Zebra Technologies Corporation ($ZBRA)

Okay. Good morning, everyone. I think we'll get started. I'm Mark Newman, Bernstein's U.S. IT hardware analyst. And it's a great pleasure to introduce today, Bill Burns, CEO of Zebra Technologies. Just a brief intro. Bill became CEO of Zebra in 2023. You've been at Zebra since 2015, I believe. And this is your third time here at SDC. So obviously, [indiscernible]0:29 for punishment. Thanks for coming back.

Yes. Thanks for having us.

Anything you want to start before we say this before we start?

Yes, maybe just introduction of Zebra. I would say overall, we're fundamental to intelligent operations across our customers. We serve the retail market, e-commerce, transportation, logistics, manufacturing, healthcare and government as our core markets. About 80% plus of the Fortune 500 are our customers of ours today. We focus in 2 business segments: asset visibility and automation and connected frontline. I would say that overall AI is in the deployment of AI at the front line of business is a net positive for Zebra and ultimately, will drive our business moving forward as people will look to deploy and continue to deploy automation and AI within their frontline environments, and we could talk more about it as we get into the J.

Sounds good. And I just wanted to remind ever why we've got this pigeonhole link that you can put a question in there, I can get to audience questions. I'm going to have a few of my own questions. If you have any of your own questions, I can get to those 2. So feel free to enter a question there. Or if you prefer, you can put your hand up later on.

But to get started, Bill, could you elaborate more on Zebra's role in the future of automation and in terms of what's your value proposition and durable competitive moat here in automation.

Yes. As I said, we report and focus on 2 primary segments: asset visibility and automation. And and connected frontline. If you think about those, you would see us in everyday life. You see us in point-of-sale checkout in retail, you'd see us in parcel delivery by transportation logistics companies, you'd see us in hospital environment, with hospital risk bands and in tracking specimens and others inside hospitals. But the place you wouldn't see us would be inside things like warehouses and e-commerce picking solutions that continue to drive automation. And as I mentioned earlier, kind of AI into the front line of business, which is just in its infancy today. From an automation perspective, our business is really around productivity and making our customers more effective, more efficient each and every day. Our asset visibility segment does exactly that through barcode scanning, RFID reading, our printing solutions our machine vision portfolio and allows you to identify assets within our customers' environments, which allows you to digitize the environment, which is critical if you want to go automate the environment. You don't know where the inventory is, where the people are, where is the forklift, where are my tools, ultimately to be able to take the next best action in your business and that we think of this framework of kind of sense analyze Act, the analyzed framework has become ever more stronger through AI and analytics, but you analyze the assets you have and where the people you have in others, and you want to create a task, which is the next best action in your business to be more effective, more efficient. Where should the forklift go next? What inventory needs to be put on a retail shelf to be able to be sold. Moving from the top of shelf to the actual shelf where consumers can buy it. If it's in back room, how do I automatically reorder from our warehouse. How do I shift from my distribution center into the store how do I pick this e-commerce warehouse order, what's the next one I need to pick in the order of when it needs to be delivered. All that analytics then drives our connected front line, which is really mobile devices in the hands of frontline workers ultimately, that allow work to get done. So unless you be able to send a tack to a worker and drive action within your business, you get no result ultimately, you know business value. So we think of both of our pillars, asset visibility driving digitization, analytics and automation. And then ultimately, the way you automate is that people get work done today.

Correct. And can I just ask a follow-on with regards to AI. What is being done on device versus in the cloud? I believe you have some partnership with Qualcomm and Google Cloud. Can you talk about that? Like what is on device versus in the cloud?

Yes. We see a role for both on the mobile device. So we see that running models on the actual device for I'll say, simpler tasks, right? There's going to be a task where you want to go back to the cloud, let's say, product recognition. We are trying to use database of different products and others, you're going to want to go to the cloud. If you're using local store operating procedures in retail, you can run that on the device. The advantages to our customers that many of our customers don't have a lot of connectivity from either stores or from warehouses or logistics locations, they don't have a lot of connectivity, communication and collaboration, and it's costly to go to the cloud every time you need to ask a question of an AI engine. So the idea of using and leveraging faster process with more memory on the actual device itself, working closely with our partners, Qualcomm and Google with the Android operating system and software we deliver ourselves, allows us to run those models on the actual device and allows you to be more cost-effective in what you want to and which application. For us, it means upgrade of devices, meaning that our customers want to go to higher processing speed, more memory on those devices, ultimately, to be able to run those applications on those devices. So we see it driving over time, an upgrade cycle within our customers' environment. We see it being higher average sale prices because they're more processing power, more memory, more sophistication on the device to go do that. We see software opportunities, some of the functionality to be able to manage that engine. It could be an opportunity. We see offerings of our own. So we talk about blueprints and enablers and companion around the idea of our customers being able to leverage the mobile device to enablers we provide on the device for them to build their own AI models or tie a couple of our enablers together, we create a blueprint and charge our customers for that enabling that. Think of parcel proof of delivery when a driver delivers a parcel, we actually drive the workflow that says, scan the barcode, take the picture, blur out the address, the family dog, the child in the picture and then save a couple of seconds per delivery. We deliver that software as a blueprint, a combination of functionality and then it runs underneath the transportation logistics company's own application. And then other places, we do the whole companion, the idea that it's a digital companion and we create those blueprints and combine them together and it's a Zebra application that our customers would use. So we see the opportunity for us is higher ASPs on the hardware driving a refresh cycle and then also software opportunities.

What -- can you talk about what is the ratio today on device versus cloud? And how may that change going forward? Do you have a rough idea?

Yes. I would say today, it's predominantly in cloud, I would say, but we believe ultimately that that will move increasingly so to a combination of both. I just think that the models that our customers are using when leveraging our devices today are mostly cloud-based. And I think that we see the models that we're developing in some of these applications are device-based. We don't need connectivity to the cloud, but the predominant of their deployments today are in the cloud. That's where they've started.

Okay. Got it. Just to step back before we go into some more of the details. Recently, you just, I believe, raised your full year outlook. Can you talk about -- what gives you confidence to do that?

Yes. I think that we had a solid Q1 results ultimately driving the upgrade in -- or increase in our outlook for the full year overall. I think that we've seen our conversations with our customers through our largest trade shows at the beginning part of the year. We meet with many of our customers across the National Retail show, across healthcare show across some of the automation shows. And we've seen broad-based growth across the portfolio. We've seen strength in manufacturing, which has been lagging some of the other verticals growing but lagging some of the strength there. So we're seeing strength in manufacturing. And ultimately, that resulted in solid Q1 performance. I think we've gotten more comfortable with the pricing and delivery of memory, ultimately, that we're going to be able to secure the supply of memory we need to meet our outlook for the full year and increase that outlook based on Q1 results, and we were able to procure that memory at the prices that we had kind of anticipated moving forward. We put price increases into the market that we needed to, to cover those cost increases. But I think that we feel good about where we're at from a demand perspective. We think that ultimately, if we didn't see pressure from a memory perspective and availability would be more towards the higher end of our guidance. So we feel good about where we're at from our guide perspective and delivering on that from what we can see from customer demand continue to remain strong, broad-based and broad-based across geographies and the portfolio and we see the idea that, ultimately, we can secure the memory, we believe that we need to meet that demand.

And you touched on memory there with the rising costs coming from memory. Are you able to pass on all of those costs to consumers. Are you working to try to maintain gross margin? Or is it more gross profit dollars you trying to maintain? Or what's the overall strategy there in terms of the cost relation.

We continue to focus on gross margin, driving higher levels of gross margin across the business. You would like to ultimately maintain gross margin percentage, but it may be more at the profit level that is covering our costs more on the memory side, this increases have been so significant. I would say that we're no different than all the other vendors into the marketplace that there's been conviction around needing to raise price. We have no choice. The price increases of memory have been so significant that I think, overall, our customers are saying to us, no surprise. Other vendors have come to us across our entire telecom purchase portfolio, and we're seeing those increases. So we are still passing those through, meaning the price increases we put in the market in the first quarter are still coming to fruition here in the second quarter. We'll see, we're using a combination in 2026 of overall OpEx savings and price increases because the price increases won't get gain until now in some cases because the pricing of memory wasn't available until in the first quarter. So we reason a combination of both to drive the profitability in 2026. And in 2027, we anticipate to see the entire value of the price increases come through for the full year. If memory continues to go up, we'll continue to have to raise prices into the marketplace. And I think that it's really no different than our vendors. And we've seen that our customers understand.

You touched already a bit on the demand trends. If you could provide a bit more color on the demand trends you're seeing across the key end markets, manufacturing, retail, healthcare, et cetera.

Yes. I would say that broad-based growth across the portfolio, from a retail and e-commerce perspective, omnichannel buy online, pick up in store, e-commerce continues to drive that. But our retail customers, brick-and-mortar retail customers continue to do well in the market at the same time as is they're competing on leveraging the stores for delivery vehicles to their customers. We're seeing transportation logistics, parcel volumes starting to grow again, right? We've seen for a long time coming out of COVID, where parcel delivery was declining off the highs of COVID, and we're seeing investments across transportation logistics. And we see that there'll be large refresh cycles coming up from those T&L providers that last refreshed devices back in '21 and '22. So we'll see those coming up over the next couple of years. And we're having strategic conversations with them. They are the larger refreshes coming up over the next couple of years. manufacturing has recovered, as I said, broad-based the rod manufacturing. So we're pretty happy to see that that drives our machine vision business as well, so not just our core portfolio, but we're seeing growth across machine vision, both in manufacturing and then transportation logistics. I just talked about, both of those are pushing our machine vision business forward. We're also seeing it drive RFID across both those markets, manufacturing and transportation districts. Healthcare continues to be a strong market. The idea of having more and more data collected into electronic medical records, again, RFID opportunities, self-service opportunities inside healthcare. We take it kind of for granted here in the U.S. about electronic medical records around the world. They're still kind of catching up on electronic medical record systems. So collecting more and more data within healthcare. Some would say in healthcare, the barcode is really the life of healthcare. Everything is driven across healthcare by identifying the patient, identifying the medication, identifying the specimen that's taken all driven by barcodes. So that continues to be an opportunity for us we're seeing government and public safety as they've been behind on things like inventory management and inside government opportunities within our customer base, and we're seeing opportunities for mobile devices within things like public safety and tablets. That's a relatively new market for us overall.

What's your long-term expected growth rate? And do you think that you're going to have consistent growth? I mean, I guess, with the memory price impact, maybe -- it's maybe a bit more rocky, but I'd just like to hear your view on that.

I mean we've seen the ups and downs of COVID. If you look back at our financial results of '21, '22, '23, just the effects associated with it. But I think if you look over the longer term, ultimately, we believe we'll deliver the 5% to 7% organic growth that we've talked about. Along with that, we see margin expansion as well. So if we can deliver the 5% to 7% annual basis, you see about 0.5 percentage point of drop through in margin, 100% free cash flow conversion. Again, all of this being really driven by broad customer demand across geographies, across the verticals we serve. And we see our customers continue to -- as we're mission-critical in their environments as they continue to see challenges around labor constraints and having to be more efficient in their businesses overall is driving a need more for our solutions from that perspective. But we believe, ultimately, we can deliver the 5% to 7% growth.

Can we talk a little bit more specifically on RFID now? And your strategy there to drive adoption? And what are the emerging use cases for RFID going forward?

We're excited about the RFID market. I mean it's been growing at double digits over the last several years. We're the global leader in RFID readers. We also are the leaders in RFID printers. From our perspective, the readers range from handle readers to fixed readers across both those segments. The RFID market started really around apparel initially and has moved inside from a retail apparel to really extend beyond all the way into the supply chain. So retail apparel initially around inventory management with handheld devices that really moved to fixed devices -- we've seen the fast fashion and retailers that control their entire supply chain move first. So think of a lululemon as an example that has their entire supply chain, they're a controlled fixed set of suppliers to them. tagging it source, leveraging RFID through their entire supply chain, through their distribution centers in their stores and all the way to point of sale and check out and for loss prevention, so they've leveraged across the supply chain. But again, that's in focus really on apparel. We've seen it now move into things like home goods and even fresh goods like bakery or into grocery around the outside of the grocery store where we have perishable items. So in retail, we've seen expansion of use cases across different items within the retail environment. In addition to that, because the items are becoming more for the retail store and knowing what's in the retail store. And the reason inventory management has ever been more important is if you buy online and want to pick something up in store, if they don't know what they have store inventory, then they tell you they don't have it, even though they have a couple left because they're worried that you're not going to -- you're going to be disappointed because we show the story they want or if they order something and then they can't find it, ultimately, they -- you're disappointed. So that's driving the need for more inventory visibility in the retail store, but it's also now that the items are tagged at manufacturing they can use it all the way through the supply chain as it's through their distribution centers and into the back of store into the front of store and then manage the inventory from there. So we're using broad adoption throughout the entire supply chain as well. We've most recently seen transportation logistics companies. UPS has been very vocal around their use of RFID, FedEx and others, as they continue to say, look, I need visibility across my parcels within my environment. And I have visibility to be able to make sure I got the right parcel on the right truck or that if I have the visibility all the way at a customer site when they're loading a tractor trade and they're handing that tractor trailor to me. I know exactly what's in that tractor trailer before it actually comes to me. So I can have early visibility inside supply chain. And I can make sure the items are really there. So we're seeing broad adoption across transportation logistics as well in the U.S., and I think we'll see expand that outside of the U.S. healthcare is another example. So we're seeing healthcare inventory. A lot of the healthcare providers have consigned inventory. There's always a debate about was it there, wasn't it there? Who pays for it when the inventory is done and the item is missing ultimately. So we're seeing more use cases. So we're seeing broad adoption across RFID use cases really around this idea of asset visibility. I need to be able to digitize the environment -- it's the way I become more efficient in managing my inventory and being able to reduce the amount of labor to be able to do things like account items and others and to be able to know when I need to refresh and what I need to go do across the entire supply chain visibility.

Great. And then moving on to machine vision, if you could. How much of a portion of your business is machine vision? And how much do you see that contributing to growth going forwards?

Yes. I think that today, a small portion of our business proportionately is in machine vision. We think the machine vision market is 2 kind of segments, manufacturing and transportation and logistics. We have products in both solutions in both categories. I think of manufacturing being more around the inspection. Think of transportation logistics more in barcode reading across conveyance and more logistics applications we've seen our assets are across that portfolio, both acquired assets and the high end of inspection and then most recently, a Photoneo acquisition and 3D machine vision and then organically developed assets in the fixed industrial scanning space around transportation logistics. We see that, that market has been challenged, both sides of that market with manufacturing in both P&L, not being great markets over the last few years, but now we've seen a flexible with manufacturing and T&L, both growing again investing across machine vision. We believe vision overall and the idea that we talked about asset visibility, you marry multiple different sensors together to ultimately get to the right answer of visibility. We believe that vision is a long-term way to be able to identify items -- so you start with a bar code, you've got RFID and you've got vision that can tell not only identifying item, but ultimately identify things like the characteristics of the item, the quality, is it damaged, those kind -- so we see multi-sensing in this idea of collecting even more data over time and vision systems, machine vision, computer vision being a place that will also be the next or the first device. I guess, I will say is the next generation of mobile devices will likely be a wearable attached to a mobile device in some way, that will also use vision. So this idea that as you're collecting more asset visibility, you may do it through something type of body cam that sees everything that you see. So if you're a retail associate and you're walking down the aisle and stand in front of facing. You could read the barcode, you could read the pricing. You could see if there's gaps missing in the inventory on the shelf, it could tell you ultimately what item to pick when you have an order to pick. So we see machine vision, computer vision being an important part of our portfolio moving forward, and we marry that in the idea of barcode scanning, RFID and vision being critical to the kind of future of asset visibility.

Great. I got a question here from the audience that's relevant since we just talked about scanning and RFID. So companies like UPS have goals to eliminate manual scan significantly through RFID and fixed scanning. What is Zebra doing to address this?

Yes. So I think that the idea of eliminating scans through conveyance systems or being through automation is what our customers do what they can go do that. So RFID is a great example of that. We're the goal leader in RFID readers and printers, and we participate across transportation logistics customers in that area. We see RFID today is being married along with barcoding. So you may eliminate scans along the way, but ultimately, you still need a barcode to identify an individual item and leverage that because you don't have RFID readers everywhere. So today, when you deliver a parcel of the house, you scan the bar code on that item, even though incrementally between the system, you may scan less. That doesn't mean that workers still not connect. So ultimately, they may not have a stand an item. But ultimately, that worker needs to be connected because they need to have communication collaboration need to have task management. They have other applications that are running on that mobile device inside, so just because they are scanning less doesn't mean there's less mobile devices sold, it doesn't eliminate the need for a barcode, that's ultimately leveraged throughout the process in different places.

Another question here relevant from the audience. It seemed like competitors have superior fixed scanning or machine vision tech. What is the strategy to improve products? Do you need acquisitions?

Yes. So I wouldn't say that our competitors have superior technology to us. I would say that we're the global leader in barked scanning today across the portfolio. I think that we've got a competitive portfolio of machine vision and fixed industrial scanning assets as well. We don't need to acquire other assets. We're pretty happy with the portfolio of solutions we have, and we believe we can win in the market place. In handout scanning, we are the market leader. We're challengers in the machine vision and fixed industrial scanning market, but we believe that things and opportunities that we have in front of us, are software capabilities across our vision systems is very, very good. We believe that our ease of use and the way we're deploying AI to be able to leverage that to be able to put machine vision cameras and train them and put them in use within our customer base. We believe the breadth and depth of the portfolio all the way from a 3D vision down to lower cost solutions, gives us an advantage in the marketplace and that while we're the challengers to God next and cans in the space, we think there's an opportunity for us. It's a very fragmented market overall. And there's an opportunity for us.

Fantastic. Just changing tack slightly. I'd like to talk a bit about how Zebra is leveraging AI as an organization? And what traction are you seeing in doing that recently launched solutions?

Yes. I would say that as we talked about the idea that asset visibility feeds AI models and connected frontline allows work to get done from the analytics around from models in the front line of business is the biggest opportunity for us across the broad portfolio that we have. There are specific solutions that we have across for leveraging our mobile devices as we talked about, AI models on the device itself or connecting back to the cloud. We're -- we've got to meet our customers where they're at in their automation or AI journey, meaning that -- some of our customers want to develop their own AI models ultimately and leverage our mobile device to run those AI models. Other customers want to use our blueprints or parts of the solutions from Zebra to be able to implement AI solutions with their environments and others want to buy the full solution from Zebra. One of the examples we had was total wine at our national retail that's using our companion recommend spirits or wind to their customers, and they want to use our full solution. Others want to use the partial solution. So we've got to meet our customers where they are in their journey, and we think that the opportunity for us is really on the revenue side, higher ASPs for our mobile devices, leveraging our companion software and the enablers we're creating across our AI suite for our customers, embedding AI across the portfolio, we talked about machine vision but also our software assets are leveraging AI. AI will be leveraged in multi-sensing this idea of leveraging bar code scanning, read, machine vision, RFID, all in reading and identifying an asset and then taking the best sensing technique that ultimately identify that item. All those create opportunities for us. I'd say, lastly, internally, just like others, where you're leveraging AI to get more efficiencies in co-writing across our development teams. We're leveraging across our sales teams and marketing teams in the organization. We're leaving the other team across customer success and customer service. So we see efficiencies within our business as well. But I think the biggest opportunity is really on the revenue side for us.

You recently made an acquisition of a company called ELO. Can you talk a little bit about the update on how that's going, integration and contribution from that company synergies and cross-selling opportunities that you're most excited about from that?

Yes. We're excited about the opportunity. The acquisition of Elo really, it brings to us another dimension to automation within our customers in both retail and quick-serve restaurants. We're seeing it across manufacturing and healthcare and others, where touchscreen technology and self-service is another way to automate inside the environment. you go to a location like Newark Airport, you can't really order anything from anybody. You've got to do everything through a touchscreen, right? We're seeing the labor constraints within retail, a continued move to more self-service checkout for instance. We're seeing that same move inside other industries or healthcare show a lot of interest in the Elo portfolio by our healthcare customers and things like checking in patients or checking visitors use cases around across their portfolio, they're developing payment and point-of-sale solutions that fit right into that self-service model. We're seeing -- what we like about the portfolio is very similar to Zebra: high gross margin, very very reliable hardware in our customers' environments well respected by name brands around the world, the largest retailers, the largest quick-serve restaurants are leveraging Elo's technology today. We like their portfolio products. So inside quick-serve restaurant, for example, they can do the customer-facing kiosks. They do point of sale within the quick-serve restaurants. They're doing kitchen displays and touchscreen displays inside the environment of the kitchen environment, inside quick-serve restaurants. So just like Zebra, the breadth and depth of the portfolio allows you to actually impact the entire workflow within a quick-serve restaurant versus just having 1 element of the solution for our ultimate customers. So we like that. Similar levels of growth to Zebra, 5% to 7%, great cycle. So it marries along with our growth, similarities of profitability across their business. The opportunity is really around revenue synergies, while we've identified about $10 million in cost synergies, we've committed to $25 million in synergies over the next 3 years, we see the real opportunity is really around revenue, taking their product portfolio into places that we have relationships around the world. They're mostly in North America and Europe today, mostly North America, more so than even Europe. So taking their portfolio across our broad customer base, taking into new geographies. We've recently launched their solutions in Australia and India, 2 strong markets for us. We've continued to introduce them into our customer bases where they don't have relationships today. But we see leveraging that portfolio and really getting revenue synergies around the world is the biggest opportunity, and they look and feel a lot like us, competitive moat around software and best-in-class hardware that their customers.

Great. Another acquisition, Breed is acquisition of Honeywell or PSS. What does that mean to the industry and to Zebra?

Yes. I think that -- we continue to focus on winning in the marketplace and our strategic relationships with our largest enterprise customers around the world. We're the market share leader in many of the aspects of our core portfolio today, and we continue to see an opportunity to take share in the marketplace. So I think that from our perspective, there's always going to be competitors in the marketplace. And -- and we've continued to partner closely with our enterprise customers to make sure that we're the trusted partner that they want to do business with across their entire workflows. And we believe that breadth and depth of our portfolio and our solutions our global reach, our partner community, our relationships with folks like Qualcomm and Google and our partner community across large software vendors around the world, whether it's in SAP or Manhattan or others allows us a competitive advantage, and we continue to expect to win the market.

We already talked earlier a lot about memory, but I just want to come back to it given the shortages and price increases. What is -- how are you managing to navigate this? Do you have long-term agreements in place? Are you moving towards longer-term agreements -- how are you able to manage it better than competitors?

Yes. I mean I think that this -- our supply chain team has been doing an incredible job. This has identified probably in the second half of last year when challenges of memory were expected to come to fruition. I think that the size of the price increase that came in first quarter anticipated, we're probably larger than any of us thought they would be at the time. I think we're all kind of over the shock associated with that. But I think our team has done a great job of we're -- we have significant relationships with the memory suppliers today that have been in place for many, many years. And we work closely with all 3 of the suppliers ultimately to make sure that we're tightly coupled to what they're doing and to make sure we have the supply we need. That includes the second half of last year, having in-depth conversations about them to what their plans were moving forward, what memory types were going to be most available, where are they going to focus their highest volume productions and us moving to those -- some of those memory types aren't even available yet, but we've qualified them early on with Qualcomm and ourselves and nature that we're going to be able to use those memory types that are more available when they become available. We've been able to secure through these relationships, the amount of memory we need. And many times, from a Zebra perspective, we're a large customer to the business units we work with. We talk about relationships with each of the vendors. We have relationships all the way their general manager levels within these -- the divisions we work with. And we've been working closely with them to make sure they understood our demand, and we're doing everything they ask us to make sure we can secure that supply, including, like I said, qualifying new member. We're also working closely with our customers to make sure we understand what their demand is going to be and make sure we get early visibility to what they expect to buy later in the year to make sure that we're using the memory that we get and building the products ultimately that they want to buy. The last thing I want to do is build product ultimately they don't have demand for or that someone wants to buy something else. So we've been working with our partner community and our customers to make sure we understand what the requirements are. We've raised price into the market. We've had to, right? So from a pricing perspective, we have to raise price into the marketplace like others. We've priced that such that we believe what the pricing was going to be. And then if the pricing goes up even further, we'll have to raise prices further into the marketplace but I think it strategic relationships. I think our supply chain team has been through this before through COVID and has managed through it. We've got line of sight to the demand, the memory we need to meet our guide for the year. I think that there's upside to the higher end of our guide for the full year if we can secure additional memory because we see the demand from a customer perspective. So we haven't -- we think there's upside to that. But right now, we're playing on getting the memory that we need. We have commitments from the vendors to get that. Ultimately, they have to deliver on it. But I think we feel pretty good about where we're at from a pricing perspective and availability perspective.

Great. How are you thinking about capital allocation priorities including share purchases and M&A?

Yes, we've been buying our stock back based on the current valuation, so we spent about $500,000 in share buybacks since the beginning of the year because we believe that ultimately is the best use of our capital in the short term given the valuation of the stock. I think that overall M&A becomes an important piece to our future. We continue to be inquisitive around M&A and continue to look at assets that would drive our growth moving forward that are closely adjacent to the areas in which we do business today. And we would see venture also, small investments in venture, in places where we're not looking to acquire, but want to explore kind of new technologies that ultimately may be interesting to us down the road. But I would say in the short term, our priority has been really around buybacks based on the current value.

And I've got a few more questions from the audience. Just a reminder, Pigeonhole, free to vote on the questions or add any if you have any to add. You mentioned, so this is few questions from the audience. You mentioned AI as a net positive, what are the key potential negatives? How mature are they? And what can you do to address them?

Yes. I mean we don't see -- I really don't see automation and AI being a negative for our business. I think that there's a concern out there, I think, with investors at times that have expressed around we are the -- are all of us sitting on our couches, while humanoid are doing all the work. And we don't see that taking place for the foreseeable future. In fact, if you look at automation today, we're really talking about warehousing and customers today are inside warehousing. And that's only a small portion of our business overall compared to the we don't see necessarily AI taking over the retail associates job or a nurse inside healthcare anytime soon. So I think that we would see a net positive as we need to have more and more workers connected in an AI world to leverage AI engines. And the number of -- if you look at even warehouses today, the place that's most automated. Automation and today, which will really be driven by AI moving forward is really around goods transport, really moving things and storing items today around automation. AI ultimately will allow more intelligence. But to drive that intelligence, likely a worker will need to leverage a mobile device, and we'll need more connectivity. So I don't see a negative for us. I see people wanting having more visibility in their environment and more workers needed to be connected than ever before to be able to implement AI in the environment and even customers that are the most advanced in automation today and one would argue, AI is going to advance automation or buying more devices.

Related to that, can high memory prices delay the AI upgrade cycle? I guess that's -- this is also from the audience. I guess, that's referring to, you need lots of memory in the devices. Is that -- could that delay the upgrades?

We haven't seen 2 elements. The -- we don't necessarily see that. I think we're still at the early stages of the rollout of devices that are AI-enabled, right? They've just been released in the market overall from our perspective. We don't see delaying those device rollouts associated with not being able to secure the memory we need. I would say that we also haven't seen customers push out any projects at all associated with, hey, this is a higher-priced device because of memory, I am going to wait and buy or push the project out. I think there's always a risk that customers have limited budgets, and they're going to make choices at some point in time around the projects in general they go ahead with. If servers are more expensive and mobile devices that are more expensive and everything they do, their data center equipment is all more expensive communication equipment others, they've got to make choices, but we haven't seen that. We've seen our customers be conviction around deploying technology for their frontline workers, we're key to that, and those projects continue to move forward. And I think that our customers have acknowledged that the higher price is driven really by memory pricing. We've been able to secure the memory that they've needed for the devices they want to procure. And I think we haven't seen them change their behavior because of it.

Another question from the audience. Where do you see mobile technology heading? And how will it impact you? And if I could just add to that, considering where smartphones are today; Apple, Samsung, et cetera; and the way that now -- we're talking to the phones using our voice more and more, how could that impact you and potential competition from consumer device brands like Apple and Samsung, for example.

Yes. So let's start with where I think it's heading. And I think ultimately, we're going to see devices with more processing power, more memory and others, I talked about before, to support applications, whether that's -- and I think it will predominantly be voice and vision driven, and I'll cover that in a minute. So I think today, voice, meaning ultimately, I want to go ask a question. I want to go ask it in multiple languages. I want an AI engine to come back with an answer associated with it. I think that vision plays an important role moving forward as well. I think you'll see mobile devices augmented with devices like -- I'll use the example, body cam. So I don't think it likely will be glasses. It might be, but I'm not sure that consumers are in love with everybody walking around a real estate store with glasses. But I do think there's likely some type of body cam type of device that pairs to your mobile device as the first incarnation of an AI-enabled device. So this idea that if you're walking around a retail store, I can sense the entire environment. I can read barcodes on the shelf. I can look at the pricing. I can tell what shelf has gaps in it. If I stand in front of a shelf, I can look at the entire image. I can actually be directed on where to pick an item for an order that I'm actually picking. So I think wearable technology, and we've seen this in our customer base, customers moving more to hands-free and wearable devices, and we're the global leader in enterprise wearable devices. And we think the next incarnation of where it goes is likely some type of wearable device married with a mobile device because you want to have battery and connectivity and others, you want this device to be small, is likely the first incarnation of a multi-sensing AI type device. Customers of ours that have considered consumer have always come back to Zebra. And the primary reason is, number one, world-class hardware set for their environment. If you're in a transportation logistics or you're in a do-it-yourself retail store, your devices you're buying are 8-foot drop spec devices that can be dropped many, many times in that environment. You can't do that with a consumer device even with the case on. Second is the software and functionality we give to -- we add to those devices. So the majority of my engineers today are software engineers. They're developing on top of Android to be able to give enterprise software capabilities to our customers. How do I control the security patches? How do I control the OS downloads to that device? How do I be able to provision those devices in environment? Many of our devices are only in a Wi-Fi environment. So a mobile device is optimized for cellular. Our devices are optimized for cellular and WiFi inside the environment ultimately because many of them never have a cellular connectivity associated with it. There's devices that fit for purpose. So our healthcare devices are designed to be able to wipe down with disinfectants every couple of hours inside that environment. You can't do that with a consumer device the way you would with our enterprise devices. So there's a competitive moat that we have around this enterprise environment that you're just not going to see from a consumer.

And that applies also to wearables as well, not just the mobile device.

It does today because the wearables we design today are all about multiuse within our customers' environment. So think of the idea of a wearable device, but the device actually comes off, you have your own wearable wrist trap that you actually is yours, right? Because you don't want to wear somebody's quite honestly, sweating wrist the ship before you. So we think through the entire enterprise workflow and use case with our customers and then design the device around that.

Right. Got it. All right. We're running out of time. So last question for me. Just anything you think that is underappreciated by the market? And why do you feel Zebra's stock price is undervalued right here?

Yes. I think we've talked about it already. I think ultimately, there's a bit of overhang on memory, right? I think ultimately, that we believe we're going to be able to secure the memory we need to meet our guide. And if we can get additional memory, we think it moves more towards the top end of our guidance range that we've given. We're seeing the demand in the marketplace today. I'd say overall that automation and AI are positive for Zebra in longer-term trends. I think we're going to see over the next couple of years, us continue to deliver the 5% to 7% growth rate. I think the refresh cycle, we haven't really talked about coming out of 2020 and '21 -- '21 and '22, there was a lot of devices that were bought by transportation logistics companies and postal and others that were put in use there. Those upgrades and refreshes are coming up over the next couple of years, we need to have those conversations with our customers. So we're excited about delivering not only the top line growth we talked about, but profitability increases associated with that, continue to generate 100% free cash flow and creates us opportunities from capital allocation, either buying our stock back or from the acquisition perspective and making investments within our business. So we're excited about the future.

Great. Thanks very much, Bill. Appreciate it.

Thank you very much.