摩托羅拉 (MSI) 2002 Q4 法說會逐字稿

Please stand by.

Thank you for standing by.

Good day and welcome to the Symbol Technologies fourth quarter earnings conference call.

Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Mr. Bill Nuti.

Please go ahead, sir.

Thank you.

And thank you for joining us for Symbol's fourth quarter and year-end 2002 earnings call.

Rich Bravman, VP and CEO and I are joined by Mark Greenquist, our new CFO whose appointment we announced Tuesday.

Jerry Swartz will join Rich and me for the Q and A portion of the call.

Before we start, a brief disclaimer reflecting the Safe Harbor regarding the litigation Reform act of 1995.

During of the course of this call we will make projections or other forward-looking statements regarding future events or the future financial performance of the company.

Such statements are just projections and actual events or results may differ materially.

Such forward-looking statements are qualified by factors discussed herein, and in the filings that Symbol makes from time to time with the SEC, specifically the last filed form 10-K and form 10-Q.

The risks and uncertainties identified therein could cause actual results to differ materially from those contained in our projections or forward-looking statements.

Copies of our SEC filings are available upon request or by accessing our company Website, www.Symbol.com.

Rich?

Thank you, Bill.

And thank you all for joining us.

First this afternoon I'll provide an update on the status of the government investigations on our related internal investigation.

Following overview comments on 2002, I'll bring you up to date on our business strategy and to build out of our executive management team.

Then we'll have Mark say a few words before I turn it back to Bill for a drill down on the financials He'll highlight some of the progress we're already experiencing as a result of some of the structural and operational changes we're implementing.

The year 2002 was a difficult one for the company, but will, I believe, be looked back on as a water shed for Symbol.

We made significant progress in building a management team for the future, found, faced and addressed problems with our internal controls and procedures provided greater transparency into the company's results, built new management processes that are already yielding operational benefit says, visible in our financial results, refine or go to market channel strategy for improved leverage and coverage, developed and articulated a new strategy around enterprise and mobility and demonstrated the ability to grow quarter by quarter even in a very difficult climate.

Please be assured that despite This progress, we know we have a long way to go in building Symbol into the kind of high-performance company we're committed to creating here.

We do take confidence from the results of the first few steps we've already taken.

I hope you've seen today's press release.

As stated in there, our reported resulted have not been approved and are likely to be affected by the anticipated restatement.

Our plan is to follow up with audited financials upon the filing of our 2002 10-K.

Relative to SEC-related matters, we won't be able to elaborate further in the Q and A section, so let me tell you now as much as I can.

Our internal investigation is in its concluding phase with the final report in development by independent counsel.

The company has shared documentation and discussed relevant issues with auditors who are reviewing them in connection with the audit of fiscal 2002 results.

We continue to believe that the company may have to restate its revenue and income previously reported in financial statements.

We now believe that the restatement will cover the years 1999 through 2002.

We are working with our auditors to determine the exact amounts and time periods of any potential restatements.

This information will be released at the same time as the final audited 2002 results.

Our goal is to complete this process in time for the filing of our 10-K in March.

The company expects, based on the investigation to date, that the potential restatement would likely result in a net reduction of previously reported net income and revenue in fiscal 1999 and fiscal 2000 and a net increase in previously reported revenue in fiscal 2001 and fiscal 2002.

At this stage we cannot estimate the impact of the restatement on net income for fiscal 2001 or fiscal 2002.

We believe that the net amount of revenue previously recorded for fiscal years 1999 and 2000, that will be reversed or reversed and restated in later fiscal years or otherwise adjusted as the result of a restatement will likely not exceed 10% of the total revenue originally reported in those two years.

Such a restatement isn't expected to have a material impact on the company's balance sheet as of December 31, 2002.

Any actual restatement may vary from the estimates I've just provided.

They involve other issues and would likely affect comparisons between currently reported amounts and amounts reported for previous periods.

The previously reported SEC and department of justice investigations are continuing.

Of course, as developments warrant, we'll provide updates to you on the progress of these investigations.

Let me reiterate that our management team is deeply committed to completing this process of addressing past issues to ensuring that the most effective possible controls and processes are in place, to providing the most transparent possible view into our company's performance and to maximizing the value we know to be present in our business.

Now I'll turn to a summary of results for Q4 and the year ended December 31, 2002.

Bill will drill down in greater detail a bit later.

With revenue of $363.4 m, Q4 was our third quarter of solid sequential growth up 7% from Q3 and an increase of 9.8% over Q4, 2001.

Full year 2002 revenue met our expectations at $1.32 b, although it constituted a 9% decrease from the prior year.

Diluted Q4 EPS of eight cents were up 1 cent sequentially and 2 cents versus prior year.

Q4 results included a charge of $4. 5 m in fees and expenses associated with our internal investigation and related SEC matters.

Full year diluted earnings per share of 22 cents were down 5 cents compared to the prior year before special charges in both periods.

We continue to make strong progress on our balance sheet, details of which will be shared with you by Bill.

I'll spend the next few minutes discussing our core strategic vision.

It is centered around a bold ambition.

It will establish leadership and the age of mobility, the next wave of the information technology evolution.

One marked by the convergence of data collection, mobile computing and wireless communications.

Precisely Symbol's core competencies.

Let me frame for you our view of Symbol's position on the technology continuum.

The information revolution began over a quarter century ago, with the age of centralized mainframe computing.

It then moved onto the age of distributor computing which gave way to the age of personal computing.

PC era led to the age of networking, and today the age of networking is quickly progressing to the age of mobility.

The age of mobility isn't about adding new infrastructure to the enterprise, but rather about delivering solutions to mission-critical business imperatives and Symbol is uniquely positioned to lead in this era.

In addition to our core technology competencies, we have deep domain knowledge of our target customers business processes, the integration skills at platform and systems levels, and the partnerships to craft powerful mobility solutions.

In my opinion, Symbol is ideally suited to deliver enterprise customer's mobility had it matters, whether a trucker delivering fresh produce to a super market for a nurse delivering the right medication to the right patient at the right time for a technician delivering upgrades on an oil rig in the north sea.

Our mission is ambitious, yes, but we feel we have both the ability and the determination to make it happen.

As a 20-plus year Symbol veteran I know that what the company has already undertaken and accomplished in the past has brought us to this point of great opportunity.

And now we're building the senior leadership team to realize that opportunity.

Last summer, with Bill Nuti's recruitment into our present COO slot, we established a standard of leadership.

My partnership with Bill has grown to be strong, and I could not be more confident in his ability to lead the way in high performance and operational excellence in the years ahead.

As the next step in the build out of a Symbol leadership team we're pleased to have on board Mark Greenquist who joins us at CFO.

He served at CFO at Agere systems for the last two years during which time he over saw the company's IPO and subsequently facing the telecommunication industry's market deterioration focusing on restructuring the business.

Before joining Agere in 2001 the bulk of his career was with General Motors where he held the position of VP of finance and CFO Europe following leadership positions in treasury controller, foreign exchange and investor relations.

As announced last month, we're rolling out a new channels program under the leadership of Todd Abbott, who joins us in October of Senior VP of Worldwide Sales.

We've designated him as our channels change agent implementing the program that put Symbol sales associates in high touch relationships with the fortune 2000 and lets our partners whether value added resellers or distributors scale more efficiently to succeed at their specialty businesses and ultimately transition Symbol to a model that's as much as 90% fulfilled through the channels, we're about 60/40 today.

Earlier after examining the systems infrastructure to appropriately scale our business we recognize the need for upgraded decision support systems and a forward thinking leadership required to build it.

That led us to bring John Bruno on board as CIO.

We gave him the business development to identify and put in place the strategic extensions to our business, whether through partnerships or internal development, to move Symbol rapidly ahead.

As of the first of the year, we've organized our marketing and engineering groups to support our key four areas mobile computing, enterprise class PDA's [ph], wireless networking and scanning.

Each of these four business units has end to end responsibility for general management, program management, product management and product management for its line of business.

From cradle to grave.

Ron Goldman, who has been with Symbol ten years, has GM responsibility for these business units.

Ron works in close partnership with Boris, our engineering chief, who has been with Symbol for about 20 years.

Bill will talk further about organizational, process and cost structure changes we've made and continue to make as we aggressively drive greater efficiencies and scale the company for growth.

We've given ourselves a serious challenge.

One that we could not necessarily guarantee we will accomplish.

But it's a challenge we believe we can achieve.

Now I'll turn the Reik over to Mark Greenquist, our new CFO.

Mark?

Thanks, Rich.

While I'm not officially on board, I'm pleased to be here and enthusiastic about Symbol's prospects going forward.

As you would imagine, I've spent a considerable amount of time getting to know Bill, Rich and Jerry, and I'm very confident that they're putting Symbol on the right track.

Of course I've also spent a good bit of time delving into the financials and related issues.

I agree with them.

Changes that the company has made in the last 12 months have put it on a road with great opportunities ahead.

I'll carry forward with the company's pledge of greater transparency in reporting, making sure everything we do conforms without question to the highest principles of business integrity.

The company has great leadership chemistry in the partnership, and there's definitely a sense of excitement, and urgency and positive energy within Symbol.

I'm eager to plug into that.

At the same time, there's serious resolve to live up to commitments, perform with accountability as the company builds on its rich tradition of innovation and technical accruement..

It's a good time to be at Symbol.

In the next weeks and months, as I become more acquainted with Symbol, I look forward to becoming acquainted with all of you.

Thanks a lot.

Thanks, Mark.

It's going to be great to have Mark on board.

I'm certain that as you get to know him, that you'll agree that his financial management expertise and business insight are an excellent fit for Symbol as we structure the organization and processes for our next phase of growth.

Now Bill will provide a drill down on the financials, an overview of structural changes we're making, the goals we're working against in the next two to three years, progress in our major verticals and our outlook for the remainder of 2003.

Bill?

Thank you, Rich.

As many of you are aware, along with my duties as president and COO, I've been Symbol's acting CFO for the last six weeks, so I'm especially pleased to have Mark joining us at this time.

On that note I want to officially welcome Mark to our Symbol leadership team.

During today's call, I will make comments on Q4 performance and full year 2002 and give you some perspective on four key topics.

One, growth. two, the impact on P and L of reserves for Palms and radio products.

Three, 2003 restructuring plans and four, 2003 guidance.

At that point we'll open up the lines for Q and A.

Overall, we were pleased with the progress we made in Q4.

Particularly given the challenging macro economic and geopolitical and I.T. investment environment.

We experienced positive momentum in the areas of top line growth, gross margin improvement and a moderate gain in operating margins.

Areas for improvement include a continued focus on operating expenses and overall cost reductions.

Let me assure thaw we have several ongoing programs to drive improvements in both categories.

As Rich said, Q4 was the third quarter in a row of sequential revenue growth.

Given the macro environment over that span of time, when growth in the high tech segment has been extremely difficult to achieve, we are satisfied with our team's ability to drive top line performance.

The latter gives rise to a sense of cautious optimism as to our future growth potential during times of economic recovery, increased I.T. spending and/or geopolitical stability.

At 38.9%, gross margin was up 1.2% sequentially and down 1.1% year over year.

Although we have experienced gross margin improvement for three straight quarters, we are working on several internal process improvements to drive out inefficiencies and trap costs which we fully expect to yield better gross margin.

Over the next few years, with an emphasis on cost controls, value added solution selling, engineering innovation and supply chain efficiencies, our goal is to drive gross margin above 45%.

Operating margins were up slightly over Q3 at 8%, Q4 operating margin has improved over our last six quarters but is still well below our long-term expectations of a range of 15 to 20%.

From a balance sheet perspective we were extremely pleased with our Q4 progress.

Our balance sheet, with the exception of inventories, which I'll address in a few minutes, is perhaps the strongest it has ever been.

Cash flow from operations at $67.2 m demonstrated substantial strength and resulted in greater sequential balance sheet cash of $76.1m versus $69.6m in Q3, and the lowest levels of bank debt since the first quarter of 2000.

With $80m in debt and $76m in cash, Symbol is extremely close to net debt-free status.

The strength of our cash flows has provided us with the ability to pay down long-term debt by $137m in fiscal year 2002.

Which when contrasted to fiscal year 2001, when we added $73m to long-term debt, represented a solid turnaround.

For all of 2002, cash flow from operations was $209 m, versus the 2001 performance of $27m.

Correspondingly, Q4 net funds flow of $53m improved from $27m in Q3 and from negative -$40 m in Q4 2001.

Although we continue to invest in the business, 2002 CAPEX was down $64m year over year from $98m in 2001 to $34m in 2002.

The spike in 2001 CAPEX was driven by the significant property and plant investments we made in the acquisition and build out of our manufacturing and logistics facilities in Renosa [ph], Mexico and Mcallan [ph]Texas.

More specifically,We spent a lot on the build out of Renosa and Mcallan [ph].

Fiscal year 2002 net funds flow of $133m compares to fiscal year 2001 net funds flow of negative -$135 m.

As a result of quality revenue, improving revenue linearity and better collection efforts, Q4 saw substantial improvement in DSO's, down 9 days sequentially, improving from 76 days in Q3 to 67 days in Q4.

That's the best level we've seen in the last four years, and in sharp contrast to the 85 days we experienced in Q4 2001.

Our goal over the next two years is to drive DSO's below 60 days.

As discussed on our previous call, inventory reduction and more importantly inventory control process will be a focus over the next several quarters.

In Q4, we saw inventories grow sequentially by $17m, largely due to a reclass of certain inventory items, slightly increased returns, and an increase in in-transit inventory due to improved Q4 bookings.

Although we continue to be disappointed with our performance in this area, we've made in a high priority to address in our 2003 plan.

Here is a brief view of our high level actions to date.

First, we have tapped a high potential long-term Symbol associate, Tom Collins, to lead a newly created global material controls function.

Second, we have introduced new business processes in corporate controls to more proactively manage end to end global inventory.

And third, we have instituted a real time management system that establishes weekly objectives reviews prior week's performance, measures our progress, tracks results, and reports on our progress against key object actives.

Our goal is to drive turns from the current 2.7 times to a range of 4 to 6 times over the next three years.

Let's now turn -- let's now turn to our geographic product business unit global services and vertical market split of our results.

From a geographic perspective, Q4 saw positive momentum in our EMEA region, that would be Europe, Middle East and Africa, while our Americas and Asia-Pacific revenues were slightly down and flat sequentially respectively.

In particular, EMEA experienced its best ever quarter with a quarter to quarter revenue increase of 24%.

We also experienced strong bookings in revenue linearity across all three geographies, driven by new sales disciplines implemented in Q3 which removed the pressure of end of quarter transactions.

This enabled us to increase gross product margins in each region in Q4.

In terms of our product business units, Q4 saw significant improvements in revenue coming from the newly -- from newly released products.

Products released in 2001 and 2002 accounted for more than 40% of our Q4 revenue.

In particular, standouts included our PPT 2800 and PDT 8100 reducing more than $40m in combined revenue.

Both products being part of our mobile computing systems business.

Key wins in Q4 included Shenker, [ph] a global logistics provider for its operations in Sweden and Germany, and Office Max, the U.S.-based office supply retailer with 1,000 stores.

After growing 12% sequentially in Q3, our mobile computing business unit grew approximately 5% sequentially and 10% year over year.

In the case of the PPT 2800, we saw increasing volumes in Q4 related to wan enabled devices, specifically GPRS.

The trend of WAN, LAN enabled mobility clients is an important one to follow as the deployment of computing systems to date has principally been land based.

As the age of mobility continues to take shape, mobile computing as a category will buy furcated [ph] into two distinct markets.

Consumer mobility, which will be more intensive in voice and casual data, like SMS and Internet light, and enterprise mobility, which will be more concentrated in the convergence of data, voice and video application in both thick and thin client embodiments.

Our scanner business unit grew approximately 10% sequentially and 14% year over year.

Please bear in mind that the latter calculation includes the combination of discreet scanners and scan engines sold to third parties.

The ratio of sales is approximately 80/20, discreet scanners to scan engines.

From a scanning point of view, as automatic data capture and bar code applications continue their momentum, we remain optimistic about the long-term business opportunities in the segment.

Our wireless business unit was the most challenged in Q4, with revenues coming in 3% lower than Q3 and flat to Q4 of 2001.

The shortfall in Q4 can partially be attributed to our 23% sequential Q3 growth versus Q2, also the introduction of our new award-winning wireless switch architecture may have caused some decision-making cycles as enterprise has evaluated this new high yield wireless networking alternative.

That said, however, Symbol wireless technology is winning.

And not just in our traditional markets.

Advantis [ph] Health and Erlanger Health Care Systems, as we announced this week, are two recent examples of organizations in growth markets for Symbol that have selected our switched wireless networking system as their infrastructure solution.

Our global services business, which usually has a strong seasonally strong Q4 increased 7% over Q3 coming in at $78.2m representing 21.5% of our Q4 business.

On a year over year basis, our services business was up 2.5%, and for full year 2002, represented 22% of total revenues.

Going forward, our focus in global services will be on productivity, profitability and growth.

A key aspect to future growth and support and maintenance services is to achieve high attachment rates of our service products with hardware sold through our indirect channel.

During Q4, we have overhauled our services products, pricing and packaging to maximize maintenance services sold through our channeled partners, especially important as we shift our distribution more to the channel.

This program is being launched as we speak and results will clearly -- will be clearly evident during the second half of this year.

In the current economic environment, customers continue to look very closely at I.T. maintenance costs, while Symbol services are of high value to our customers and keeping mission critical business functions up and running, we are not immune to services pricing pressure, and we're taking several significant steps toward reducing our global costs in service delivery and improving our long-term profitability.

These steps include service facility consolidation in the United States, where we will better leverage our Mexico facilities investments as well as restructuring in other parts of the world.

In addition, we are increasing service center productivity through increased use of innovative work cells, automation techniques and other process improvements.

Now let's take a look at the breakout by industry and application.

Let me reiterate that while these metrics continue to improve, there's still not 100% representative of our sales out reporting.

Our new channels program requires partners to provide 100% sales out information, which will help us analyze our business more effectively and provide you with more accurate information as we move through 2003.

Our retail business experienced a slight drop in Q4.

Although this is usually due to traditional seasonal challenges, I will add that our direct sales to retailers were actually surprisingly strong in the quarter.

On a full-year 2002 basis, we have been very pleased with our business from retailers.

Also notable, our transportation and logistics sector experienced a healthy up tick in Q4 and was also quite strong for the entire year.

While our business from the manufacturing sector was essentially flat in Q4 versus Q3, this sector experienced a strong second half of 2002.

We also saw a Q4 increase in the category labeled all other verticals, which includes developing vertical markets such as hospitality, education and health care.

Keep an eye on the health care market, particularly as Medicine Management, Nurse Call and other important mobile applications make their way into this market.

Our strongest performance in terms of applications among these industries included significant quarter to quarter increases in warehousing and yard management solutions, including strong continuing returns from our new route accounting initiatives.

In addition, we experienced traction in our direct business within manufacturing plant floor solutions, incorporated in the other category.

At the same time, we're working to better understand the quarter to quarter downtick in the applications sales covered under I.D., tracking and security.

Now I'd like to address some of the key questions we've been receiving from the investment community.

First, is the area of growth.

On multiple occasions, we have been asked the question, Symbol, please tell us how you can grow, especially during challenging times.

There are five dimensions to Symbol's growth opportunities.

Each of which is being addressed with work in progress programs.

They are, one.

Poor market growth.

These are our core market areas, scanning, mobile commute computing and wireless networking.

Although each varies in terms of forecasted growth expectations, combined, we believe our addressable market opportunity is growing at approximately 15 to 20% per year compounded over the next three years.

Additionally, we're driving a focus on available market share gains in our core markets.

Through a combination of our field sales team and channel network, we will be introducing a few highly focused campaigns, specifically targeted at driving our market share position, which if we executewell, could increase the overall growth opportunity for our company in excess of 15 to 20% in our core markets.

Two, vertical market expansion.

Today Symbol has powerful domain knowledge and a good market share position in the retail segment.

In addition, we have made solid progress in the logistics, manufacturing and transportation verticals.

However, given the immaturity of enterprise mobility as Rich outlined, and the future pervasive use of mobile applications, we remain encouraged we can continue to grow both in core vertical markets as well as pursue prudent expansion into new emerging verticals like health care, hospitality, and others.

Three, geographic expansion.

Today large countries such as Japan, China, Korea, Germany, France and Italy represent relatively small percentages of our overall revenue.

In fact, as you can see from our geographic mix, we are still too heavily U.S.-weighted.

As we globalize our business, focusing specifically on international market share and growth, we believe the opportunities to grow faster than the market will be available to us.

Four, masic [ph] growth markets.

There are a number of developmental markets that offer opportunities for upside growth over the next several years.

And we've outlined some of them in previous conference calls.

Some of the larger opportunities we believe could add substantively to our top and bottom line with Mcommerce, which is gaining traction in the U.S. market today and has achieved early success in the EMEA market in the form of self-scanning, self-checkout, directed marketing and new CRMM applications.

That would be customer relationship management applications.

The payment terminal market, which at Symbol in Q4 generated $4m in revenue from sales of our at POS payment terminals was up from 500,000 in Q3.

To put this market in perspective, we expect at POS to drive $30m to $40m in FY03 revenues with an opportunity to grow 100% in FY 04.

RTLS, real time location services radio frequency identification.

Essentially, wireless location technology.

Where we are investing in the form of strategic partnerships, internal research and development, and engineering programs expecting to yield new products this fiscal year and beyond.

There are others, like homeland security, general enterprise wireless switching and new service provider opportunities around hot spot build outs and managed enterprise mobility services that all offer upside growth opportunities for fiscal year 2003 and beyond.

The final growth opportunity we want to discuss today is one focused on growth without growth.

This aspect of our growth opportunity only impacts bottom-line performance and is centered around the notion of internal process innovation.

Basically, unlocking the value that is inside of Symbol today.

As previously mentioned, we have a number of internal process improvement programs designed to have lasting impact on our gross margins and operating expenses.

In essence, our operating focus revolves around substantially improving our productivity, profitability and cash flows.

Another issue I want to flag today is past treatment and Q4 P&L impact from our Palms and radios reserve adjustments.

Following our Q3 conference call we fielded a number of questions regarding our treatment of an old reserve set up in 2001 for excess and obsolete inventories, specifically inventories related to Palms and radios.

Today we want to proactively address changes made to the specific reserve.

As disclosed in the 10-Q for the quarter ended December 30, 2002, the company reviewed its original provision of $110m reported in the second quarter of 2001 for the write down of certain Palms and radios inventory and determined that it had higher sales than originally anticipated.

As a result, approximately $55m of the remaining provision was no longer required and was reversed against product cost of revenue.

During the fourth quarter of 2002, it was determined that an additional provision of approximately $5m was required resulting in a net reversal of approximately $50m recorded during 2002.

Also, as disclosed previously, the company recorded an additional provision of approximately $48m to increase its reserve for excess and obsolete inventory.

During the fourth quarter of 2002, this provision was reduced by $9m, resulting in net provision of $39m recorded during 2002.

These net reversals and provisions of approximately $7m and $4m respectively recorded during the third and fourth quarters of 2002 were offset by recurring provisions to adjust the FIFO valuation of inventory based on actual costs.

Our third issue is our 2003 restructuring plans.

In connection with all of the initiatives and other changes through our company's strategic plan as related to the consolidation and relocation of various operations as well as our ongoing campaign to reduce costs, the company anticipates taking restructuring charges in all quarters throughout 2003.

We estimate total charges to be in the range of $15m to $20m during 2003.

Once implemented, these initiatives are expected to yield approximately $25m to $30m in annual cost savings on an ongoing basis, or on a going-forward basis.

Let me also comment on 2003 guidance.

Which is subject to updates based on, among other factors, material changes in the global economic outlook, geopolitical climate, and the all-important corporate I.T. investment category.

The company has limited visibility to these numbers, and there can be no assurances they will be achieved.

In addition, we want to reiterate that customers are still spending cautiously while the outlook for 2003 I.T. spending remains relatively unclear.

To compare today's environment to any of the last few years is very difficult.

While it was clear two years ago that we were entering a sustained economic and I.T. downturn, today our sense is that customers want and in some cases need to invest capital.

However, today they are much more focused on return on investment as a means to justify CAPEX.

That said, you should assume that the mere term outlook for I.T. spending, which I defined as six to twelve months, will remain challenging.

Let's face it, with the impending possibility of war in Iraq, increasing concerns over terrorism and homeland security and the sensitive situation resulting from North Korea's nuclear buildup, the geopolitical environment has taken near-term precedence over economic concerns.

That said, our guidance for fiscal year 2003 is for revenue growth in the 15 to 20% range.

In times of economic recovery and/or geopolitical stability, we would not be surprised to grow above that range and likewise, if economic or geopolitical circumstances were to worsen, we would not be surprised to fall below that range.

Guidance for 2003 earnings per share is a range of 34 cents to 42 cents before restructuring charges.

In terms of 2003 sequential revenue performance, we anticipate that Q1, which is traditionally a seasonally light quarter, to remain as such with subsequent quarters improving off of that base.

Thank you for listening.

As you can see, both Rich and I are comfortable with the progress we have made and appreciate the incredible opportunities available to us in the age of mobility.

Yet remain appropriately cautious about the next several quarters.

Although we remain mindful of the world around us, our focus will be 100% on those things we can control versus those out of our control, like the economy, capital spending and global stability.

Now we'll open up the lines for questions.

Thank you.

The question and answer session will be conducted electronically.

To ask a question, please press star-1 at this time.

If you are using a speaker phone we ask that you please release your mute function to make sure your signal reaches our equipment.

Once again, please press star-1 if you have a question.

We'll pause for just a moment.

And our first question comes from Arindam Basu of Morgan Stanley.

Hi, folks.

How are you?

Very well.

Welcome.

Good.

Questions on the inventory situation.

Last quarter you had a disappointment in inventory management as well.

And you're instituting the new process, so given the fact that you kind of commented you had some in-transit inventory and higher returns, can you give a sense of what you think you're going to be able to do in the inventory management during the first quarter given the seasonal weakness?

Our goal is to sequential improvements in inventory in all of the four quarters ahead of us.

To give you a specific number at this time wouldn't be responsible.

However, let me be very clear with you.

There's no doubt that we're still using a bit of root force as it relates to managing the company's inventory.

However, we are bolstered from a confidence point of view in that we put, as I said, new management in place, new processes in place and a management system with which we'll drive a weekly visibility to our improvements in inventory.

The other thing I want to let you know is that we recognize here in the company that inventory isn't a back-end process.

It's a life cycle inventory management process.

It starts at the front end in terms of product life cycle management and really ends on the back end in terms of how you manage around any issues or challenges that you have.

So let me just be very clear.

We anticipate that we're going to improve in inventory sequentially each quarter.

We have processes, a management team and management system in place to achieve that goal, but to give guidance to you at this time would not be appropriate.

Well, is there a sense of, you know, the percentage of the increase that's kind of low hanging fruit or the percentage of the total revenues -- excuse me, the percentage of the total inventories that are gapped up because of the in-transit inventory?

Do you have a sense of that in terms of your tracking mechanism right now that you can easily address?

Yes, we absolutely know exactly why the inventory went up 17 million in Q4.

What the reasons for that were some of which, quite Frankly, we didn't anticipate going into the quarter.

And we could have managed in transit inventory a heck of a lot better towards the end of the quarter, Aaron, but at the end of the day, that wasn't the key issue with regard to inventories going up.

There were some items that we wanted and we wanted to carefully reclass as being inventory.

We took the appropriate approaches as a company to do that.

And, you know, there is one factor that we were pretty pleased with, and that is that although inventories went up, materials, in terms of cost of materials for the quarter, and our material receipts actually went down.

And our cost of -- in terms of factory shipments at cost actually went up, which was not the case in Q3.

So that was kind of a reversal of what happened in Q3 any way?

Yes.

So then on -- in the guidance what's your anticipation of SG&A spending trends?

Because that looks like it had some opportunities for restructuring, as you guys have been discussing.

Is that going to be one of the major areas?

This is Rich.

So first, in overview form, we continue to drive a balance between expenses and -- a balance between profit progress in the short and medium term versus the right type of investment for the long term.

We talked about building out a new channel strategy.

There are programs associated with that that will drive requirement for some short-term investment that will yield longer term returns in terms of better leverage coverage across our marketplaces.

So we are very much focused on driving to an income statement model that drives op ex down from where we are today.

But we continue to believe that we have a growth company class of opportunity here, and we're making appropriate investments in SG&A as well as notably in engineering to really position ourselves for the kind of growth that we're demonstrating already in some real fashion and feel confident about being able to demonstrate well into the future.

Okay.

And then last question on the Mobius, you started to ship that at the end of last quarter -- or excuse me, at the beginning of the fourth quarter.

And if you could give a sense of progress and what percentage of the current quarter's land sales came from the Mobius product line?

So we actually started actual shipments of the products in mid-November.

And we did have a few successes of which I noted during the call script that Advantis [ph] Health and Erlanger [ph] Health, actually, they were Q1 wins, just to be specific about that.

We continued to see good, solid momentum and interest from the install base.

We're not going to give you a definite figure or a specific figure on percentage of Mobius sales.

However, in Q4.

That also, would not be fair given the product only started shipping kind of mid-quarter.

Next caller, please?

Our next question comes from Paul Costa of JP Morgan.

Good afternoon, gentlemen.

I wonder if -- well, let me start with the guidance that's been issued.

It looks, obviously, like it's back-end loaded.

It's quite an aggressive number.

Are you seeing anything today that, you know, gives us some insight, some visibility into that back-end growth for '03?

Well, Paul, we carried good momentum into 2003.

The bookings pace through Q4 and into Q1 gave us confidence that, in fact, we'll be able to achieve.

What I agree is a pretty aggressive target for revenue growth, especially in this environment.

There's no doubt about that.

The back-end loaded, I'm not sure if I would use that description.

I think the proper explanation that Bill gave of the seasonally light Q1 continues.

Q1, of course, is a period marked by slow starts in the retailing sector because of their inventory taking activities typically in the month of January and general year startup of that.

But beyond that, we expect sequential growth throughout the year.

We don't think that this is a particularly back-end loaded.

We expect to be able to show you solid progress through Q2, Q3, as well as Q4.

And we believe that we have the products in the pipeline.

We have visibility to the marketplace applications that can take the growth, and we see the return on investment being looked at carefully, yes.

That's the kind of caution in buying that Bill talked about.

But we see that we have a story that is really playing very well to people looking at it carefully.

We're seeing good market momentum in that regard.

So look, it's a choppy economic environment.

It's difficult to predict.

The words of limited visibility are appropriately applied here.

But everything we can see is as confidence that the guidance that we're providing is the best we can give to you at this point.

Fair enough.

Perhaps you can, in that context then, Rich, just elaborate on margins.

Because it looks to me like gross margins, notwithstanding the target of 45%, going to be very gradual improvement through the year.

Can you comment from that and then perhaps also pricing and net margins for the tail end of the year?

Yeah.

So on gross margins, the target of 45% or better is one that in our business model we feel confident being able to drive to in the out years, right?

Right.

It's going to take us some time to work there.

Obviously that's going to happen in an environment that has other companies or competitors fighting in similar difficult economic environments, so there will be pricing pressure.

But we believe that we have a premium product offering in most of the most important categories that carries with it solid price potential.

We have a sales force that has a high touch model in focus that looks to be able to powerfully position the value proposition of the company and get good pricing.

So we think we're poised to achieve that 45%, but the progress that we'll make over the course of the year, I think, is one that you should look at with some prudence and moderation in your model because, essentially of the economic environment and the pressure it puts on everyone.

We have programs in place on innovation, programs in place on cost reduction, so we're really working both sides of the equation.

We have a channel model that we think is going to with the help that as well.

So that's it with regard to gross margin.

With regard to operating margin, we do have, in fact, a set of restructuring activities planned that will look to allow us or will allow us to make strategic investments where future growth is possible and yet cut costs where, in fact, we can free up trapped costs that are currently in the system.

So the model that we shared with you of driving towards 15 to 20% operating net is one we also feel comfortable achieving over time.

And it's one that we're committed to drive to.

That's the model that we have set out as an entire management team and signed up to collectively to commit to achieve.

One last question, and I'll get out of your way here.

The restructuring costs are spread out over the year.

Can you explain that a little bit, please?

Yeah, Paul.

You'll see each quarter will have restructuring charges in them.

And as you know, with the latest GAAP rules that we're dealing with today where you once had flexibility of taking a lot of your restructuring charges up front or at least accruing for those, you don't have those any longer.

So we're not going to make pronouncements of future restructurings today in terms of exactly what we're going to do as much as we'd like to, but we have a very solid plan in place, quarter by quarter to restructure the business.

If you take a look at the organization we built that Rich and I have put together for the company, it's one that has turned its attentions to accountability, accountability focused on productivity, a driver for productivity through organization and hence we have each one of our leaders looking at any and all opportunities to do exactly that.

Through restructuring drive, greater cost controls, increase the ability to drive cost end of the business, and also greater productivity in the business.

And each one of our businesses are looking at that today under the auspices [ph] businesses of the new organization.

You'll see each quarter will give you an update in terms of why we're doing and what we're doing and what the future benefits of that restructuring that will provide Symbol.

Finally, Paul, the reason why we gave you the visibility today was in line with our commitment to give you all the greatest possible transparency.

We wanted to let you know our thinking and the reasoning behind that thinking at the earliest possible point.

We applaud that.

Thank you, Rich.

And our next question is from Jeffrey S. Chalson of Lehman Brothers

Hi, guys.

Thank you.

Actually, a majority of my questions were answered.

Maybe you could talk specifically if there were any large contracts that are coming up for rebid in any of the specific verticals.

To start off.

We actually have a nice mixture now of differently-sized deals.

We do have, in fact, some large opportunities we're considering literally in every one of the key verticals you know about.

We have some key wireless mobility including both infrastructure and mobile client opportunities in retailing, some very good-sized ones, as a matter of fact, are on the near horizon over the next six to twelve months.

We have some good-sized opportunities that we're pursuing in transportation logistics involving wide area network connect activity, based mobile solutions in our parcel and post category.

That's a significant one.

Health care, as you've heard, is a -- is still appropriately classed a developmental market for us.

It contributes less than 5% of our total revenues, but does represent some significant percentage wise growth opportunities for us in the near term.

We're starting to see good traction.

I'm sure you must have noticed the announcement by Pfizer back a couple of weeks ago where they announced they were putting bar codes were the underlying technology was developed by Symbol.

The reduced space technology that Pfizer chose as the basis for their unit dose bar code marking was in fact developed by Symbol and later donated to the standardized bodies to become part of the public domain.

That, in turn, was done to create the basis for a key mission-critical business solution in health care, making sure the right patient gets the right drug at the right time in a hospital.

That's about as mission critical as you can get.

You get that wrong and people die.

I think the statistics are that 20,000 people a year, in US hospitals alone, are known to die as result of medication mis- administration.

It's a real problem.

What's come together now is a combination of technologies, Symbol, the bar code technology, The bar code data capture technology, mobile computing technology, wireless infrastructure technology, such as you've heard Bill relate, we successfully placed.

And then the end to end mobility glue that holds it all together, combined with our domain knowledge, I think you know I've been around Symbol for almost a quarter of a century now along with Jerry, one of our very first target markets was the health care industry.

One of our very first bar code scanner sales was to the New York Blood Center here in Manhattan, and we have 25 years depth of understanding of what the key applications are in health care.

So all of that's converging to create opportunity and you wouldn't be wrong to be looking for nice size growth in the years to come in health care.

With the exception of emerging areas, let's say the core 3 or 4 segments, retail, manufacturing, service and route accounting, excuse me, what would -- what would you imagine to be the greatest potential of growth in the year?

Well, route accounting will probably show a higher percentage wise growth because it's still relatively early days based on our decision only 18 months or so ago to enter that market.

So we have more share to take and more percentage wise gains to realize there.

But I think if you took that issue aside, which is kind of almost historical or whatever, statistical in its basis.

I'd have to say that the right perspective would be one of nicely balanced growth across the verticals.

Each and every one of them has a core rate of sustainable growth combined with an overlay of incremental growth sitting on top in each and every area.

In retailing you heard us talk last time at some length about mobile commerce, that remits an upside growth kicker in retail.

In the case of manufacturing, well, route accounting, in fact, is an application sold to consumer product goods manufacturers, for the most part.

And our entry into route accounting is going to be a kicker, on top of the secular growth in manufacturing.

And in transportation logistics, the pervasive use of wide area connect activity which is generally a new technology not just so Symbol but to the industry and the world in some ways.

So you know, the right picture is one of balanced growth across those verticals, and then the emerging verticals coming in as a still further layer of growth on top.

Jerry, I think you've got a comment?

Yeah, I've commented on this before.

Retail should not be looked at as just traditional.

It's going through a paradigm shift in food supermarkets worldwide and in general merchandise nonfood so you've got the classic and traditional business which is very much mobile and wireless-based applications, of course, the wide applications suite, but you also have what's evolving, as Rich mentioned, an in-store mobile commerce, which is much more consumer centric, consumer interactive, one on one personalized, and that's going to make major changes.

You've read and seen some of that, and we'll expect a lot more to come in the United States as well as in Europe.

Another area that is very interesting is a postal, parcel and post has always been fundamental to Symbol because of the track and trace capability.

And with the postal service starting to show some improvements and having the pension fund windfall possibilities exist for it really refocusing.

In fact, Postmaster General Potter announced directions and intelligent mail and revenue generation and package returns and delivery which bodes well are for the type of mobile and wireless technology that's apparent to our company.

Thank you, guys.

I'll turn it over to the next caller.

And our next question comes from Reik Read of Robert Baird and company.

Hi.

Good afternoon.

Bill, you mentioned that you're seeing some price pressure in the service area.

Can you talk about what the magnitude of that pressure is?

Yeah.

You know, I think across the board anytime your customers are struggling as well financially, they're going to have their procurement departments kick in and do whatever they can to drive down their vendors' pricing.

It's not just services.

It's also -- it's also product.

But we are seeing additional pressures on the services front today in terms of pricing.

You know, it's almost across the board.

It's just -- it's every single procurement and purchasing department trying to get a better deal for their company.

If you will.

However, you know, it's our job to drive the costs out as well so that we can pass along better pricing to our customers.

So one we certainly don't think our pricing for services today is high.

So I want that make that very clear.

And we feel very comfortable in terms of the both our competitiveness with our service pricing as well as the pricing overall.

However, it is incumbent upon us -- you've got to remember, really a key factor to our culture here is based on customer success.

And when you think about that, we've got to do everything we can, right, to help pass along any savings to them that we can generate from a cost-effectiveness and cost-savings program.

But at the same time also utilize that opportunity to drive gross margins in the right direction.

So it's kind of a dual focus and its both self-serving as well as for our customers.

However, there isn't a general trend that I can point to in any given market that would lead to you wondering or thinking about which market is maybe more impacted than others.

It is just a general worldwide trend we're seeing in all markets.

On the product side, is that being exacerbated by Proxim's decision to reduce pricing?

No.

In fact, what we are finding today, as this age of mobility begins to kick in, if you will, customers are actually more than ever interested in buying an end to end solution from their partners, from their strategic partners.

It is so difficult today, for example, if you're driving in a new mobility application out, one of course that's mission critical to your company and try to best of bRead a solution together, maybe put a Proxim in for wireless LAN and a Symbol in for mobile computing and an integrator for your back end application resources and network management.

What we're finding today, like you find very similarly at the beginning of any one of these ages, is customers coming forward and saying, look, we recognize that your solution drives greater productivity for us.

There's an absolute return on investment.

And we would like an end to end solution for you.

So you've heard Rich talk about this prebill, if you will, many times.

But our focus is on systems and solutions robustness and being able to deliver an end to end solution for the customer as a top priority for us.

So at end of the day, the solution delivery is what's going to help you hold pricing as well as getting rid of those costs?

Exactly.

That is the key.

And the good news is, this is going exactly in line with what we're hearing from our customers.

As we talk about this end to end mow built story is and our ability to deliver them autos the ability to have middle wear threads that literally connect the server based applications through the wireless LAN infrastructure down to the mobile client, what we're hearing is a strong level of resonance from our customers that we've got it right.

They understand we're addressing the key issues.

We understand on not just to deploy a high performance solution but how to allow the CIO to manage it.

How to control it from the moment that it's deployed to the moment it's disposed of and every point in between.

How do you manage wireless networks with wireless clients roaming all over.

It's hard enough for the CIO's to do so with desktop systems.

They all pull their hair out with that.

Now mobility brings great additional benefit.

It leverages the investment they've made for a couple thousand dollars more, they now extend the I.T. solution capability from a desktop right to where people spend 70% of their time which is not the at desk but the workplace.

It brings challenges.

How do you make it work?

How do you manage it?

How do you maintain security?

How do you guarantee those bottom line results you invested are there?

And that's what they're seeing in what Symbol can deliver, what we've build our competencies around, and that's where we're getting really good resonance.

You're absolutely right.

It's what's going to allow us to improve our competitiveness while at the same time improve our financial performance.

And just switching gears for a second, Rich, can you talk a little bit about imaging and where Symbol is today and what type of growth driver that product set is going to be over the next couple of years?

Yeah, I'd be happy to.

So imaging, of course, is technology and bar code data acquisition.

It is also a technology and is two-dimensional bearing that has the potential for extending data input to non bar code objects.

It has the ability to literally take pictures of which in some applications environments and some verticals has attraction.

Symbol has been doing development work and fielding imaging products now for many, many years.

Their R& D work began for it Jerry 18 to 20 years ago.

We have products in the field for some period of time.

It is still only a fraction, imaging, still only a fraction of the business that lays a scanning, as if that's a fact.

And so laser scanning, as I now talk about imaging, should not be misunderstood to be in some way a technology of yesterday.

Quite the opposite.

We see powerful opportunities for progressing both technologies.

On an imaging, Symbol has offerings today.

We have a new mini-sized imaging engine that's coming online in Q1 that will end be being integrated into a variety of Symbol computing devices that will bring imaging capability across the range of Symbol's mobility solutions.

In terms of where it will play, it will play where two-dimensional bar coding applications are required, especially those that are the matrix style of two-dimensional bar codes that require imaging style of reading technology.

That's one newly enabled opportunity, the so-called matrix style two-dimensional symbologies.

Another is an application such as in the insurance industry in some of the transportation parcel and post industries where people want to literally use their mobile computer occasionally as a camera.

A business enterprise class camera to take pictures of an accident scene, take pictures, perhaps, of a signature on a paper document to validate that a particular parcel has been dropped off, you know, as promised at a particular time.

So there's a strong opportunity to leverage imaging, Symbol has a base of technology in that area, and we feel very confident in our ability to have it be a basis for growth into the future.

Just one last question and I'll follow-up on that.

Is it fair to say that Symbol's intellectual proper in laser scanning is relative to the market as far superior than it is for imaging?

No, I'll comment on that.

I would say that Symbol, over the years, as Rich said, has developed the technology and I.T. to go along with it in both imaging and laser areas.

Obviously, laser has been something we and the industry has pursued for the clear reasons of what laser brings to the table and still brings to the table.

Imaging is something that can combine.

You can read a bar code, take a picture, streaming video over Spectrum 24, made us realize back even in the early '90s that the combination of wireless and of video was a very powerful one as voiceover IP is.

So that from the early days in terms of our own patenting and in terms of portfolios, because Symbol has a practice of acquiring patents and acquiring portfolios, we built a very strong position.

Part of that came in from Telethon and metenetics [ph] part of it came in from other deals.

Symbol is aware of the importance and has been for many years of both imaging, CCD Seamoss [ph] and the combination with system and solution applications going forward for a wide range of customers right out into security, facial recognition, iris and so on.

Those are all areas important to us and all areas bar code buy metric et Al [ph] involved imaging and therefore we patented it at the early stages even though as Rich point you had out, the size in that business in that area was not so large.

Great, guys.

Thank you very much.

You're welcome.

Now to Scott Ciccarelli of GKN.

Hi, guys. .

Hey, Scott.

Did you say there was about $4.5m of expenses buried in SG&A related to the legal situation that you're in?

Yeah, Scott.

We have, for several quarters, actually, have had legal expenses which would be above -- well above norm, given that we have gone through the SEC investigation and there have been a number of different -- I'm just smiling for the moment.

But legal expenses we've had to actually absorb in our P& L. And that's exactly right.

In Q4, it was about $4.5m above the norm, and there have been -- that has also been going on for several quarters.

And we anticipate by the way, in Q1 to have a couple million dollars in excess of the normal run rate in our op ex.

The good news is that we are hopefully going to see this come to an end over the course of the next few quarters.

As it relates to the extraordinary legal expenses, and we expect that to help obviously going forward with our op ex to refuse new ratio.

Okay.

And just so I'm clear, was there anything else that may have impacted the SG&A number?

Obviously revenues were better, so commissions were higher.

I'm wondering if there was anything else.

There was four things that impacted the SG&A number last quarter.

First was the extraordinary op ex.

Let's use it as the op ex.

First was the extraordinary legal expense for accounting.

The second was the investment we made in Q4 and in Q4 for our field sales organization in Q4, and the third was additional investments in two key areas, in Mcommerce and at POS which had expenses in Q4 which were slightly above normal.

Okay.

Thank you for that.

Just so I'm clear on Rich's comments regarding the investigation in the situation with the SEC, outside of the inclusion now of 1999, are you saying anything different?

Is there a facility that I'm not necessarily picking up on?

No, I don't believe so, Scott.

I would caution you to take a look at the language specifically.

Please just use the language.

I don't want to do the comparison from last time to this time, you know, off the top of my head.

So I would really caution you, just look at the language of the two statements, and I really can't say anything more at this point.

Okay.

And the last question is, you know, could you give us an update on where we might be with the DOD contract?

Obviously, there's all sorts of stuff going on with military spending.

There was an article in -- I think it was the journal the other day, just talking about the department of defense with the medical records.

It seems like stuff that would be right up your alley.

Are we seeing any acceleration?

I don't know if you're going to be on any of the calls post this conference call.

I want to take that offline because I want to get more data for you as it relates to answering that question.

Okay.

Fair enough.

Thanks a lot, guys.

Thanks.

Take care.

And our next question comes from Peter Berry of Bear Stearns.

Good afternoon, gentlemen.

Hey, Peter.

First, Mark, welcome to you.

Good luck.

You -- time will certainly not weigh heavily on your hands, I suspect.

Thank you very much.

I'm glad to be here.

Rich, you both alluded to gross margins and operating margins both in the comments and answering questions.

For either one of you, have you had to make any unusual geographic or vertical market assumptions to get to that 45% gross margin level?

And maybe even include the operating margin in that observation as well?

No, Peter.

When Rich and I made reference to the fact that our goal was to bring gross margins above 45% over the next several years, there was no inherent calculation of a need to expand vertically or geographically.

Of course we expect during that time frame to do both of those things extremely well.

But we expect through greater solution sales efforts, incredible focus on process improvements and cost reduction, a genuine focus on the supply chain and really driving a world class, in fact, a strategically important and very competitive supply chain that we're going to yield that result.

Yeah, I this I what you heard Peter, with regard to geographic balance is probably what you would want to think of as being a determinant on our success to grow top line.

I think our top line growth objectives will ultimately lead to see a balancing of our geographic mix across the international theaters so we get a little bit less America's heavy, as Bill commented in his remarks.

And I think probably the same is true of growing out in some of the verticals, growing deeper into the existing verticals and growing broader across some carefully selected new verticals.

I think in terms of the gross and operating profit margins, it really is more of a matter of focusing on our internal processes and driving up our operational excellence.

So we can expect particularly on the geographic side, that as your mix shifts as way from North America, that it will not make your job any more difficult in terms of improving profitability?

No.

In fact, today, if you were to look deeply inside our gross margins for the three theaters, we actually had a better performance in gross margin in the international theaters than we did in domestic U.S.

Is that to do with the products involved?

No, it really wasn't mix, Peter.

It was not mix at all.

I think if you looked the at international market, we've got a pretty good channel setup in the international market space.

We've had for years.

There's been less flashing in that market from a channel point of view.

And I think the team is just doing an excellent job of solutions selling in both of those -- theaters.

Bill, I couldn't help but notice the warehouse and yard management as an absolute blowout in the fourth quarter.

Could you give us a little more color in that regard?

You alluded to route accounting.

Was that all of the strength that you saw there?

Pretty much.

I mean, you know, I'd say, you know, over 50% was in routing category, Peter.

We had a very good quarter.

Remember, that's the market we decided to enter into about a year and a half ago.

We've seen, you know, considerable sequential success there, and we expect to continue to drive that.

That's a market to be very honest with you that we're going after market share in a very aggressive way, and we will continue to do so.

So that was the real thrust, and that was the great success for us in Q4.

So 50% of the $122m would be route accounting driven?

No, no, you looked at yard management?

Yeah.

And I went down from yard management to speak about route accounting?

Okay.

50% of the applications, not the markets or revenue.

Okay.

Is that a sustainable level, as you look out over the next few quarters?

You know, I don't know, Peter.

Quite frankly.

We'd love to -- both Rich and I would love to think it's sustainable going forward.

We've seen great success in the prior quarters.

We expect to continue to see great success.

Whether it's sustainable or not is going to be a function of whether or not other markets and applications pick up our health care and also whether or not we can continue to have the success we have in taking market share away from our key competitors who are selling for the route accounting space.

And just one more for me.

Could one of you speak to RFID as another major growth opportunity?

Sure.

We think it is.

This is Rich, Peter.

We believe it is.

And we actually believe it is across a range of -- or spectrum of the technology which extends from simple as the very simplest form called electronic article surveillance or one bit RFID which is used for loss prevention in retail all the way up to the most sophisticated form of RFID where the tags can not only be read and have information written into and read from but actually can be located so-called RTLS, or real time location systems.

We think there is opportunity across an entire spectrum.

Symbol has significant investments in that area, all the way from research and development activity in the fundamental underlying technology out to the practical world experience deploying RIFD enabled mobile computing solutions into retailing, transportation, logistics and manufacturing to name just three.

Only balancing point of caution I would give you, there's been a fair amount of publicity given that I think could almost be appropriately characterized as hype to RIFD over the last year or two.

It's understandable.

The enthusiasm is understandable.

The promise is genuine.

It's real.

That's why we're making the investments.

But the forecasts that RFID is going to grow at some astronomical rate and particularly those comments that comply that it's going to in some way supersede bar coding as a core of automatic identification technology in the near to medium term are just incorrect.

They're overstating the reality and even the promise of the technology.

So I would just caution as actually all of you on the call analyze how this technology will evolve.

You should be enthusiastic.

You should look for Symbol to announce good news with regard to our capability to be a significant player in that regard.

We think it plays in very powerfully to the end to end mobility story.

Because, in fact, it allows us to add location based services into our end to end mobile platform.

By building location finding capability into our mobile wireless infrastructure.

You think it plays beautifully with our strategy.

But don't expect some of the hyperbolic kind of movements that some of the magazine articles might lead you to believe.

I think that's a correct caution, Rich.

And I think the thing for the analysts community to focus on, Symbol sometime ago, at least five years ago, stopped identifying itself, even in the so-called bar code area as a bar code only company.

The systems and solutions that relate to alternative auto I.D. technologies ranging from, yes, 1 D and 2 D bar codes either laser or imaging, out to voice, video, real time location tracking and the notion of value add technologies that play into mobile and wireless system and solutions that our customers expect are a key.

RFID is an extension of that.

You can look for Symbol to bring RFID technology and to integrate even EAS on the one bit, as Rich had said.

For example, anecdotally Rich and I spent yesterday with elKortean Glaze [ph] which is the major retailing force.

Of course all of retailing in Spain.

Their interest in RFID is combining it in focused applications with other elements of the technology into systems solution pieces that they look to Symbol to provide in a mobile and wireless environment.

They're looking at networks, and they're saying, gee, doesn't this stuff all play together?

Rich and I were appropriately nodding heads and saying yes.

And radio frequency, these are pieces that do play together and naturally we went into a lot more depth with them and focused on their application needs, worked through the rest of the things that we'll be doing for them.

I think we have time for one more call.

And our last question will come from Tim Long of Credit Suisse First Boston.

Hi, this is Carrie Abramson for Tim Long.

I had a couple questions.

One, in terms of what you're seeing in terms of seasonality.

It looks like you know, you're expecting revenues to be down in the first quarter.

However, I'm wondering, you know how that compares to last quarter and then, you know, it looks like revenues were actually up sequentially in 2000 and 2001.

And then secondly, you mentioned that there's a shift in your distribution, shift towards more distribution in the channel.

And I'm wondering, I guess, what you're seeing in terms of do you plan on that being vertical specific, product specific across the board?

And, you know, maybe what your breakup is now between selling directly versus resellers and where you see that going?

Thanks.

So first, we just want to appropriately caution you that Q1 has traditionally been a seasonally challenging quarter for Symbol.

And since we are in the early stages of the quarter, it would also be inappropriate for us to give you any guidance at this moment in time.

But it has traditionally been challenging.

We don't expect to -- it to change this quarter.

However, as Rich pointed out I think in an earlier answer to a question and I pointed out in my comments, we do expect that post Q1, to drive, you know, sequential growth on a quarter by quarter basis.

Now, we're not going to give specific guidance.

We -- on Q1.

We decided to give fiscal year guidance.

So I would like to leave kind of the answer there at that.

With regard to the channel, let me give you an update on channel strategy.

The channel strategy that we've gone live with this fiscal year is actually going very well.

And we do intend, over time, to drive a greater percentage of our revenues to channels.

Our goal is to exceed, in fact, 90% downstream.

Now, of course, we've got to work towards that goal.

We've got cultural challenges internally that we need to deal with, which is a sales force today, that is approximately 60/40, direct to channel sales.

And we -- you know, whenever you drive to a high-touch selling model, you have to work through the process of that over a few quarters.

But we are seeing our, particularly as it relates to our channel strategy, our solutions providers really very well accepting of the strategy.

In fact, excited about it.

We recognize, however, that any time there's change, it drives a little bit of stress and anxiety for your partners.

We're going to hopefully remove a lot of that in an upcoming worldwide channel partners we're having in two weeks we're inviting our channels from around the world in to for us to present to them a little bit more granularity on the channel strategy, how they can plug in.

But this is a wonderful opportunity for our channels.

This is a time when we're going to be asking them to play a very important role in the success of our customers' implementations of their networks, deployments, services both in front and back end.

And it's a huge opportunity for them in terms of profitability, not just for product resale, but for services as well.

And as we continue to do a better job at high-touch transition through a greater mix of going through the channel in terms of revenues flowing through the channel, it can only make for, I think, a more significant opportunity for us to drive greater partnerships and also drive customer satisfaction.

Okay.

Thank you very much, ladies and gentlemen, for being on the call today on behalf of the Symbol executive team, myself, Rich, our new partner on board, Mark, Jerry, we just want to thank you for your time and look forward to the next call.

Bye-bye.

And that concludes today's Symbol Technologies conference call.

Thank you, everyone, for your participation.