I know it's walking out the door, I'm not -- we're not preventing theft -- but if you know it's walking out the door, you know whether it was purchased or not, you can immediately update your perpetual inventory system which is critically important if someone is thinking about buying something online, thinking there's one on the shelf, and it's not really because someone just stole it, right? And so that's a use case, quite frankly, only RFID enables because you can see it and read it real time as it walks out the door. And again, inventory accuracy on the shelf is a huge revenue driver or lost revenue for our customers. And so those are the kind of use cases or think about produce, which seems fairly odd of why produce or fresh would be an area for RFID. But think of end of life, what do you need to replace? Is that bread old? The barcode will tell you it's bread, what type of bread, but only unique RFID identifier will know that bread has been there for 2 weeks. And whether that's stale or not. And so produce and fresh has been a new use case that a lot of folks are looking at because it's a pretty high cost in terms of turnover and waste in the produce section. But now if you know real time how long those fresh items are there and when to move them and when to discount them and do all those different things. Again, that's a use case that I don't say only, but that RFID unlocks that you just didn't have as an option before.

And how about the concern that it's a substitute for your core barcode business.

Yes. Every use case we look at, it's complementary, not cannibalizing the barcode, right? So if you think both of those examples you still need the barcodes somewhere in the supply chain to do that point transaction scan, the RFID labels damaged. You still need to have that barcode on there, is it? So again, I think the number -- and then just the sheer value of most of the barcodes at this point are almost printed on the label as part of the process, basically at no cost. Again, every of those applications, they tend -- they coexist together and RFID is just enabling some new application use case that wasn't possible with just the barcode because of the ability to read without line of sight directly to the label.

Let's talk about another technology that you've added to the portfolio in recent years, machine vision. Can you just sketch for us your competitive positioning there? And we're now well into the Matrox integration. But to the extent you can give an update, that would be great..

Yes. So look, if I think about all the different expansion opportunities, machine vision is still one that we're very excited about long-term. If you look at the history, we've started with organic investments in fixed industrial scanning. So I think kind of one step beyond kind of a barcode reader a scanner, meaning reading barcodes at a high velocity from a fixed infrastructure. We added Adaptive Vision, which is a small software company, which has been an incredible asset that we acquired a couple of years ago to expand the library we have in the software platform. Matrox really brought us, I think high-end inspection, so semiconductor, automotive presence around that high-end inspection. And then Photoneo, we added earlier this year really specialized in 3D visioning. So one of the faster-growing markets, but their special was think of guided robotic arms and being the eyes for a guided robot where to go pick in a bin. It's not -- the robot is doing the picking, but the Photoneo is kind of the camera saying, here's the depth and where to go pick. So we now feel like we have, again, a comprehensive portfolio that we can go compete and win. And the strategy even back to the Matrox acquisition has been diversifying. Matrox has a really strong presence in semiconductor as well as automotive, which have been through secular challenges here over the last couple of years. And that's very similar to others in the industry. But the focus has been on how do you expand into other new logos. And it's a long game you have to play there, meaning if you're a customer is one of the other -- one of our competitors. You don't just go rip out all the cameras and replace. Something has to go pretty wrong to be -- to do that because it's -- obviously, it's a large disruption in your operation. So where you got to go win is new use cases, when those with proof of concepts, demonstrate the value of that use case, traditional land and expand, right? And I think the team has done a great job of building beachheads across new logos, demonstrating the value. We think -- the reason we like to Photoneo is it's a differentiated technology that, again, allows us to build relationships and then expand into accounts. And we think about the portfolio we have today can compete across a spectrum of applications. We've invested a lot in go-to-market with the partner community and now we need kind of the semiconductor market to stabilize, which we're starting to see, to be nice to see automotive, get back to growth, both of those go back to growth and with the kind of, I'd say, expansion we've seen across other use cases, I think sets us up for, again, get back to some nice growth here over the coming years.

Let's talk about manufacturing for a minute, Nathan. That was one of the areas you called out is relatively weak or subdued. And I'm just curious, have things gotten worse there? Or is it -- would you characterize it maybe just as stable at a low base and there's probably a different answer you want to get for North America versus Europe. So if you can, that would be great.

Manufacturing is where you look kind of long-term, all the secular trends are ripe for what we need and what we want to see in our business, meaning automation of the factory floor, track and trace across the supply chain, the need to automate to offset labor, right, the relocation of manufacturing around the world is always a new opportunity to embed yourself. So again, all of those are, again, strong secular trends of why we believe manufacturing is going to be a long-term growth driver for the company. I think that -- then you have the offset, which is the cyclical and you see it with PMI and just -- I think that's where you really see the uncertainty of the economy playing through with our manufacturing customers in terms of being hesitant to do big capital purchases or move forward on projects. And it's again, it's not as if it's declining. It's just not growing the way we've just kind of seen 1% growth. So it's kind of just been muted, stable growth not what we'd expect coming out of '23 and '24, where we like to see kind of more of a kind of normal market growth rate in that mid-single digit. So it's just been muted stable growth over the last, call it, 1 year, 1.5 years. And again, I think you kind of see that in that secular trend balanced with the cyclical volatility. And it's somewhat global. You definitely see areas of pockets. Germany, in particular, kind of parts of Europe, automotive, we definitely feel across automotive, both in our machine vision and our core business. But look, I think this is where you have to play the long game. And again, go back to those secular drivers for -- across that vertical market, all favor what we do. We're in a good position to do that and you just got to kind of work through kind of here the short-term uncertainty and challenges.

Health care hasn't been discussed, so let's do that now. Typically, we would think of that as a high growth, but small contributor to revenue. Describe some of the factors that would limit the adoption rate there.

The limiting adoption, let's say, just more of the inherent nature of health care, meaning everything moves a little bit slower in terms of adopting technology, very different in terms of -- look, the beautiful thing about retail, e-commerce, even T&L, particularly around last mile delivery is they want a singular platform across their entire operating environment. I mean you don't want half of your stores in North America on an old version and the other half on a new, you want to get them all to the same platform so you have the same training, the same consumer experience across your operation. Health care, it still feels like you're going hospital to hospital, department to by apartment to get things fully deployed, and it's -- but look, -- and I've spent a lot of time with that industry, and so it's very similar to what it was probably a decade ago. But we have a portfolio of solutions that are custom built -- custom to health care, meaning they can withstand the cleaning requirements. They can stand -- they're purpose-built for health care. The need for the mobility, the efficiency, the communication across all the different departments within the health care environment are very similar to what you see in other vertical markets. It's just a longer adoption cycle penetration cycle. So we're still excited about that from a long-term growth, but I think that's exactly what it's going to be just long-term stable growth and penetrate kind of one account at a time. Look, I'd love to be in a world where you see it grow 2x in a year, just unless something fundamentally changes in that industry. I just -- so look, I think we're still the long-term believer in it. Elo actually add some new capabilities around again, check-in in a hospital. So there's some new applications there that they're excited about. They're starting to see in the health care environment. So look, it's going to be an important part of the portfolio, an important part of the growth, but I think it's not going to be your needle mover in a year where it's doubling in the size over a 12-month time horizon.

Last question, and then we'll call it here. You've referenced omnichannel retail and e-commerce, a couple of times, Nathan, there was a cycle there where early in the pandemic, as you referenced earlier, there were some big years of growth, and then there was a period of digesting some of the excess capacity more recently, the trends there have been pretty positive. And so where would you say we are in that build and absorb cycle?

It's I think we've fully absorbed the capacity constraints of '23 and '24. And I'll give you a couple of anecdotes and examples around that. I mean, the beautiful thing about the business is if you have a large installed base at any customer, whether that's front of store, back of store, last mile. If they have a large installed base, they're buying new mobile computers every quarter, kind of a nice run rate business, which comes from adding new employees, new use cases around the fringes in terms of, hey, we gave it for our last mile delivery drivers. Now we wanted for the UPS store, right, as an example, or the postal store, carrier store. Adding new use cases along the way. Look, over time, these things are lost, damaged beyond repair for their own faults. And so they need to buy more units to just keep their fleet up to date. And that's just a good recurring revenue that comes kind of out of these large installed base. And we're seeing that activity. I mean, that's part of what drove the recovery here over the last 12 to 18 months is getting back to that, I'll call it, normal level of business for those in large installed bases. I think the other one I went back to this year, we saw projects that were in the pipeline that they had budgeted. They moved forward with in terms of moving forward. So we didn't see pushouts delays, whether it was tariff or budget related nor do we see -- as we mentioned earlier, acceleration of projects because they said, "Hey, things are great, let's move -- let's accelerate projects that are in the pipeline. And a lot of active conversations around where is the technology, what -- the refresh, it's not just about, hey, the device is so old, it's time because the battery is dying. It's about what incremental value, what are the new features it opens up over time, that might have been 4G, 5G, Wi-Fi 6? Or now it's how do you embed -- how we've embedded RFID on the device that opens up new applications or the more computing power that opens up those AI opportunities that I mentioned earlier. So those conversations are actively ongoing. And I think once you get some of this uncertainty behind us, there's a lot of added value that comes with refreshing your portfolio to the technology we have today to the offerings we have today. And we believe that's just going to provide more of that long-term growth driver here over the coming years that we're excited about.

Nathan, we appreciate your time today and for everyone in the audience. We appreciate your interest in Zebra. I'm now the only thing between you and lunch. So I'm going to bow out. Thanks, everybody.

Yes. Thank you.