Zebra Technologies' CEO Presents At 40th Annual J.P. Morgan Global Technology, Media And Telecom Conference (Transcript)

Zebra Technologies Corporation (ZBRA)

40th Annual J.P. Morgan Global Technology, Media and Telecom Conference

May 15, 2012 2:10 PM ET

Executives

Paul Coster – JP Morgan

Anders Gustafsson – CEO

Presentation

Paul Coster

All right, so good afternoon everyone. My name is Paul Coster, I’m the Senior Analyst covering applied and emerging technologies here at JP Morgan. And this is the 40 th Annual TMT Conference. It feels like I’ve been at all 40 of them, that can’t be right, can it? Anyway, I’m very happy to have and discuss with the CEO of Zebra Technologies here this afternoon, thanks for joining us Anders.

Anders Gustafsson

Thank you.

Paul Coster

All the way from Chicago, right?

Anders Gustafsson

All the way from Chicago.

Paul Coster

Okay. I hope you’ve got one-on-one sessions. I think what I’ll do is I’ll assume that you know, some folks in the audience aren’t necessarily familiar with the story. So, let’s start off by talking about what it is that Zebra does.

Anders Gustafsson

And most of you probably have heard of us as a leader in bar-coding and RIFD. And we think about what it is we actually do for our customers, we tend to talk about how we help our customers increase visibility into their operations. So, we do that basically by providing a digital voice to the most important asset. And that voice can be in the form of a barcode, passive RFID or active RFID tags or different types of sensor technology.

But that voice basically enabled the assets to talk with their software applications to provide more real-time information to their software application about what’s going on in their operations and that can be a supply chain that can be a retail facility that can be a healthcare facility, so almost any type of operation. And that information ultimately enables our customers to make smarter and more, timely business decisions.

Paul Coster

All right. So, the first quarter is at the way. And to my expectations guidance was little bit soft though. And we saw a little bit of a dip in gross margins moving forward. What’s happening in the near term here?

Anders Gustafsson

I think gross margin was flat quarter-over-quarter. And I think we guided it to be consistent with that. But first quarter was on an absolute basis, growth was not quite this robust as we have seen over the last couple of years. In 2010, we had 21% growth, 2011 we had 10% and we had 3% in the first quarter. But I think in a relative basis, we did quite well in the first quarter, I’m quite confident we extended leadership in the industry and our market share gains.

So, we were by far the leader in our space, our market share is probably about four times that of our nearest competitor according to VDC, that is the preeminent independent market research firm in our area. We had growth in all four geographic regions so, US grew, Asia-Pac, Latin America but also Europe which was probably more of a – more unusual. So, I think we had a solid first quarter considering the economic environment we saw.

Paul Coster

Okay. Now I apologize, so you had 49% gross margins, you’re looking for similar gross margins in the next quarter, all right, got it. Now, what’s interesting here though is that in aggregate you’re growing at low single digits. But at the Analyst Day event which you held only a few months ago right, though, you talked about re-acceleration into the high single digits. What gives you confidence that this is going to happen?

Anders Gustafsson

Yeah. So, again, go back to 2010, ’11, we had 21% and 10% growth. So, I think we – at our Investor Day, talked about a longer term growth view for the next say three or four years, while being able to generate 8% to 10% revenue growth. And we base that on – again, first on market, expected market growth of 6% to 7%, again that comes from independent market research. And we felt that we ought to be able to grow a couple of percentage points faster than the market.

And if you look at the last few years, I’m confident we’ve grown at least that according to VDC again, I think our market share has increased by about 2 percentage points per year over last several years. So, we feel we are well positioned in our industry and we think it’s an exciting industry with a lot of growth opportunity. So, we felt that that will be a reasonable growth target through a cycle.

Paul Coster

Right, got it. So, meaning that they can peak higher than that later?

Anders Gustafsson

It can peak higher this year obviously 3% is less than that. But say in 2010 and 2011, both of those years were either higher or at the top end of that range.

Paul Coster

So, this year you would describe as being as cyclically slower year?

Anders Gustafsson

We don’t necessarily give guidance for the year. We only give quarter-over-quarter but obviously 3% in the first quarter and we guided for something less than 6% to 8% growth in the second quarter. So, it’s – it wouldn’t be unreasonable to assume that this is going to be somewhat slower this year. And I think to a large degree, it’s driven by Europe where we’ve had very healthy growth. Last year we grew by 10% in Europe, in Q1 we were growing. But that was I think more of an anomaly.

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