漢威聯合 (HON) 2010 Q1 法說會逐字稿

Welcome and thank you for standing by.

At this time all participants are in a listen-only mode until the question and answer portion.

(Operation instructions).

Today's conference is also being recorded.

If you have any objections, please disconnect at this time.

Now I would like to turn the call over to your host today, Mr.

Kevin McCarty.

Sir, you may begin.

Great.

Thank you very much.

Good afternoon everyone and welcome to Intermec's first quarter fiscal year 2010 earnings release conference call.

With me on the call this afternoon is Intermec's President and Chief Executive Officer, Patrick Byrne, and our Chief Financial Officer, Bob Dreissnack.

In a moment Pat will discuss our quarterly overview, and Bob will provide a summary of our operating performance and guidance.

Subsequent to those discussions we will begin our question and answer period.

Today's discussions will include predictions, estimates, or other information that might be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995.

Some of the statements we make today may be considered forward-looking including, but not limited to Intermec's expected financial performance as well as Intermec's strategic and operational plans along with additional examples that were set forth in today's earnings release.

These statements involve a number of risks and uncertainties that could cause actual results to differ materially.

Please note that these forward-looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or public release the results of any revision to these forward-looking statements.

In addition, we will describe certain non-GAAP financial measures, which we also refer to as adjusted items.

These items should be considered in addition to, and not in lieu of comparable GAAP financial measures.

Please refer to today's earnings release, which shows our reconciliation from GAAP to non-GAAP net earnings and net loss.

And for a more detailed description of the risk factors that may affect our results, please refer to our filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q.

Copies of these reports can be obtained from the SEC or by visiting the Investor Relations section of our website.

With that, I will now turn the call over to Pat.

Thanks, Kevin, and good afternoon.

Intermec had first quarter 2010 revenues of $149 million, which resulted in a loss of $0.06 per share from continuing operations.

On an adjusted basis, which excludes restructuring charges and an impairment charge related to real estate held for sale, the loss was $0.03.

These results fell short of our expectations for the quarter.

The key driver of the shortfall was revenue in North America including a larger-than-expected decline in spending by agencies of the US Department of Defense, or DOD, from the prior year period.

Lower enterprise spending on larger deals also contributed to the revenue shortfall.

I will cover more about these market dynamics after Bob's financial summary.

International sales increased 27% compared to the prior year period.

These results were driven by our reseller channel where we continue to make meaningful progress in volumes and in the number of active resellers.

Our global distribution business results continue to be solid.

Our goal is to continue to drive growth in our channels and food distribution.

From a product perspective, the printer media, systems and solutions, and services business net of the DOD decline all grew well compared to the prior year period.

There are a number of pilot projects underway, particularly with our new products, and we believe that these will be the basis for larger deployments in the future.

Going forward we will be focusing on the conversion of these pilots into sales of Intermec products and services.

When our channel, international, and pilot activities are taken together, we believe they indicate strength in our underlying business activities and good long-term growth opportunities.

Product and service gross margins showed progress compared to last year in spite of lower hardware volumes.

Operating expenses net of restructuring and the impairment charge remained around $60 million in the quarter.

The combination of gross margin and expense performance enabled the annualized breakeven to stay between $620 million and $630 million.

I am now going to turn it over to Bob to cover the quarter and our financial highlights, and then I will return to discuss our results in more detail as well as the outlook for Q2.

Thank you, Pat.

Intermec's first quarter revenue of $149 million represented an 8% decline from the prior year first quarter.

On a constant currency basis, revenues were down 12%.

On a GAAP basis, our first quarter net loss was $3.6 million, or a $0.06 loss per share compared to a loss of $0.17 in the first quarter of 2009.

The second quarter -- the first quarter included the impact of a real estate impairment charge of $2.4 million, or $0.02 per share, and restructuring charges of approximately $700,000, which equated to $0.01 per share.

On a non-GAAP basis, excluding those charges, our adjusted loss per share was $0.03 for the current quarter.

Turning to first quarter revenues on a regional basis in comparison to the prior year quarter, North America revenues declined 28% while Europe, Middle East, and Africa, or EMEA, increased 30%.

On a constant currency basis, revenues in EMEA were up 22%.

Our other international areas also delivered strong results with our Asia Pacific region up 37% while Latin America increased 8%.

Reviewing our product and service line performance and compared to the prior year quarter, systems and solutions revenue of $79 million decreased 15%.

Printer and media revenue of $37 million increased 3%, and service revenue of $33 million was down 1%.

As Pat mentioned, the DOD and lower-than-expected enterprise projects impacted our revenue performance.

Pat will provide further details during his commentary, but I'd like to provide a little more color on our international results during the quarter.

On a year-over-year basis, revenue increased in all international regions.

And on a product-line basis, our systems and solutions, printer media, and services businesses grew across these international markets.

Moving to gross margins, our total gross profit margin of 38.2% increased 190 basis points over the prior year period.

Despite year-over-year volume declines, our product gross margins of 37% improved 180 basis points compared to the first quarter of 2009.

The improvements are primarily due to continued pricing discipline and material cost reductions partially offset by lower volume-related absorption.

Service gross margins of 42.3% increased 170 basis points from the first quarter of 2009 as we continue to realize the benefits of the consolidation of service depots and the associated overall lower cost structure of our service business.

Our adjusted operating expense excluding the facility impairment charge of $2.4 million and the restructuring charges of $700,000 totaled $59.9 million in the quarter.

The impairment charge was related to real estate that we retained following the sale of our former IAS business, which we have decided to sell.

The charge reducing the carrying value to the estimated current fair value of the property.

On a year-over-year basis, the adjusted expenses of $59.9 million are lower by about 10% compared to $66.9 million in the previous year, which similarly excludes restructuring charges of $8.6 million.

Total operating expenses for these same periods were $63 million and $75.5 million, respectively.

I'll comment briefly here on expenses as we look forward to the second quarter.

In the second quarter we plan to increase our expense levels to drive select new product introductions, which we anticipate will total $3 million to $4 million in the quarter.

We expect to launch significant new products later this year and into early 2011.

We believe these new products will provide future growth for the Company, and we anticipate that this investment will allow us to bring these products to market in a timely fashion.

We will continue to keep tight controls on our operating expenses and anticipate our spending levels to be in the range of $61 million to $63 million per quarter during the second half of 2010.

We anticipate recording the remaining amount of our restructuring charges of approximately $2 million in the second quarter of 2010.

The remaining costs are largely facility related and will be primarily non-cash charges.

The tax benefit in Q1 reflects an effective tax rate for continuing operations of 41.4% compared to the prior year rate of 36.3%.

The effective tax rate reflects our estimated annual effective tax rate of approximately 41% adjusted for the impact of small discrete items.

Our projected 2010 effective tax rate is higher than 2009 due primarily to our projected mix of taxable income between jurisdictions and the expiration of the US R&D tax credit, which Congress has not yet renewed for 2010.

If this credit is renewed during 2010, there would likely be a favorable impact on our effective income tax rate for the year.

Looking at the balance sheet, we reduced our quarter and inventory balance approximately $7 million from the December yearend.

The decrease sequentially and year-over-year is driven by our outsourcing initiative and improving forecasting processes.

As we mentioned on our last call, we expect our inventory level will continue to trend down as 2010 orders are filled.

Moving to accounts receivable, at the end of Q1 our receivable balance was reduced to $100 million, down approximately $7 million from the yearend level primarily due to lower revenues.

The number of days in receivables, or DSO, was 61.1 days at the end of the quarter as compared to 60.4 days outstanding for the comparable quarter last year.

In the first quarter we used cash flow from operations of $5.9 million, which included the impact of $2.2 million of payments related to restructuring costs.

The use of cash was driven by the lower-than-expected net income and by the payment of accounts payable related to inventory purchases during the fourth quarter of last year.

At quarter end our cash, cash equivalents, and short-term investments totaled approximately $225 million.

The decline of about $13 million from yearend was due to the operating cash usage, capital expenditures, and legal -- and capitalized legal costs, and the translation impact of lower foreign currency rates.

Looking forward we expect positive operating cash flow driven by growth and our operating model leverage and continued strong working capital management.

With no debt on our balance sheet, the Company continues to be in a solid financial position.

As we look to the second quarter of 2010, we are viewing that second quarter revenues are expected to be within a range of $150 million to $165 million compared to second quarter 2009 revenues of $158 million.

Second quarter earnings per share on a GAAP basis are expected to be within a range of minus $0.08 to minus $0.01 per diluted share compared to the second quarter 2009 per share loss of $0.11.

Excluding estimated restructuring charges of approximately $2 million, second quarter earnings per share on a non-GAAP adjusted basis are expected to be minus $0.06 to positive $0.01 compared to Q2 2009 adjusted loss per share of $0.03.

As mentioned earlier and included in this second quarter guidance are expected new product introduction expenses of an additional $3 million to $4 million as compared to the approximately $60 million adjusted operated expense level reported for the first quarter.

We anticipate the effective tax rate for the second quarter will be consistent with the first quarter or approximately 41%.

Our earnings per share guidance assumes a diluted share count of approximately 62 million shares for the second quarter.

That completes our financial comments, and I'll turn the call back to Pat.

Thanks, Bob.

As we noted, Q1 was a mixed quarter with strong international results offset by weaker-than-expected North America sales.

The North America sales results were driven by a combination of a larger-than-expected decline in the US DOD business and lower large project spending than we saw in the fourth quarter of last year.

I will comment more on these effects.

Turning first to DOD.

It is important to note that first quarter of last year was a particularly high quarter in US DOD sales and therefore created a tough comparison.

We anticipated a decline in the DOD business in early 2010, but the Q1 results were less than we expected.

We believe that this situation is due to short-term DOD spending reductions in technology refresh projects.

These capital constraints were put in place in the DOD due to other pressing spending priorities.

We believe that defense appropriations and supplemental spending bills in Congress may provide increased capital budget for discretionary IT projects later this year.

We remain confident of our competitive position in DOD agencies, and our team is working closely with them to identify the path forward for these projects.

We are also engaged on projects outside of DOD within the federal, state, and local governments.

We believe we will see some pick up in public sector spending during the second half of the year.

Turning now to enterprise spending.

As I noted earlier, we are seeing a slow start in 2010 for large project deployments after what seemed to be a stronger 2009 finish.

Customers are proceeding with new technology evaluations but are phasing the larger deployments over time as they gradually release more capital spending.

In all regions, the level of activity is robust, and we believe we will see improved project spending on larger deployments in the second half of the year triggered by completion of the pilot phase of these projects and a gradual release of capital spending.

Customers continue to indicate that mobility projects are a priority for their IT budgets since these technologies can make a direct contribution to revenue generation and the productivity of their mobile work forces.

Our new products like the CN50, CN4, and CK3 are seeing good demand for these mobility projects.

Now I will return to the results that we believe represent significant progress on key initiatives for the Company's 2010 strategy.

Our channel was the major factor that led to strong international sales results in the non-DOD printer and systems and solutions sales.

The channel business is comprised of a large number of small and medium sized transactions that are led by our reseller channel.

Approximately 80% of the hardware sales for the Company went through the channel in the first quarter, which is higher than our historical level of about 70%.

We've been actively building this channel for many quarters as a key priority.

We added approximately 160 program partners in the quarter, which continues our trend from 2009.

Sales through distribution also grew well in the quarter as compared to the prior year period.

We launched the PartnerNet program that our global partners [saw] in the first quarter.

The feedback on the program has been positive with good deal registration, which provides a means for partners to protect their investments in the Intermec business.

Our objective is to provide a differentiated channel program that enables predictable behaviors and opportunities for profitable growth for our valued resellers.

Turning now to our international business.

EMEA had good results with growth of over 30% and was broad based across product lines.

We believe we have solid momentum in EMEA in a wide range of applications.

The EMEA business is comprised of many small to medium sized transactions and delivered good results in distribution sales.

Asia grew more than 35% compared to the prior year period, and Latin America grew 8%.

As with Europe, the composition of the business with small to medium transactions with a good balance between product lines, vertical markets, and applications.

Moving now to the printer media business.

We achieved good growth in fixed and mobile printers in each region and overall grew the business over 30% compared to the prior year period outside of the US DOD.

We are making solid progress with our new smart, strong, and secure fixed printers and new rugged receipt and label printers.

These are channel-oriented product offerings, and reseller feedback has been positive.

In the consumables business, revenue per customer continues to grow, increasing more than 20% compared to the prior year period.

We believe that consumable spending is an early indicator of the customer purchase cycle.

Looking forward we believe enterprise spending on larger projects will remain tight in the short term with improving conditions in the second half of this year.

We will be focused on converting successful pilots of new technologies into sales and are seeing signs that we will be able to do that.

For example, the CN50 new rugged mobile computer has received good feedback and we believe we will see strong sales in the remainder of the year as these pilots are completed.

We are seeing broad interest and early adoption of this product into new applications primarily in field service due to the smaller size, weight, and its advanced technologies.

As I noted earlier, we are making solid progress in the channel, which forms the basis for reaching more customers as well as small and medium businesses.

Our distribution results have been building for several quarters.

We believe these customers form a growing run rate business for the Company, which will scale with the economic recovery and complement our large project business.

We are staying focused on new product introductions this year and are investing to bring compelling new products to the market in the coming quarters.

I'm confident that the actions we have taken are building a strong foundation of business for the future and has Intermec well positioned to capture the technology refresh cycle.

As capital spending often lags in economic recovery, we anticipate improvement in demand throughout 2010.

I will now turn it over to Kevin.

Great.

Thanks, Pat.

Melissa, at this time we'd like to open up our call for our question and answer period please.

Yes, sir.

Thank you.

(Operator instructions).

The first question comes from Reik Read from Robert Baird & Company.

Your line is open.

Hey.

Thanks.

Pat, just maybe you could go into a little bit more detail on the enterprise side of things.

Can you talk a little bit about the status of the pilots, when they will be complete, and then as you get into the second half, is this a situation where it's still these projects are parsed up and it's a slow release, or do you see more activity as a result of these pilots clearly showing some good ROI?

Yes.

Well thanks, Reik.

I think the -- what I'd outline is that the pilots on the new product, for example the CN50, started at the product introduction; some a little before, some a little after.

And those take typically several months.

And so those are going well.

We anticipate -- they start at different points, but those are proceeding well, and as those are completed then the customer would commit to typically a multi-quarter-scale deployment.

So just as one example, there is one particular pilot going on in the distribution business.

A couple hundred units in the pilot and the long-term deployment would be four to five thousand and could be done over -- the plan would be over say a 12- to 15-month period.

So I do think that the pilot phase is also -- is proceeding well and will form the basis for the business scaling.

I think customers are continuing to watch capital carefully, but I don't -- I would not anticipate that this would be a long-term constraint on deployment scale.

So you're suggesting that these pilots have gone well, there's reasonable ROI out of these, and therefore it's not going to be a slow release, they will start to pick up?

That's the evidence you have.

Yes.

I think that that's -- that's still evolving.

I think capital is still -- the overall capital environment is still somewhat cautious but the indications I am getting is that the pilots are proceeding well and that these are priorities for their IT departments and will, as I said, scale in the second half as the pilots are completed.

Okay.

And then is there any evidence as you drill into the vertical side of things that some verticals are willing to go -- move forward a little bit faster or is it kind of across the board at this point?

I think that there are two kinds of ways of looking at these projects.

One is where mobility has not been deployed yet, new applications.

A lot of field service applications are like that where they are adopting mobility projects for the first time, other ones where they're doing a replacement cycle.

They already have done one or two previous deployments and they're replacing the technologies.

I would say that -- each of those has different dynamics but both of them see a strong ROI.

So I think my answer -- the answer would be that I think it's pretty broad based that there's a compelling ROI for either replacing older technologies or new mobility projects.

Okay.

And just one last one.

What drove the -- when you talk about your printer business, the non-DOD stuff seemed like it went very, very well.

Is that just a timing of orders or is there something driving that?

I think -- well I indicated last quarter that bookings had picked up in the previous earnings call, and it was pretty broad based.

I think we saw it internationally as well as domestically.

We saw it in both fixed and mobile printers.

And we have a focused program on this, and we've seen some momentum, both last quarter and this quarter, building in the printer and consumables business.

Okay.

Great.

Thank you, Pat.

You're welcome.

The next question is from Chris Quilty from Raymond James.

Hi gentlemen.

Question for Bob.

I just wanted to clarify the $3 million to $ 4 million incremental spend.

That is $3 million to $4 million in Q2 as a discrete item?

That is correct, Chris.

Okay.

And is that all going to hit on the R&D line or is some in the sales and marketing G&A side?

The majority of that, probably three-quarters of it will hit in the R&D line would be my expectation.

There is a portion of it that would be in the SG&A area.

Okay.

And I'm just thinking back over the last six or seven years.

I can't remember a similar time when you had such a concentrated R& -- set of R&D activity.

And you've done a lot of new product build over the last two years.

Is there something about these new product launches that are different or something in your timing that makes it important to accelerate the spend?

Yes, Chris, I'll answer that question.

So without talking about any particular aspects of the products, obviously for confidentiality reasons, what I would say is that we continue to expand the product portfolio.

So we're focusing not only on technologies that provide an upgrade to the markets that we're already in but looking for opportunities to make contributions beyond the categories and products that we're already competing in in order to increase the addressable markets that we can pursue.

So is it something we're going to be excited about?

Yes.

You will be excited about it.

Okay.

Last week we heard from ScanSource that they had some issues -- revenue issues because of component shortages in the channel that were disrupting some vendor hardware shipments.

Did you see any of that -- any of those issues in your products coming out of Venture and Singapore?

I saw that as well from ScanSource's results and it was a small effect in the quarter.

It wasn't enough that I would highlight it.

The component level shortages are tightening up in the global electronic supply chain.

We've worked through a number of those things, so it wasn't critical enough to highlight as an important separate item.

Okay.

And market share issues.

Have things stabilized with the pricing environment or are you seeing any big moves by competitors either in pricing, channel, strategy, products, et cetera?

We've seen a -- as you can see from our gross margin results compared to last year and really compared to last quarter sequentially given the hardware -- sequential hardware revenue decline that the overall pricing environment is relatively stable.

Obviously it's a very competitive environment but the overall pricing environment I'd describe as stable.

And just to clarify, with the new products I think in the past you've always talked about picking up a couple hundred basis points or more of gross margin with new products.

Should we expect the same sort of metrics on a go-forward basis?

Yes.

That's right.

Our objective is to introduce products that have compelling technologies and strong value so that we can -- and more efficient supply chain so that the new products have a gross margin performance above the Company average.

Okay.

And finally, here's the actual big one.

Revenue in North America down $29 million year-over-year.

You seemed to imply that absent the DOD issues you might have seen, I thought, a positive sales performance.

I don't think that can be, but can you quantify in any way, was it sort of more than half or less than half of the delta that was caused by the government side of the business?

Yes.

It was a significant majority of the decline.

It wasn't all of it, but it was a large portion of the decline year-on-year.

Okay.

And just as a refresher on the -- oh goodness, I'm drawing a blank here.

The third contract vehicle that you're working off of.

The AIT.

Yes.

AIT.

It's been a long earnings season.

So there's nothing that's changed with the competitive dynamics of that that would lead you to believe you're losing share, just simply has to do with the funding cycle for the customer?

Yes.

That's right.

I would say that the funding cycle is just beginning for the AIT-4 contract.

It is a different award system.

Rather than being awarded to one awardee, it's awarded to a set, which are then -- then compete for the business on each portion of the business as it comes into the market place.

But I think you already knew that.

That was already previously described.

IDIQ BPA.

I know those acronyms.

Okay.

Well thanks gentlemen.

I think I've got it from here.

Thanks, Chris.

Thank you, Chris.

Our next question is from Jay Meier of Feltl and Company.

Your line is open.

Yes.

Thanks.

I'd like to drill down a little bit more on the DOD please.

First of all, regarding the AIT-4, are you aware of any of the other vendors that have been awarded that contract getting task orders?

We're aware of some, but not much.

A very small amount.

So it wouldn't -- you wouldn't categorize it fairly as an Intermec problem at AIT-4?

No I would not.

I would characterize it as a funding, timing constraint issue.

Okay.

That's fine.

Are there any other issues like beyond going OCI problems at DOD that the administration has been cracking down on?

Not that I know of.

Okay.

All right.

Very good.

Thank you.

Thank you, Jay.

Our next question comes from Chris Marangi from Gabelli and Company.

Your line is open.

Hi.

Good afternoon.

Two questions.

Hi, Chris.

Hi.

The first one has come up on other calls.

On the balance sheet, any further thoughts on what you might do with the cash that you have, almost $4 a share, notwithstanding the cash consumption in this quarter with a more stable environment, maybe have some more flexibility to use that?

That's the first one.

And then secondly, more fundamentally, obviously the top line continues to shrink.

You've done a very good job in cutting costs to get ahead of that, but you can only cut so far.

At what point do you not have the scale, you think, to be an effective competitor?

Chris, I'll talk about the first one and then Pat will probably comment on the second here.

This is Bob.

We continuously have been working on generating operating cash flow and preserving our cash balance.

As the economy gradually recovers, we think that's still primarily the prudent thing to do.

We are continually evaluating the security and return on those investments in the cash, but then looking also at the capital structure and other potential uses of cash to drive the growth, to drive shareholder returns.

At this time we are evaluating for 2010 what the optimal uses for that cash will be.

We've worked hard to build it and preserve it, so we don't want to use it lightly, obviously.

But that's something that we are looking very hard at right now.

Nothing to announce today or comment on, but it is an active thing that we are working on.

Great.

Thank you.

On the being able to compete and our expenses reductions.

We've lowered our breakeven point to the $620 million to $630 million level, which implies expenses of $60 million to $63 million in gross margins in the 38%.

As we grow the revenue, which we believe we have the new products and sales organization in marketing and international presence to drive, then we would leverage off of that breakeven point.

So we believe that the current investments we're making, the cost structure we've got, and the margin structure we've got enables us to compete and win in the market.

Okay.

Thanks.

Our next question comes from Tavis McCourt from Morgan Keegan.

Your line is open.

Thanks for taking my question.

First one, again I want to kind of drill down on the North American revenues in the first quarter.

And I guess even if you back out DOD, it was still down a little bit, which has to be pretty disappointing just given how poor the economy was last year at this time.

Is it simply a matter of large contract wins or do you think it's some of the verticals that you're focused on are just later cycle or do you think you're losing share in some of these core verticals?

I think that the -- as I said, the North American sales results didn't meet our expectations.

And we anticipated, as I said, a decline in the DOD business, but not as much as we saw in addition to these larger enterprise projects.

So the part that is work -- is driving broad-based demand is the channel.

Really the gap in our performance is related to converting these -- converting these pilots into larger deployments.

We believe we're in the right verticals.

In fact, we've expanded our addressable markets with the products we've done, reaching field service applications, transportation logistics, field service, delivery organizations.

We believe those are places where there's compelling benefit to mobility deployments.

We believe we're also in the right market places with our printers, both that travel with our computers as well as our fixed printers, and that as the capital environment improves then we'll improve our performance.

But clearly North American sales results are the focus we've got going forward.

Got you.

And then, Bob, you mentioned in the press release foreign currency was a help on a year-over-year basis, but I suspect with the appreciation on the dollar against the euro it probably hurt you throughout the quarter.

How does that impact you and is it meaningful enough to matter as it relates to Q2?

It's -- well certainly, Tavis, I think what you're eluding to is yes, as we entered the year the euro and the pound were stronger than they are today sitting at $1.32 to $1.33 for the euro in particular.

It did have an impact a little bit versus what we originally expected the conversion rate to be for Europe, but we had a solid business in Europe and it didn't impact sort of the overall dollar delivery that we saw in that region.

It would be -- it certainly creates a little bit of headwind for us going into the second quarter.

In Europe, if the currency was at the rate it was at the beginning of the year, I would have expected the first quarter to be several million higher, and we have kind of that same level of headwind right now as we move into the second quarter.

So the focus becomes, as Pat said, growing the channel, making sure that we're priced right in the currency environment, and then looking for those large enterprise projects that with the compelling value we can convert to revenue and overcome that.

We're facing the same thing that everybody who does business in those markets is facing.

Yes.

And then the last one.

Just again, you mentioned the $3 million to $4 million of investment in Q2.

That is for -- specifically for product launches in Q3?

It will be in the second half of the year, not necessarily Q3.

But we're at a point where these are moving definitely forward in their development cycle and pre-launch activities are picking up.

Great.

And last one.

Are still all the developments on Microsoft?

All of our mobile computers run Microsoft Windows Mobile as the operating system.

Great.

Thanks a lot.

Thanks, Tavis.

Thank you.

(Operator instructions).

Our next question comes from Ajit Pai from Thomas Weisel Partners.

Your line is open.

Hi.

This is Robert Walker on for Ajit.

First I want to get your perspective on RFID and whether you see it becoming material sales and EPS in 2010 or 2011 or 2012?

The RFID market is still developing.

As we've of course mentioned before our focus is on close loop applications working with specific resellers who can bring the technology into particular verticals.

It is -- we don't disclose it separately, but it is part of our systems and solutions business.

It is developing, but of course developing slowly.

Okay.

Great.

And also have there been any diversions that you've seen in the health of the markets between barcode scanners and barcode printers?

Could you clarify your question?

Any diversions that you've seen kind of overall in the health of either the barcode scanner versus the barcode printer market?

Any diversions there?

Okay.

No I don't think so.

I think it is -- the overall market conditions are pretty stable.

There's barcode printing and barcode scanning are stable technologies that clearly have strong operational ROIs for customers and as capital return.

We anticipate technology refresh cycles to occur.

There is a move -- there is an increase in the use of imaging technology in barcode scanning.

It allows more to be done than just a simple barcode scan.

That's sort of an increased application set around the technology that's used in the products.

Okay.

And then just finally, as government tax [receipts] were dropping globally, did you find postal departments were having trouble finding funds to start spending on your products or have they found those funds?

And I guess if you could comment on whether the improvement at FedEx and UPS has translated into better demand for Intermec products?

Thank you.

Yes.

I would say that the overall postal and delivery business is going through changes.

The postal industry is going through long-term deregulation and esubstitution, but as part of that the postal agencies are modernizing with new technologies.

And there are meaningful opportunities that we continue to focus on engaging across Europe as well as in other regions.

Those look like good opportunities for us.

And then we don't disclose particular customers, but I think that the overall parcel -- increase in parcel demand is a good thing for our business and part of what we believe will drive some of the technology refresh cycle as volumes pick back up.

Great.

Thank you.

Thank you, Robert.

Our next question comes from Reik Read.

Your line is open.

Just a quick followup on Europe.

You guys have talked a lot about that market performing very well.

Is that mostly through the channel or is the enterprise business there actually performing well?

And can you give us a little bit of a breakdown by country in terms of what's doing well and what still may be a little bit soft.

Yes.

So the makeup of the European business is broad based.

The $15 million or so in revenue that we got in the first quarter was pretty broad based.

There wasn't a lot of enterprise deals.

There is, as I said, that larger enterprise deployment business is really a phenomenon that goes across all regions.

So it's really made up of lots of small and medium sized business transactions.

We had a good performance across many of the countries.

So there wasn't any particular one where we saw dramatic -- the Middle Eastern area, Eastern Europe, those developing economies are growing well.

But also UK, Germany, and France did well on a relative basis as well compared to last year.

So I don't think I'd call out any particular country that had a much higher participation in the year-on-year growth.

Yes.

Okay.

Great.

Thank you guys.

Thank you, Reik.

The next question comes from Jay Meier.

Your line is open.

Yes.

Just a quick follow on the pilots that you're working on and their potential to deploy in the second half.

Are you actually looking at a schedule to deploy in those, or is there some timeline associated with those or some series of developments that you have to hit in order for those to deploy?

Or is this sort of a feeling you have that they'll hit in the second half?

Yes.

So the normal cycle of these technologies is that we have to enter the pilot, those pilots take a number of months.

You have to make an economic case that this is a -- it's going to deliver strong ROIs.

So that has to be made even to start the pilots.

Then of course the pilots have to be technically successful.

They have to -- the mobility software that runs on them, the connection of the back office systems that drive them, all those -- all that technology has to be really proven out.

And then the third thing is the available capital and scaling them.

And so that's our anticipation is that we're progressing through those stages and that as the second half develops, those pilots will start to scale as a result of both the normal piloting phase being completed and the release of capital.

Of course the overall capital environment, as I said, is still -- has still some uncertainties, but we're optimistic based on the progress that we're making and the number that we have.

And so is it fair to say that you feel you've hit all of your developmental targets with respect to these pilots?

Yes.

Well every customer is different, but we're working through those phases according to the requirements of the technology verification and the -- basically the mobile business process that customers are either designing or optimizing for the use of the technology.

So I would say that those are proceeding well according to sort of the natural timelines of when these take to occur.

The key thing that we haven't seen is really in the business in Q1 as we still look at Q2, the phasing of that is still developing because capital has yet to be really released on large-scale deployments.

As I said, we saw a pick up in Q4, and that we had anticipated going into Q1 but it looks tighter than that as I outlined in the first quarter.

But we anticipated building as the year progresses.

All right.

Okay.

Thank you very much.

You're welcome.

Thanks, Jay.

Sir, I am showing no further questions.

Great.

Thank you very much, Melissa.

I wish to thank everyone again for joining us on our call this afternoon, and that will conclude our call for today.

If you do happen to have any follow-up questions, please do not hesitate to give me a call.

Thank you so much.

Good night.

Thank you for participating in today's conference.

You may now disconnect at this time.