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WIKI ANALYSIS
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Zebra Technologies Corporation (ZBRA) makes printers which companies use to track inventory. Until recently, this meant barcode printers. However, Zebra's customers are increasingly using RFID technology to track and manage inventory, and Zebra sells RFID printers as well. RFID tags are like bar codes that can be read by a scanner several meters away - for example, RFID tags are used to determine which merchandise needs to be replenished on a shelf or to identify which of the items a shoplifter is carrying through the exit of department store are stolen and which are actually purchased. The market for RFID tags is rapidly expanding as a broad range of companies experiment with and integrate the technology. Wal-Mart, one of the largest supporters of RFID, has required all vendors of its subsidiary Sam's Club to tag pallets shipped with RFID tags.
More than 50% of Zebra's revenues coming from outside the US during its 2007 fiscal year. [1] Moreover, the company's international revenues grew at approximately twice the pace of its U.S. revenues. [2] In order to boost growth, the company is also investing heavily in new technologies. From 2006 to 2007 the company spent nearly $300MM (200% of 2007 operating income) [3] to acquire Wherenet, a provider of RFID technology, Proveo, a provider of GPS technology used by airports to track ground vehicles and Navis a provider of tracking software used to streamline the operations of marine terminals.
Company Overview
Although traditionally a producer of bar code scanners and printers, ZBRA continues to expand its product range to products that used to track more valuable assets where a high level of security is required. In addition to bar code equipment and RFID devices, ZBRA produces secure printers used to make driver's licenses and national identification cards. In addition to its own research and development program, ZBRA uses acquisitions to enter new markets for inventory tracking systems.[4]
Financial Metrics
Hardware (76% of Revenue)
The majority of Zebra's net annual sales, $660MM out of $868MM, comes from the sale of hardware.[7] Zebra produces specialty printers for a range of purposes, notably mobile bar code printers and ID card printers, although ZBRA produces standard desktop printers as well. The ID printers are often used to print driver's licenses or employee identification cards for businesses. As of December 31, 2007, ZBRA reports that it had sold upward of six million printers to customers in over one hundred countries.[8] In Q4 of 2007, the average printer selling price was $600.[9] Since 2005, Zebra has spent a significant portion of its sales revenue on research and development, totaling between six and seven percent of sales each year.[10]
Software (4% of Revenue)
While hardware sales make up the majority of Zebra's revenue, Zebra's biggest growth area is in Software and Services, whose revenue increased 66% between 2006 and 2007. The growth in Software and Services revenue is a result of Zebra's acquisitions. Software and Services revenue represented only 5% of total revenue in 2007 while hardware sales was 76%[11].
Supplies and Shipping and Handling (18.6% of Revenue)
Once the company sells its customers a printer, it continues to generate additional revenue by selling supplies and charging for shipping and handling. ZBRA typically charges according a pricelist for single-product orders, but will adjust prices accordingly in the rare event that it ships more than one type of product at a time to a single customer. Although ZBRA does not release the net income produced by its shipping and handling operations, those operations did comprise 0.8% of its net sales in 2007. If a loss is incurred in shipping a product, it is recorded as part of the cost of sales.[12]
Zebra's foreign sales are growing as international retailer markets begin to adopt more modern product tracking using both RFID and bar code systems. International revenue increased 19.1% from 2006 to 2007 while North American revenue increased 9.6% over the same period. International revenue became 52% of total revenue in 2007[13]
Trends and Forces
ZBRA's growth dependent on international expansion
ZBR's U.S. revenue has grown on avergae by 7% from 2005-2007 [15] been, with most of this coming from acquisitions. Conversely, the company international sales have posted 11% (2006) and 19% (2007) growth during the last two fiscal years. [16]. While barcode and ID printers are wide spread in the U.S., many international markets are relatively underpenetrated, providing the company with substantial opportunities for growth.
Acquisitions allow ZBRA to target new growth areas
As the growth in its core printer business has slowed, ZBRA has been focusing on expanding into other business lines such as RFID, GPS software and logistics for marine terminals. The company has spent more than $300MM over the last two years (2006-2007), to acquire businesses that specialize in these areas.
WhereNet Corp.
ZBRA acquired WhereNet Corp. located in Santa Clara, California, in January of 2007 for $127MM. WhereNet specializes in the production of RFID products primarily used for the real time tracking of high value shipments during transport. WhereNet produces both RFID transponders and receivers as well as the software and middleware required to operate them.[17] ZBRA's acquisition of WhereNet will be beneficial if the trend among businesses and organizations with large inventories to implement RFID continues. . Wal-Mart Stores (WMT) and the Department of Defense have shown particular interest in the technology for tracking incoming shipments from suppliers. In January of 2008 Wal-Mart required all Sam's Club suppliers to identify all pallets shipped to Sam's Club stores with RFID tags.[18] Certain Zebra RFID products are being evaluated for use by Wal-Mart.
proveo AG
proveo AG, located in Crailsheim, Germany was acquired by ZBRA in July of 2007. proveo supplies its customers with GPS tracking systems often used by airports to track ground vehicles. Although the GPS transponders are manufactured by third parties, proveo AG supplies the software for the them. Other technologies incorporated into proveo AG devices include general packet radio service (GPRS) and Wi-Fi.[19]
Navis Holdings LLC
Acquired in December 14, 2007 for $144MM. Headquartered in Oakland, CA. Navis provides software to streamline the operation of shipping terminals (primarily marine) to reduce total logistical costs for those terminals.[20]
Litigation Over Intellectual Property Rights
Future claims regarding the infringement of intellectual property rights and the outcomes of such claims have the potential to significantly affect ZBRA's earnings. In 2007, ZBRA paid a settlement of $63.75MM to Paxar (PXR) over a claim regarding patent infringement. Initially, Paxar demanded that ZBRA stop the production and sales of five lines of printers and one line of portable radios.[21] [22] The settlement figure does not include the $7.3MM incurred by ZBRA in legal expenses.[23]
Competition
In the markets for printers and related hardware Zebra competes with Hewlett-Packard Company (HPQ), Canon (CAJ), Xerox (XRX) among other companies. In its 2007 annual report, ZBRA lists thirty-eight direct competitors.[24] However, many of these companies produce general use printers and compete in markets that Zebra does not. Zebra has an advantage in bar-code printing because bar-code printing is primarily used for inventory tracking and management; Zebra is also able to offer software and services as part of the package, while many of its competitors do not.
Rates of growth in terms of sales revenue in the various sections of the company differ widely, and among other factors, likely indicate areas of more intense competition. For example, Zebra's hardware business grew 14.2% in 2006, but its supplies business grew only 7.3%[25]. International sales as a percentage of total sales have been steadily increasing over the past several years, from 48.5% in 2005 to 52.1% in 2007.[26] Comparing the years ending December 31, 2006 and 2007, international sales increased by 19.1%. Zebra's sales grew fastest in Europe, the Middle East, and Africa at 21.0% which represented 36.9% of total sales for 2007. Zebra's slowest region of growth was North America with a growth rate of only 9.6%.[27] ZBRA's well established brand name helps it to keep a competitive edge in printer sales as upwards of 90% of Fortune 500 companies used Zebra printers in 2007.[28]
- Hewlett-Packard Company (HPQ): Produces a wide range of products including not only printers and RFID devices, but personal computers, imaging devices, and support services.
- Canon (CAJ): Produces imaging devices as well as a variety of printers. Its printer lines that overlap with ZBRA's include desktop, thermal, and label printers.
- Xerox (XRX): Produces printers and office equipment geared for larger businesses.
- Intermec Inc: Produces bar code readers and scanners, mobile computing systems, and RFID devices. Its mobile computing systems are often vehicle mounted and incorporate GPRS.
References
- ↑ ZBRA 2007 10-K, Item I pg 11
- ↑ ZBRA 2007 10-K, Item I pg 11
- ↑ "ZBRA 2007 10k, Item 6, Pg. 21"
- ↑ "ZBRA 2008 10K, pg. 4"
- ↑ "ZBRA 2007 10k, Item 7, Pg. 22"
- ↑ "ZBRA 2008 10K, pg. 23"
- ↑ "ZBRA 2008 10K, pg. 11"
- ↑ "ZBRA 2008 10K, pg. 4"
- ↑ "ZBRA 2008 10K, pg. 23"
- ↑ "ZBRA 2008 10K, pg. 11"
- ↑ "ZBRA 2007 10k, Item 7, Pg. 22"
- ↑ "ZBRA 2007 10k, Pgs. 28,33"
- ↑ "ZBRA 2007 10k, Item 7, Pg. 23"
- ↑ "ZBRA 2007 10k, Item 6, Pg. 21"
- ↑ ZBRA 2007 10-K, Item I pg 11
- ↑ ZBRA 2007 10-K, Item I pg 11
- ↑ "ZBRA 2008 10K, pg. 9"
- ↑ Beth Bacheldor. Sam's Club Tells Suppliers to Tag or Pay.
- ↑ "ZBRA 2008 10K, pg. 10"
- ↑ "ZBRA 2008 10K, pg. 10"
- ↑ "ZBRA 2008 10K, pg. 25"
- ↑ "Competitor sues Zebra over patents, Chicago Tribune, July 22, 2003"
- ↑ "ZBRA 2008 10K, pg. 30"
- ↑ "ZBRA 2008 10K, pg. 8"
- ↑ "ZBRA 2007 10k, Item 7, Pg. 22"
- ↑ "ZBRA 2008 10K, pg. 11"
- ↑ "ZBRA 2008 10K, pg. 23"
- ↑ "SupplyChain.com, Zebra Printers Help Secure Mobile Point-Of-Sale Transactions, 2-28-07"
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