摩托羅拉 (MSI) 2004 Q4 法說會逐字稿

Good day, everyone, and welcome to Symbol Technologies 2004 fourth-quarter and year-end conference call.

Just a reminder that today's conference is being recorded.

At this time, I would like to introduce today's speakers, Mr. Bill Nuti, CEO, and Mr. Mark Greenquist, CFO.

Gentlemen, please go ahead.

Thank you everyone for joining us today on our 2004 fourth-quarter and year-end conference call.

Please note that the conference is supported online with presentation content available to you at www.symbol.com\investor.

With me today is Bill Nuti, Symbol President and CEO, and other members of our management team -- Todd Abbott, SVP of Worldwide Operations;

Todd Hewlin, SVP of Global Products Group; and Peter Lieb, SVP and General Counsel.

Before I review our fourth-quarter and year-end results, a brief disclaimer reflecting the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Displayed on the screen is the customary Safe Harbor provision -- during the course of this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the Company.

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

Any forward-looking statements are further qualified by risks and uncertainties identified in filings Symbol makes periodically with the SEC.

Copies of our SEC filings are available from the Company upon request or by accessing our company Website, www.symbol.com, where you also will find details regarding the replay of today's call.

I should also mention at this time that we expect to file our 2004 10-K some time during the next several days.

After reviewing our fourth-quarter and fiscal 2004 financial results, we will provide our customary commentary on geographic and product mix.

We will also bring you up-to-date on new products and present a snapshot of recent key customer wins.

Also, we will provide the customary bookings to backlog metric, and close with commentary on the general outlook for 2005 and guidance for Q1 '05.

Then we will take your questions.

First, I will turn it over to Bill for an overview of financial business and operational trends the Company is experiencing.

Bill?

Thank you, Mark, and thanks to all of you for joining us today on our call.

I would like to share the following metrics with you to demonstrate the continued improvement we are making as we execute our strategic plan and advance Symbol into a leadership position in the enterprise mobility market.

The positive trends that we have seen during 2003 and 2004 continued in Q4, with our fourth straight quarter of revenue of more than 400 million, and we exceeded by 1 cent the top end of the EPS guidance we provided.

Let me quickly take you through a few additional highlights.

The fourth quarter represented the seventh sequential period of increased product bookings, reaching 382 million, a 15% year-over-year increase.

At 48.1%, Q4 was the fifth sequential quarter of gross margins above 45%, and as we have discussed over the past two years, we believe that our gross margins will remain in the 45 to 50% range for the foreseeable future.

We experienced both sequential and year-over-year growth in operating margins as well as earnings per share.

As a result of our ongoing focus on working capital management, it was the fourth sequential quarter in which we had DSOs below 30 days.

And inventory turns of 4.5 were the highest of any quarter of the year.

With cash flow from operations of 224.5 million, fiscal year 2004 was our second straight year of cash flow from operations in excess of 200 million, and we continue to have strong cash balances, with 217.6 million at December 31, 2004.

And remember, this excludes the 51 million of restricted cash sitting on the balance sheet.

And at December 31, 2004 we had a market cap of more than 4 billion, which has more than doubled since this management team was installed in late 2002, early 2003.

Finally, I'm extremely pleased to be able to announce today that Symbol will be certifying its compliance with the internal control provisions of Sarbanes-Oxley 404.

This is an outstanding achievement in light of where we were from an internal controls perspective just two years ago.

I would like to congratulate the entire Symbols' Sarbanes team, led by James Langrock (ph), Vice President of our internal audit group, that worked so hard to make this happen.

Throughout 2004, we continued the aggressive turnaround effort that started in 2003.

What has been significant to all of us has been our ability to produce solid business results while undergoing continuous change management in all functions.

For example, we have made further progress in the rollout of PartnerSelect, our industry-defining channel program.

In addition, we have been invigorating our sales force with the addition of new talent, increasing the capability and reach of our high touch sales coverage.

The restructuring of our service business continued in 2004, and the progress we have made is demonstrated by improving scores we have received in our annual customer and partner satisfaction survey.

On the product front, in 2004, we introduced 17 new product families, while at the same time reducing the total SKU configuration count by 3700, to bring us down to 5000 SKUs at year-end.

Notably, this is down from a high of 17,000 SKUs in February 2003.

Our focus on product lifecycle management and value engineering is ongoing, and during 2004 we eliminated a cumulative 59 million of cost from our current product and service offerings.

In 2005, our cross-functional PLM team will focus not only on hardware products, but also on business process improvements, in part using a Six Sigma methodology to identify top priorities for cost-cutting.

Six Sigma was launched companywide just this past week.

2004 was another year of good intellectual property progress at Symbol.

We have broad patent protection in all of the technologies we offer.

Today in the U.S. alone, Symbol has more than 880 patents, including important patents in the fields of wireless communication, wireless local area networks and wireless voiceover LANs.

In advanced data capture, our patent portfolio runs the gamut from laser bar-code reading to bar-code imaging, two-dimensional bar-codes, scanner on a chip, bar-code printing, MEMS patent and radio frequency identification.

In each of these areas, Symbol's broad patent protection extends well into the next decade and we believe that these patented technologies are required in commercially competitive products.

In the area of laser bar-code scanning, for example, several early patents have expired or soon will.

Nevertheless, remaining in place for years to come are more than 300 patents directed to this technology, with a significant number covering very basic features.

In addition, our recent successes in litigation and licensing of our wireless and imaging patents demonstrate the strength of our intellectual property.

These trends, as well as our fourth-quarter performance, are testimony to the hard work and commitment of Symbol employees as well as our channel partners, and I want to recognize them all for driving improved performance, while the Company has worked diligently to improve business operations.

This has been achieved in part because we remain focused on the needs of our customers and partners.

Now let me turn the mic back over to Mark to run you through some of the numbers.

Mark?

In the fourth quarter, we continued to build the Company's financial strength.

Year-over-year, total revenue was up 13%, slightly above the midpoint of our 10 to 15% guidance, growing to 1.73 billion in 2004 from 1.53 billion in 2003.

With total revenue of $450.5 million, the fourth quarter was up 5% sequentially from 429 million in 2004's third quarter and up 15% year-over-year.

Full-year 2004 product revenue rose 17% year-over-year to 1.4 billion from 2003's 1.2 billion.

Service revenue for Q4 '04 of 75.5 million was in line with our guidance of $75 million per quarter.

Similarly, full-year 2004 service revenue of $298 million was in line with our full-year estimate of $300 million.

Year-over-year growth comparisons were made much more difficult in Service because of our strategy to leverage our partners in delivering professional services to our customers, a topic Bill will discuss later when he provides an update on our global services business.

Turning now to gross margins, the higher total revenue drove a full-year increase of 133.8 million in gross margin to $809 million, or 46.7 percent of sales.

Q4 '04 gross margins also saw a 1.3 percentage point improvement sequentially to 48.1%, representing an 18% improvement to 216.7 million from 184.1 million in Q4 '03.

It should be noted that currency played a big role in this sequential margin improvement, as the year-end weakness in the dollar generated just over a point in gross margin improvement.

Operating expense in the fourth quarter at 178 million was approximately $6 million higher relative to Q3 '04's 172 million.

This increase was driven primarily by increased costs related to the defense of prior management, who have been charged by the government, as well as increased costs related to the effort to successfully comply with Sarbanes-Oxley 404.

As you are aware, in late December we refinanced our $250 million short-term credit facility entered into for our acquisition of Matrics.

This refinancing resulted in a Q4 '04 write-off of 6.3 million in deferred financing costs related to this short-term facility.

These costs impacted the P&L below the operating line in other income expense.

Also please note that the effective tax rate in Q4 was reduced in order to arrive at the full-year effective tax rate of 33.9%.

Fourth-quarter net earnings improved to 28.5 million from the third quarter's 17.8 million, with a corresponding improvement in Q4 to $ 0.11 per diluted share compared to diluted EPS of $ 0.07 in Q3 '04.

Now let's turn to the balance sheet.

We ended 2004 with strong cash balances of 217.6 million, up 45% from 150 million at December 31, '03.

This amount doesn't include 51 million in restricted cash; as you recall, that cash was deposited into an interest-bearing court escrow account to stay execution of the SmartMedia judgment against both Symbol and Telxon, pending resolution of an appeal in Ohio.

We ended 2004 with 114 million in receivables, translating to DSOs of 23 days, a 12-day improvement from year-end '03.

We continue to focus on cash collection, and we believe our quality and linearity of bookings have aided our receivable and cash collection performance in '04.

Going forward, we're likely to see some increases in our receivables and DSOs, as we transition away from cash basis revenue recognition in Service, but we still expect our DSOs to remain below 30 days for the next few quarters.

We continue to monitor our inventory with a goal of ongoing improvement.

Inventory was down sequentially from 223 million at September 30, '04 to 207 million at December 31, 2004, and that is down year-over-year from 213 million at December 31, '03.

Fourth-quarter inventory turns of 4.5 represented a 0.4 point improvement versus the third quarter and a 0.6 point improvement versus Q4 '03.

Current liabilities at December 31, '04 decreased 144 million from September 30, '04 due to the refinancing in December of our $250 million short-term credit facility that funded the Matrics acquisition.

This new financing increased our long-term liabilities by $100 million.

Now let's turn to cash flow.

We are pleased with the continued strong cash flow from operations, 224.5 million in fiscal '04, and the second year of $200 million plus cash generation, after fiscal '03's 233.8 million.

Our acquisition of Matrics, coupled with our investment in IT infrastructure, increased our cash used in investing activities, which was funded from both our cash from operations, as well as our financing activities in '04.

I will now turn things over to Bill for a drill-down on our geographic market and product splits, new products, customer wins, operational progress, the bookings and backlog metric we introduced last fall, and the outlook for the year and guidance for 2005's first quarter.

Bill?

First, let's review our progress on leveraging our portfolio of partners to serve our customers.

These charts show our product bookings mix, which is a good forward indicator of how our products are being delivered to our end customers.

We are very pleased with our progress in 2004, exiting the year with 67% of product bookings from channel partners versus the end of 2002, when we had 46% of our bookings from channel partners.

An additional 7% of our Q4 2004 bookings were from our OEM channel, bringing our total indirect bookings through partners to 74% of total Company bookings.

The result is approximately $400 million in incremental business through partners, while at the same time still improving our overall gross margin performance.

This progress has come from two years of implementing our PartnerSelect program, along with delivering channel focused solutions, service and marketing programs.

Our continued commitment to the development of our channel business has positioned Symbol with the strongest portfolio of partnerships in the industry.

An additional data point on our progress with our channel ecosystem is our independent annual channel satisfaction survey, which indicated that 95% of our partners plan to recommend Symbol products versus 49% of these same channel partners saying they would recommend the products of our competitors.

Our PartnerSelect members worldwide now have a better understanding and appreciation of the benefits of our program and our go-to-market strategy.

We will continue to work with and listen to them so we can further innovate our go-to-market programs.

Now, on to revenue splits by geographic theater.

With the strengthening of our sales structure in Asia-Pacific, the reorganization of EMEA's sales organization and development of our Americas international business, we feel we are well positioned to advance our goal of achieving revenue balance amongst the geographies, with the ultimate goal of a 50-50 split between the domestic U.S. business and our international businesses combined.

Again in Q4, we saw the Americas generating roughly two-thirds of product revenue, with the remainder from the other geographic theaters.

We were generally pleased with the performance of our Americas team in both Q4 and 2004.

In the Americas, representing the U.S., Canada and Latin America, fourth-quarter 2004 revenue was up 9% sequentially and up 26% year-over-year.

Bookings were up 6 percent sequentially and increased 17% year-over-year.

For the full year, TAS (ph) product revenue grew 19%, from 777 million in fiscal 2003 to 922 million in 2004.

Of the total fiscal year 2004 product revenue from TAS, the U.S. generated 93%, while 7 percent came from the combination of Canada and Latin America.

The result was that the U.S. represented about 60% of total worldwide product revenue.

As I mentioned, we want to move this to a 50-50 split, with improved international sales coverage and stronger relative revenue growth going forward.

Retailers continued to upgrade and build out their data management infrastructure for greater employee productivity, increased customer satisfaction and better inventory control.

This year, as they did in 2004, a number of large retailers, representing both new and legacy Symbol customers, will be deepening their investments in our systems, with several extensive 2004 projects continuing into the first half.

For instance, two large global retailers are deploying the MC9000 mobile computer for an expanded suite of inventory management applications.

Two leading department store chains are standardizing on our PD 8500 secure payment device at the point-of-sale.

Two different specialty retailers, an auto parts chain and the second-largest neighborhood discount chain in the United States, are using several different Symbol mobile computers for a variety of applications, including price markdowns and other in-store applications.

These deployments are representative of the sorts of upgrades and enhancements occurring in our core retail supply chain market.

Although EMEA did not reach its full potential in 2004, we did undergo a significant amount of restructuring in that theater.

Revenue in EMEA was up 2% sequentially and increased 22% year-over-year.

Bookings increased 9% sequentially and were up 23% year-over-year.

Retail, our strongest vertical in EMEA, drove the growth, and a major French retailer that is a longtime Symbol customer placed the region's first order for the new MC3000 mobile computer in its initial rollout in the chain.

For the full year, EMEA product revenue increased 14%, from 346 million in fiscal 2003 to 395 million in 2004.

We have now completed the two-phase restructuring plan for EMEA in 2004, eliminating layers of management and rebalancing our sales coverage by reallocating resources into faster growing countries and markets.

This restructuring was completed in Q4 with the addition of a number of new sales associates.

Our new customer service center in Branau in the Czech Republic came fully online in Q4 '04, serving as the hub for EMEA's 24 X 7 customer support services, including our multilingual customer support center, as well as product repair depot, which replaces the 10 repair depots we had scattered around Northern Europe.

In addition, Branau also houses our finance, contract administration and sales ordering operations.

While for the full year product revenue in Asia-Pacific increased 16%, from 101 million in fiscal 2003 to 117 million in 2004, we were disappointed in the sequential and year-over-year revenue and bookings declines in the fourth quarter.

Like everywhere in Symbol, FY '04 was a year of change for our team in Asia-Pacific, with a completely new leadership team and several country level restructurings.

We are not pleased with our execution through this change process, as this region consists of what should be our fastest-growing business.

We completed the leadership restructuring in Q4 with a country manager for our Japanese business and a leader for the Asia-Pacific theater, Michael Muller, who joined Symbol in January after a 16-year career with Hewlett-Packard in its Asia-Pacific theater.

We are very pleased to have Michael on board and believe his experience will be of benefit as we work to deliver consistent growth in this region.

We are in the beginnings of a buildout of our reseller channel, and at 2004's end, we had recruited and approved a total of 263 partners in our PartnerSelect program in Asia-Pacific.

You'll recall that we began the Asia-Pacific PartnerSelect rollout about one year ago.

Throughout 2004, we recruited distribution partners and have now a major distributor in each country in that region.

The buildout of our team along with the enhanced coverage provided by our expanded channel partner portfolio will be augmented by the delivery of new products specifically designed to meet the unique requirements for customers in this region.

We believe we are positioning ourselves well for consistent growth from this sales theater going forward.

As mentioned, full year 2004 product revenue rose 17% year-over-year to 1.4 billion from 2003's 1.2 billion, with about a 6% uplift sequentially to a fourth-quarter 2004 total of 375 million and a year-over-year increase of 19% from Q4 '03's 314 million.

This strong year-over-year growth in product revenue is a better indication of the momentum we are seeing in enterprise mobility, as our total revenue growth was slowed by the transition we saw in our Services business as we moved some of our professional service business to our partners in 2004.

This chart shows the revenue split by product group, and as you can see, the Mobile Computing division continued its strength in the fourth quarter at 65% of total product revenue.

In the fourth quarter, our Mobile Computing division experienced both record revenue and record bookings.

This team has done an excellent job.

Revenue rose 18% compared to Q3 '04 and increased 33% year-over-year.

Bookings continue to be healthy, up 12% sequentially, and growing 24% year-over-year.

For the full year 2004, the Mobile Computing division's revenue increased 17% versus 2003, compared to growth of about 11 percent from fiscal 2002 to fiscal 2003.

Demonstrating the momentum of our core ruggedized mobile computing line, the MC9000 continued its strong shipments and bookings.

The fourth quarter of 2004 represented the third sequential quarter of MC9000 bookings in excess of 65 million, and in 2004, we shipped more than 200 million in MC9000 product.

Importantly, the MC9000, in its three form factors, in the fourth quarter represented 1 in every $5 of Symbol product revenue, truly a winner for us and for our customers.

At the bottom of the screen, you see the latest addition to the Mobile Computing product line, the MC3000, targeted at the retail and transportation and logistics markets.

The MC3000 is rugged and highly ergonomic.

It is based on the latest Intel XScale processor, with a Microsoft Windows CE.NET computing platform.

You can use either scanning or imaging for data capture with its rotating scan turret, and it has integrated Wifi 802.11b and 82.11g connectivity.

As the MC9000 has done for our very rugged DOS customers, we anticipate that the MC3000 will see uptick from our more price sensitive DOS users who want to upgrade to a current technology CE device that is both rugged and highly versatile.

Building on the work done with the MC9000, the MC3000 is supported by a trained and experienced partner community that has already demonstrated its ability to rapidly support customers as they make the move from DOS to Windows-based applications.

For those customers unable to transition from DOS to Windows in 2005, we plan to provide DOS-based product into 2006.

VDC's David Krebs says, and I quote, "While the installed base of legacy DOS devices remains considerable today, by 2008, most DOS devices will be migrated over to newer and more functional OS platforms such as Windows CE.NET."

In our Advanced Data Capture division, representing 26% of total product revenue, Q4 '04 revenue declined 2% sequentially from Q3 '04 but was up 3% year-over-year.

For the full year 2004, the Data Capture division's revenue increased 17% versus 2003.

This strong year-over-year growth surpassed the industry average growth as our new products gained traction.

As our customers upgrade their point-of-sale platforms, which is a trend we are seeing in the global retail segment, we are positioned with both data capture solutions and partnerships to continue momentum in our ADC business.

Fourth-quarter bookings dipped sequentially, largely due to a tough compare versus Q3 '04, when we booked sizable orders with several large retailers, but were up 8% year-over-year.

We feel that our ADC product line is the strongest in the industry.

Our line of secure payment terminals led by the new PD 8500 is scoring significant business in competitive shootouts at major department store chains as well as specialty retailers of both hard goods and soft goods.

Symbol has the industry's best-selling midline hand-held scanner in the LS2200.

In Q4 '04, we sold in excess of 115,000 LS2200 units, up 33% sequentially.

No platform in Symbol's history has shipped in that volume in a single quarter.

In the fourth quarter, we unveiled the DS6607, a high productivity hand-held imager, and VS 3408, its industrial grade variant which withstands harsh user environments.

Both read 1D and 2D bar-codes and also deliver exceptional picture clarity.

This product line refresh is testimony to the effort of our ADC division during the last two years, energizing Symbol's legacy flagship line to bring our customers the data capture products they need.

Within a new line of industrial grade hand-held scanners, a state-of-the-art hand-held imaging line, a new hands-free scanner family with the LS9208 and LS7708, and new micro-kiosks in the MK 2000 and MK 1100, we are positioned well for continued growth going forward.

As we have said before, our position is that wireless is an enabler of mobility, and according to a study released last week by market research firm In-Stat, the demand for mobility grew significantly in 2004, making it the fastest-growing segment of the computing industry.

The rapidly increasing demand for mobility is changing the industry.

We are moving from a world where laptops replaced desktops and, importantly, to a world where hand-held mobile computers are stepping in where laptops formally reigned.

Symbol is the number one provider of wireless networking throughout the retail supply chain and the number one provider in the fast-growing wireless switched market, which we pioneered and introduced in 2002 and which represents the state-of-the-art of wireless communication.

We are working through and leading a transition period in the wireless world, from the legacy access point that Symbol first brought to market in the early 1990s to today's wireless switch, with its flexibility and affordability.

Our customers have made Symbol the wireless switch market leader, with approximately 25,000 units deployed during 2004.

As a percent of Symbol wireless sales, wireless switching represented 43% in Q4 2004 compared to 35% in Q3 2004.

In the fourth quarter, our enterprise wireless LAN switching portfolio bookings increased 29% sequentially and 30% on year-over-year.

According to market research group Synergy in Q4 2004, Symbol's share of the global enterprise wireless LAN switching market grew to 45% from 43% in Q4 2003.

Enterprise wireless LAN switching continues to represent a high growth area of the enterprise wireless LAN market and comprised more than 61 percent of overall enterprise wireless LAN markets in Q4 '04 according to Synergy Research.

For the full year 2004, the Wireless division's revenue increased 17% versus 2003.

With this technology transition, compounded by the typical Q4 decrease in retail spending on wireless infrastructure, our wireless revenue declined 31% compared to Q3 '04 and saw a decrease of 3% year-over-year.

The sequential decline was due again to a tough compare because of a sizable Q3 wireless switch order from a large retail customer.

Bookings declined 16% sequentially and 16% year-over-year.

Last month, we introduced the new high-capacity WS5100 wireless switch for large campus-wide enterprise Wifi deployments, providing customers with additional opportunities to untether their networks for true mobility.

The WS5100 is well-suited for organizations in the healthcare, education, retail and otherwise known as carpeted enterprise markets, with additional capacity for larger implementations, scalability and enhanced security with mobility.

Let's move to the RFID update.

Working with our key customers, we have become more enthusiastic about the promise of RFID.

We believe that we are number one by a long shot in the deployment into production environments of EPC readers, and this means real world deployments, not just small, experimental pilots.

In the fourth quarter we introduced the DC400 dock door portal solution, shown on this slide.

The DC400 is the industry's first EPC compliant turnkey RFID portal solution, designed specifically for industrial dock doors and portal environments.

It is easy to install, can be remotely managed, and reads both Class 0 and Class 1 tags, and additionally is firmware upgradable to read Gen 2 tags.

This last point is important, as Gen 1 and Gen 2 multiprotocol capability is likely to be a requirement for at least the next two years in any real world deployments of RFID.

Our product lineup of EPC compliant RFID technology is complete, including fixed readers, hand-helds, mobile hand-helds and tags, as well as broad service and support offerings.

We are out in front of the competition with the second-quarter EPC Gen 2 early adopter program for tags and readers.

We are pleased to say that we have been working with Wal-Mart for the better part of a year as one of the implementation pioneers in RFID infrastructure and systems for the U.S. retail industry.

These are serious, real-world deployments, now well beyond the pilot stage.

Wal-Mart, Symbol and others participating in this important RFID effort are pleased with the progress we have all made together.

The experience we are gaining with Wal-Mart and others will provide Symbol with a competitive advantage as other large companies want to deploy scalable RFID systems.

Last month, we announced that Purdue Pharma, a maker of prescription and over-the-counter medicines, will use our RFID enabled MC9000G mobile computer to help ensure the authenticity of produced product as it leaves the manufacturing plant and moves into distribution.

You have heard us consistently say there can be no RFID islands, and the true benefits of RFID can be realized only when fully integrated into the overall information management system.

Chuck Nardi, Purdue's Information Officer, concurs.

He quotes, "We worked with SAP and Symbol to make the interface into our information infrastructure a fully functioning system."

We feel that 2005 is a year when real production deployments begin to accelerate, and as Erik Michaelson, research analyst at ABI says, companies are increasing their RFID budgets 3 to 5 times this year compared to 2004.

Fourth-quarter 2004 Service revenue was in line with our guidance of 75 million per quarter.

Full year 2004 Service revenue declined only slightly to 298 million from 306 million in 2003, reflecting the success of one of the tenants of our channel-centric strategy, to transition most professional services to channel partners while focusing our efforts on postsale support, such as hardware repair, as well as software support services.

In 2004, Symbol shifted more than 25 million in revenue of professional services over to our channel partners and made up the majority of that revenue shift in new hardware and software support contracts.

As such, year-over-year comparisons are difficult and do not really represent the progress we have made in 2004 in growing our customer service business.

As I mentioned, we are consolidating the services work of 10 country based European repair centers through our new facility in the Czech Republic, where our help desk is already taking calls from the UK and other northern European countries, with French, German, Italian and Spanish ramping this quarter.

In addition in Greater China, our services depot in Shanghai is now fully operational.

Service attach rates continue their incremental improvements, with the Americas' attach rate now at about 60% from about 25% a year ago.

So while EMEA is experiencing an attach rate in the 25% range and Asia-Pacific in the single digits, we believe we will see a similar ramp in those theaters as our service execution capability is fully implemented.

The ultimate goal is a service attach rate greater than 75% globally.

Additionally, this growth is coming with higher customer satisfaction in our service execution.

Year-over-year, Symbol service customer satisfaction with the end-user has increased 44 basis points in the Americas and EMEA, and customer satisfaction among our partners has gained 68 basis points in the Americas in the last year.

While we are quite pleased with the progress of our service organization, we are determined to make our global services capability a competitive differentiator -- essentially, a key reason customers buy from Symbol.

On the screen in front of you, you see a few recent Symbol wins.

Let me provide some detail.

In Australia, Toll Priority, a nationwide overnight express service, is moving to its third generation of Symbol data management tools, now deploying 900 Symbol MC9000 mobile computers to replace its Symbol PPT4600s, a mobile computer we introduced in the mid-1990s.

Toll uses the MC9000 for real-time proof of delivery and considers the MC9000 the most cost-effective data transmission medium available.

As announced, 7-Eleven, the world's largest convenience store retailer, has selected the new MC9000 mobile computer to improve productivity and merchandise management throughout its chain of 5300 stores in the United States, with a range of real-time applications, including price verification and shipping and administration.

Brazilian electrical wiring and cable manufacturer C-Cap (ph) has standardized on the MC3000 and the Symbol WS5000 wireless switch for state-of-the-art warehouse management.

C-Cap needed a rugged hand-held for on-the-go SAP emulation.

This was the first MC3000 sale in Latin America, accomplished in partnership with Symbol (indiscernible), Sole Factor (ph).

CVS Pharmacy has selected Symbol Technologies for its enterprise mobility requirements moving forward, upgrading their existing mobile computing infrastructure, wireless infrastructure and advance data capture infrastructure across the entire chain.

CVS realizes the gains in associate productivity and competitive advantage that come with enterprise mobility systems and recognizes Symbol as a partner in helping them to achieve their operational objectives.

Now we will take a look at recent trends in bookings, revenue and backlog.

Gross product bookings continued their positive year-over-year momentum with an increase of 15% from last year to reach 382 million in 2004's fourth-quarter.

Our starting Q1 '05 backlog, represented by our unshipped backlog, as well as our shipped but not recognized backlog, increased to 310 million from the prior quarter.

Our main objectives are to grow our backlog in order to continue to improve linearity and operational efficiencies, and also to have a book-to-bill ratio above 1.

We met this objective in Q4 '04 with a book-to-bill ratio greater than 1.

Now, let's go through to our first-quarter guidance.

We expect the overall business climate to remain good in 2005, not unlike what we experienced in 2004, and feel that enterprise mobility will increasingly mature and grow faster than most other IT technology segments as a percentage of IT spending.

With that backdrop, we expect revenue in the first quarter of 2005 to be approximately 3% higher than the 450 million that we reported in the fourth quarter of 2004.

This would represent a year-over-year increase of approximately 11%.

This would be in line with our expectations of another year of top-line growth in the 10 to 15% range.

One item to note and that we mentioned subsequent to our Q3 '04 call is that in Q1 '05, we will cease the practice of holding in a Symbol-owned facility the inventory of one of our large retail customers, and transition this inventory to a customer-owned facility.

You will recall that this inventory was at the center of the revenue recognition issues of last year's third quarter.

As this inventory is transitioned to the customer's facility, it will then meet all of our revenue recognition criteria and will be counted in Q1 '05 revenue.

Offsetting this impact is a movement to minimum two-week leadtimes, thus decreasing our turns business in Q1, but increasing our backlog in Q2.

With regard to gross margins, we expect gross margins in the first quarter of 2005 to be in a range of 45 to 47%.

As mentioned earlier, Q4 2004 gross margins were favorably impacted by currency, and with the dollar strengthening somewhat from year-end levels, we would expect currency impact to be slightly negative to gross margins in Q1 '05.

Also take note that our Q1 '05 revenue will be favorably impacted by several large but very competitive wins in mobile computing, but those wins will unfavorably impact gross margins in the first quarter.

For the first quarter of 2005, we expect operating expenses to remain high as we continue to invest in the business to position Symbol for future growth.

As we have discussed, we are continuing to invest in the new product pipeline, and growing our sales coverage in key geographies and verticals has been a priority during the past year and will continue to be this year.

As such, we expect operating expenses in Q1 '05 to increase to 180 million to 185 million.

On the tax line, we expect the effective tax rate to be low in Q1 '05 due to the recent favorable tax rulings and the resolution of prior-year tax issues.

As such, we expect the Q1 effective tax rate to come in at 5 to 10%.

In total, this level of revenue, gross margin and operating expense performance would have Symbol generating Q1 '05 diluted earnings per share of $0.10 to $0.11 per share in the quarter.

Thank you very much for joining us today and thank you for your continued interest in our company.

We will now open up the lines to questions.

Operator, the call is yours.

(OPERATOR INSTRUCTIONS) Philip Alling, Bear Stearns.

Just wanted to get a better sense going forward in terms of the target level there for your operating expenses going forward.

You gave us some guidance for the first quarter.

Maybe you could speak to what the longer-term operating margin goals are, given what you have said about growth, in particular with respect to your mobile computing division there.

Do you still think that you can make progress towards an operating margin somewhere near 15%, and if not, where do you think that could level out now at this point?

We still expect our goal of reaching the 15% operating margin.

It is not changing.

We expect to continue to work toward that goal, whether it happens or we begin to establish a run rate in the latter part of this year going into next year or it happens next year.

The way we are going to get there, frankly, is to focus again on untrapping the margin leverage in the Company, and there is still lots of work to be done there, and getting our OpEx in line.

We have a lot of things moving on the OpEx line, and a couple of things that are a little unpredictable.

For example, the costs associated with former management here and their legal fees obviously hit us in Q4.

That is going to hit us a little bit in Q1.

It is a little bit unpredictable, so we're trying to give guidance that includes what we believe to be that cost.

However, you should see us getting much more focused on stabilizing an OpEx at around 185 million a quarter on average for this year.

I think the only other thing I would mention as well is, as Bill said, in the first part of the year, those legal costs are going to be a bit of a wild-card.

I would like to think that by the time we get to the fourth quarter or certainly the first quarter of '06, those costs are starting to disappear or having disappeared completely and that should help.

Okay.

Just wanted to get a sense from you guys just in the RFID space -- you gave us a little bit of information here.

What are the metrics in particular that you plan to provide going forward, just so investors could track the progress that you are making there?

And where should we expect to see those revenues showing up on your income statement in terms of the breakout that you provide in the product category space.

I think the number one thing you should be looking for is how well we are doing in terms of wins in the market. 2005 is a year of placements, right?

It's winning the real estate battles.

Obviously we talked today about working closely with Wal-Mart.

We think in working with them and scaling that infrastructure as we are, we are learning a heck of a lot on how to deploy very large-scale RFID networks.

We think that is going to give us a competitive advantage.

I think our customers think that is going to give us a competitive advantage, frankly.

But what you should be looking for is are we winning the big deals.

Are we winning the big customers out there this year?

Are we getting the right pilots placed?

We are not going to make money this year in RFID;

I will be honest with you.

We will probably do around 40 million and revenue; we could do as high as 60; we could do as low as 20.

That is going to be about how well we execute.

It is all about execution in this space.

But I anticipate that we are going to be spending a lot of money in scaling a number of these very large networks and winning the real estate wars while we'll do two other things really well this year.

One, getting the cost structure down on our readers and our tags so we can begin to drive more profit in 2006, while innovating further bringing out new products at an increased rate, products that will help us to continue the lead we already have in winning some of these early placements in RFID.

Good enough, thanks much.

Paul Coster, JP Morgan.

One quick question on this inventory turns between you and the customer.

Can you talk us through the process which brought it onto your books in the first place and why it is going back onto the customer's books and what that means in terms of revenue and earnings in the first quarter?

I have one follow-up.

What I will, Paul, I will address the inventory issue and then I'm going to hand it over to Todd Abbott, who is going to talk you through a very important initiative we have underway in Q1 in particular, which is getting to two-week leadtimes and the impact that has on revenues in Q1, but also backlog in Q2.

So we are going to be shifting a good amount of inventory that we have in this customer over to their facility.

Now, the customer needed to do this largely because of Sarbanes-Oxley.

So that was the impending event.

We have been holding -- I don't know how long -- I think for a long time in the Company's history this inventory in a Symbol-owned facility, a Symbol-owned distribution center.

Hence, we have never taken revenue recognition on shipping into our own facility, even though the customer paid us for the equipment and even though, frankly, in a large number of cases, most companies would take that as revenue.

So we had a little bit of conservative accounting there -- rightfully appropriate conservative accounting, because it did not really pass all the old SAB 101 revenue recognition rules.

And frankly, in our own warehouse facility, we were also doing a bit of staging for the customer.

So we were loading up configurations onto devices before we shipped them out, so on and so forth.

So it was always questionable as to whether or not shipping it into our Symbol-owned facility meant that it was revenue.

So we took, I think, the appropriate accounting treatment and didn't treat it as revenue until it shipped out of our Symbol owned distribution center into the customer environment.

That change is taking place in Q1 and that will probably positively affect the top line of the Company to the tune of $15 million, but it is relatively low-margin revenue for us in the first quarter.

This particular customer does not have the same margin structure as many of our other customers.

But offsetting this revenue we are getting at a little bit lower margin is the fact that we are moving to two-week leadtimes.

And Todd will now talk you through the impact that that has on Q1 revenue, but also the impact it has on Q2 future backlog.

Just to be clear -- I think Bill said this, but I just want to reemphasize that this is customer-owned inventory.

When it leaves the factory, essentially we invoice them, they take title to it, they are responsible for the insurance, they pay us for it.

Essentially the only reason why we weren't recognizing it as revenue is that we didn't have clear rollout schedules and as a result it just failed one of our revenue recognition criteria.

That basically now disappears because we are going to be shipping directly to one of their staging facilities and that really doesn't matter anymore.

I just wanted to emphasize that even though this stuff might be sitting in a Symbol-owned warehouse, it is not our equipment; it has already been bought and paid for.

To follow on to Bill's point, this move had been planned for the last several quarters.

We have been working with the partner to plan for this migration and it will be completed over the next couple of weeks.

In concert with that, we have been doing as part of our business transformation process moving from a billed-to-stock to an assembled-to order.

And that system starts to come online in Q2.

In concert with that, we have been preparing our field and our partners to move to a minimum two-week leadtime process, and for rapid fulfillment earlier than two weeks, really working with our distribution partners to enable quick access.

But in the context of being able to plan more effectively in our supply chain, in concert with our move to an assembled-to-order model, we had a plan to move to a two-week standard leadtime for core products beginning in Q2.

And so what we have been doing is beginning to build the backlog and expect that shift to take place -- it has actually already taken place from a distribution partner standpoint; we have been working with those partners over the last several quarters.

But we will flip to a two-week leadtime between here Q1 and Q2.

That will offset some of that uptick you will see in the sales-out data for this particular customer transaction.

What was the prior leadtime?

In general, about 50% of our business would typically book and ship within a two-week leadtimes.

A lot of customers that have been well conditioned to putting on the P.O. ship immediately.

And we were typically performing -- about 50% of our weekly order volumes would come in with their request and execution that we would deliver on them within two weeks.

Is this international in context or just U.S.?

That's a global.

Got it.

I have one last question.

Tax rate, Mark.

Can you just give us some perspective of what is happening for the full fiscal year '05?

I would expect that for the full fiscal year '05, the tax rate is probably going to be as it was in '04, around 32, 33%.

It might be a percentage point lower than '04, but I think it is going to stay right in that range.

And in the first quarter, because of some onetime things, it is going to be lower than that average annual rate, but I think the average annual rate is still up in the low 30s.

Thank you very much.

Jeff Kessler, Lehman Brothers.

It's is Scott Schneberger for Jeff Kessler.

Going back to Matrics for a moment, could you speak a little bit on implementation, what you are seeing, some self-assessment of weaknesses and strengths in that process?

Also, might you have any interest in putting out a timing estimate for profitability at Matrics as well -- or RFID in general?

I'll just take the last one.

I don't think we are going to try to predict that right now.

We are focused on, as Bill said, capturing as many wins as possible.

We think if we do that, then the profitability follows that.

But the timing of that, I think, at this stage, is -- trying to predict that would just be speculative.

It's Todd Hewlin.

I run Global Products Group, of which Matrics has become one of the five divisions.

And in Q4, I probably spent time with 12, 15 different customers that are in varying stages of implementation.

And to go back to what Bill mentioned earlier, we are really seeing the tipping point in the markup.

Customers that have been piloting through the latter part of '03 and through most of '04 are now starting to tip towards full deployments.

Wal-Mart is the one that obviously gets the most press, but it is happening around the world.

And typically what you are seeing are some of the issues in implementation are business process related.

So there is a lot written about the technology;

I think there has been great progress made on the technology.

The standardization of the Generation 2 standards for readers and tags in Q1 this year and Q1 '05 has gone a tremendously long ways to address some of the open issues around will the technology be able to scale and can we get a standardized set of technologies that all the vendors and all of the customers in the markets can play to.

The issues that we're seeing in terms of the implementations are business process related.

How do you change the business processes to go from using bar-codes in a supply chain environment or bar-codes in an airport environment to using RFID tags?

Those are the lessons that are being learned right now, and that is really where all of the work for customers that have invested in pilots over the last 6 to 8 quarters is really now starting to pay off, because those customers are driving the business process improvements to fully take advantage of an auto I.D. capability instead of a manual I.D. capability -- a talking bar-code, if you will, instead of a non-talking bar-code.

Thanks.

Could you update us a little bit more -- you alluded to it -- current status of standards in the industry and contrast that with claims of proprietary technology in RFID?

Current status is of course EPC has ratified the Gen 2 standard, as you know.

We feel strongly that we are going to be a leader with respect to Gen 2 product delivery and scalability.

We work closely with EPC, as we do all of the standards bodies, inside of Symbol.

With regard to intellectual property or that discussion, we also feel very strongly today that there is a lot more work to be done in the market to take a hard look at what intellectual property is out there, to determine the extent of the strength of that intellectual property, to understand whether or not that intellectual property has a short-term fuse or a long-term fuse, meaning is their an ability to design around it?

Is innovation going to pass by it?

Are the changes that are going to take place from a technology point of view the next few years in RFID going to surpass what is out there?

There's an awful lot of work going on in that area.

And remember, this is a very early-stage market in general from a technology and innovation perspective.

Lots is going to happen these next two years that could obviate the current patent infrastructure that you see.

It may not.

But despite that, we also have an extraordinary intellectual property portfolio, and we feel pretty good about how that stacks up against the industry as well.

Did you want to make any further comments, Todd?

Yes.

Let me give you one example.

When we announced the Matrics acquisition, we announced some of intellectual property that we acquired in that acquisition.

One specific example is something called the dual bi-pole tag.

So one of the implementation issues in RFID today is how do you get tags to read consistently in a high 90 percent range when bags are moving through a conveyor -- whether it is in a retail supply chain or whether it's in another environment.

An innovation that Matrics came up with and patented was what is called the dual bi-pole, which means a tag that has two different antennae that work simultaneously on the tag, and as long as one of the antennae picks up the single from the reader, the tag will be read.

It is an example of an innovation that you come up with because you are involved in real-world deployments.

So we believe that we are going to lead the innovation of EPC-compliant RFID because we are involved in these major deployments and we're seeing the things that you don't see in the lab.

We are seeing the real challenges in real world deployments.

That is where we think this market is going to go and that is where -- we do believe it is early.

We have a number of innovations that we have released to the market and patented; we have a number of other ones that we're working on.

But it is going to be those innovations that drive these production-scale deployments, which really is going to be what drives the adoption going forward.

The second area of innovation that we really see is multimode data capture.

Bar-codes aren't going away in the foreseeable future.

What you are going to find is supply chains that have a mixture of bar-codes for some items that are moving through a supply chain and RFID tags for other items that are moving through a supply chain.

And we believe we are ideally suited to innovate the multimode data capture capabilities, whether it be fixed readers or mobile readers, that can read a bar-code on one pallet and read an RFID tag on the next pallet.

So there's a lot of work going on in that area as well.

Thanks a lot.

Ajit Pai.

Thomas Weisel Partners.

Two quick questions.

The first is on your operating leverage.

Your gross margins go from 46.5% at the beginning of last year to 48.1, but your operating margins just from 7.6 percent to 8.6.

So could you quantify for us why you are having sort of negative leverage over there?

You're watching top line grow; you're watching your gross margins grow.

But why are expenses growing faster than either of those two?

Remember that for the first two years of the turnaround program we but in place, we spent an incredible amount of money in the G&A areas of the business for obvious reasons.

In finance to get our business controls and financial controls, as well as the organization up to speed.

In legal because of -- I don't think I need to talk about the legal costs that we had that were bearing down on us.

And of course, we made some conscious bets in G&A in both human resources by spending a great deal of money on people and leadership development, as well as in information technology, to move to an environment where we can drive greater employee productivity or associate productivity, as well as further strengthen our business and financial controls, and build, if you will, the foundation of this house so that we could start to build the frame.

The frame is now coming into play.

Our ability to focus in on people who build things and sell things is really where the expense line is being focused.

We are pouring a good deal of money into product programs because we are refreshing the entire product program.

We're pouring a good deal of money into sales because we are hiring new salespeople, and we have hired a good number of them in the last two quarters.

Because we feel like what we don't have out here is really a demand problem; but what we do have is a major coverage problem.

To rephrase that question, which is that a certain number of things that you're doing that are investments in the business that will stay ongoing expenses, like when you hire someone in sales.

But could you give us some idea of what percentage of that SG&A expense line is going to be legal, is going to be ERP implementation or anything that is required to build the frame but not the ongoing cost of the frame?

We can get back to you on that, the specific percentages of how G&A is moved from a very high percentage to SG&A.

And I will have Mark and Nancy come back to you on that.

But what I want to make sure you appreciate is we absolutely are making the shift from internal to external, from G&A to SG&A, and hence our cost structure is going to be a little bit higher.

The bet we are making is that the investment we're making in sales and products is going to pay off in the latter part of this year, as sales productivity comes up for all the new salespeople we have hired, as the new products come out, so we can do some upgrading of the base and frankly gain some market share.

So the money we are spending is wise in that the investment we're trying to make is essentially to yield a much greater earnings performance this year over 2004, but importantly, in '06 over '05.

Because the investments we're making right now in Q1 and Q2, not just in people and in products but also in IT, should yield an ability to grow the business faster, particularly as RFID comes online in 2006.

So this is all about a growth model for '06, while doing a very, very good job in '05 on the bottom line with regard to earnings growth.

The second question would be about your Asia-Pacific business.

You know, I think you did mention some one-time reasons why booked (ph) revenues and orders were affected.

But some of your competitors have been seeing some very strong growth over there.

Who are you facing as a big competitor over there and what is responsible for things slowing down so rapidly for you folks?

I don't think that's actually true that there has been faster traction from some of the traditional competitors in that region.

So I think if you go back and look at the numbers, I don't believe that is true.

In addition, we have a number of different competitors that we are dealing with over in that region, specifically out of Korea, China and Japan.

It is quite common for a lot of companies to begin their emergence into new markets in that region before coming in through Eastern Europe and Europe and ultimately into the United States.

We're seeing the same trends.

So we have some different competitive challenges over there, but I think, frankly, the lack of execution was not as a result of us not being able to compete just as effectively there as we do here in the U.S.

I think we just fundamentally had some execution issues through the change process.

We believe we are through that bumpy road and that we will be back on a growth curve starting in this quarter.

Thank you so much.

Chris Quilty, Raymond James.

I had some problems downloading the presentation;

I'm out traveling.

One thing that wasn't in the press release was the share count, which made it a little bit difficult to calculate the one-time charges.

Can you give that to us?

Yes, I'm sorry.

Fourth-quarter share count is 248.5 million -- it's in the tables.

Okay.

And that is fully diluted shares?

Yes.

I'm not going to run the calculation right now, but that is about $ 0.03 or $ 0.04 per share, if I translated back the impact of the tax in the fourth quarter, the favorable tax rate?

You have the favorable tax rate, but you also have in there in other income expense a 6 million plus charge for the financing costs that were basically written off in the fourth quarter.

I think when you sit down and you go through those two puts and takes, you're not going to have that kind of impact.

I know, but the explicit guidance from the fourth-quarter conference call was $ 0.09 to $ 0.10, based on a 36% tax rate.

Yes, but we also didn't have in there the cost of the financing as well.

So essentially, if you look at the two of them, they pretty much offset.

If you're trying to figure out the core operating performance of the Company in Q4, when you do all of the puts and takes, it is probably around $ 0.10.

So if you are really trying to get to a number that we feel strongly supports the core operating performance of the Company, when all of the puts and takes are erased or cancel each other, it's about a $ 0.10 performance.

Okay.

And again, just to make clear -- for the first-quarter guidance, your guidance is based on the 5% tax rate.

Yes, that 5 to 10% tax rate; that would be right.

Okay.

Gross margins look really good in the quarter and definitely things are going right in that direction.

And I guess I am beating a drum here, circling back on the SG&A, which looks a lot higher than I would have expected coming off of last year, where it looked like some of these abnormal expenses you were supporting might filter off.

And maybe I'm asking the same question, but are you seeing a falloff in some of those one-time expenses of accounting and legal fees that we might see -- if you could quantify what might fall off, even perhaps by the end of the year, if some of those things come to an end.

In the fourth quarter, you had certainly, I want to say 68 million of increased expense for accounting and legal and that, as we mentioned, we had these legal fees associated with defending prior management.

And also, we put a very, very big push on to basically successfully get past Sarbanes-Oxley 404.

So those two were quite expensive.

I think as we go forward in '05, the Sarbanes cost is definitely going to be reduced.

The legal expenses, though, I think continue for some time, like I mentioned before.

I would like to think that by the time we get to the end of '05 or early '06, those legal expenses are finally going to go away and we will get down to where our OpEx run rate really is to run the business and not influenced as much by all of this extraneous stuff.

But on the legal front, that is going to take some time.

But once again, I think on the accounting side, that is going to go away essentially in the first quarter.

Beyond the operating expenses that we have no control over, such as the defense of prior associates, which certainly impacted us in Q4 and will in Q1, we do understand that operating expenses, at least at Symbol here, need to be fully managed, and we need to make the right investments.

We feel very strongly that the investments we are making in sales and in products will yield a company that could probably grow faster in years beyond, as well as be much more productive.

All of that being said, we are also always looking at ways in which to get the operating expenses down because we have a goal of hitting the 15% operating margin.

But make no mistake about it.

That is an ongoing, almost daily discussion in the Company and a review that takes place here.

On that end, with the gross margins in the quarter, can you give us a sense with the MC9000 platform, which has obviously become very important -- typically new products, you're gone to work up the gross margins as you continue production, get up the learning curve, and some of those older products are typically the more profitable.

Are you at the point now where the MC9000 is at, below or above the median product, the older legacy product that you have out there?

Is there any potential upside from that productline?

So from a gross margin point of view, you make a great point, and something we are obviously keenly aware of, which is when you come out with so many new product families and so many new products, your first 6 months to a year, your gross margins will invariably be lower as you continue to take cost out and do the right job from a value engineering point of view.

So that is going to have some impact on gross margins.

But the good news is that we continue to take cost out and we do a better job of executing value engineering in the company.

Longer-term, the market leverage improves and can get better for us.

With the MC9000 in particular, we are probably midway through that process.

We have some cost reduction coming into play in the second half of this year that is pretty exciting that will add greater margin to the platform, and so that is positive.

So we have not fully cost-reduced that platform; there is a couple of instantiations of value engineering programs underway there that we will continue to work on that will have a positive impact on us in the second half.

But that being said, I think our guidance of 45 to 50% gross margin for the Company still holds true.

Thank you, gentlemen.

Reik Read, Robert Baird.

Bill, you had talked a little bit about a coverage problem, and can you elaborate a little bit on that and talk about one, what is the area of greatest focus for you guys.

How many salesmen you might plan to add in the next year and how many current salesmen you have at the end of the quarter?

First of all, my CFO doesn't like when I say this, but I want to use this as an example -- he is laughing right now.

But the last time I think I get to say this is probably today, which is we have more finance people than we do salespeople.

So frankly, that should put it into perspective for you.

We added a lot of salespeople in Q4.

We added a number of salespeople in Q1.

We will add -- I don't know the specific numbers, but if we can in 2005, we are going to try to add 100 people if we can.

It depends on how the business trajectory looks.

And we've said this before, so this is no new news to you.

And that's why you are seeing some of the expenses creep up as well, because we have made some fairly significant investments, and that is why Mark is making light of the fact that probably by next quarter I won't be able to say that we have more finance people than we do salespeople -- and it is probably true.

For a little bit more color, I'll hand it over to Todd Abbott and he'll give you a little more color on the subject.

The primary targets that we are going to looking at from a coverage standpoint will continue to be Asia-Pacific, where, from a geographic standpoint and where we are to current size of business, we think there is just tremendous growth opportunity there, as well as in the U.S.

We are looking to expand into other industries beyond our core retail, retail supply chain, as well as into the retail supply chain, where we think we can drive more growth with improved coverage.

So the primary targets are going to be spreading out from an industry balance standpoint within the U.S. as well as basic geographic coverage in Asia-Pac.

We think in Europe we are pretty well situated with the restructuring that we went through over the last four quarters.

Okay.

Second question for you, with respect to the DOS-based products, can you give us a sense for when you will stop supporting, maybe, the majority of those products and what that translates into for an upgrade opportunity in 2005 and how much you will be supporting then in 2006?

As I mentioned in the overview up front, we are going to support DOS-based products in 2005 and 2006.

Frankly, we are going to take the lead from our customers here.

We do see a transition of DOS to Windows happening in the market.

There is no doubt.

I also agree with David Krebs of VDC when he says by 2008 he believes there is going to be a massive transition over to Windows from DOS-based platforms.

However, when all is said and done, we will take the lead from our customers.

We hope that happens, because that offers a nice upgrade cycle to us.

But we will take the lead from our customers there.

Is this a little bit of a change, though, Bill?

I guess I had heard you guys say previously that you maybe would stop supporting the majority of the DOS-based products in the fourth quarter of this year.

And are you changing that based on that customer commentary?

No change.

There has been no change.

Great, thank you.

Michael Appleyard (ph), Appleyard and Associates.

I have two quick questions.

Number one, would you comment about your entry or possible entry into the Chinese market, how is that going?

That is my first question.

Our business in China is one of our bright spots in Asia-Pacific.

We feel like we are in good shape there.

We are continuing to invest.

When we look at the investment within Asia-Pacific, it really starts with China.

And I think also we made good progress in '04.

We signed up a major distribution partner in China.

And as we mentioned, in our Services business, we have the service depot there up and running in Shanghai; so I think we have the infrastructure in place as well to do well there going forward.

And you would say that it seems to be getting positive feedback in terms of -- the reason why I'm asking about this is we all know the great potential of amount of people that are there that could be using this technology.

So you do feel that you are able to penetrate further and further into the market, I guess.

Absolutely.

I see.

And the second question -- I hate to bring up the guidance issue again, but is it my understanding that you are just trying to be a little bit more on the conservative side, just to be safer?

Because some people may look at next guidance $ 0.10 to $ 0.11 for the next quarter -- I know you're not going to talk about the whole year as you announced -- is that still a possibility in your opinion that you may exceed that guidance or do you feel, based on what you are seeing already at the beginning of this quarter, which has started for you, that $ 0.10, $0.11 is pretty much what you're looking at?

I think the guidance is very reasonable guidance for us at this moment in time, based on all of the facts that we have and based on what we know.

Would we like to overachieve the guidance?

Of course we would like to overachieve it -- that is a given.

But I don't think it would be responsible for us, given what we know today about the current first quarter, to give you any better guidance than we have given you.

We are going to work very hard to hit stretch plan in this Company and to overachieve what we tell our stakeholders.

But I wouldn't count on that right now.

Fair enough.

And one very, very quick follow-up.

So your guidance already for 2005 first quarter, that is already under the new Sarbanes-Oxley 404 provision, meaning that we should not expect any kind of "cleanups", those have already been adjusted or looked at or addressed.

Is that correct?

I have to admit, I'm not sure what you're driving at with your question in terms of Sarbanes-Oxley 404.

Sarbanes-Oxley 404 is for us a year-end event, because the end of the year is our fiscal year-end.

And as part of our 10-K, which like I said, you're going to see it filed some time over the next several days, there is going to be an assertion by management that we believe our control structure is good and that is going to be attested to by our external auditors.

So that is what we have been working on through 2004, and we have successfully completed that at year-end.

There is no recertification of Sarbanes on a quarterly basis.

When we will do that again next is when we file our 10-K for 2005.

Thank you for your time and congratulations on a very good quarter.

Richard Davis, Richard Davis, Inc.

I have two questions.

Is not the 7-Eleven order with the MC3000?

Yes, it was.

I though I heard it was 9000.

The other question is, can you give us some more color on the legal fees?

They, academically, are in a sense some of the things that will likely go away over time, and Q1 and Q4 of last year, can you give us a little more color on how much they are?

This is Peter Lieb, Symbol's General Counsel.

What is driving the legal fees is the fact that that there is a trial scheduled of a number of the former employees for July of this year.

The legal fees are the result of the need of the attorneys for those lawyers to prepare for trial this quarter, next quarter and to try the case in the third quarter.

But when the trial is over, presumably those fees will get reduced dramatically.

What would be left might be fees for an appeal, if there is a conviction.

But even if there were a conviction and an appeal, the fees for writing an appellate brief are far lower than preparing for and actually trying a case.

Thank you.

Jeffery Kessler.

A real quick follow-up on the guidance -- 10 to 15% top line for the full year.

It is our understanding that seasonality, generally you guys are a bit stronger in the second half, plus you will have maturation of the sales force that has recently been hired later in the year.

Is it safe to say a nice ramp in year-over-year comps in revenues as we progress through the year?

That is the plan.

Great.

Thanks.

Also take note from second quarter to third quarter, the sales were pretty flat at 430 million.

So the year-over-year compare, obviously, as we get into the second half should be better because the third quarter was somewhat depressed last year.

If you think about our seasonality, Scott, traditionally our toughest quarter is Q1.

We come out of the blocks in Q1 after just finishing a fiscal year, and given the high-performance culture that we have installed in the Company, the team is really running hot at the end of the year.

We come into the new year; it is the end of the retail fiscal year, that is January.

So our retailers are really not buying in the first month of January.

They are doing their work.

They have pretty much locked down their networks in their last quarter, which is November, December, January.

We have our sales meeting the second week of January, where we take all of our salespeople globally out of the field for one week for training and otherwise.

The week after that, we have the National Retail Federation Show, which takes a lot of our people out of the field for another week at that time.

So we typically get off to a slower start.

And we as a Company need to do a better job of transitioning quarter-to-quarter, because for us, each quarter is really becoming like a fiscal year in terms of speed and pace.

Although we have improved, it would be a long way to go.

And then we enter February and things start to come into picture and to play, and then of course, March, I think things start to get going.

It is a little bit of a slower start, so that makes for a little bit more of a seasonally challenging quarter.

You would expect Q3 and Q4 to be our better quarters, because first of all, retailers are getting ready for the Christmas holidays at that time.

So they are doing more, they are buying more.

Typically at that time, all of the new salespeople we have brought onboard, as you pointed out, should be far more productive at that some of the year.

For us in particular, we have a lot of new products coming out in the second half.

I think the general direction of your question and the assumptions you have made are good ones.

Great, thanks very much.

Philip Alling.

Andrew (indiscernible) for Philip.

Just two quick follow-ups.

On CapEx, I believe CapEx in the quarter was around 31 million.

Just wanted to get a sense of going forward is that going to decline towards the more (multiple speakers)?

I would expect capital for '05 is once again going to be in the range of 80 to 100 million, and I think that that is going to be a bit front-loaded because, as you noted, the CapEx in the fourth quarter was right at about 30 million.

That is primarily due to the spending that we are doing on the IT infrastructure upgrade project.

That will continue through the first part of the year and then I think that would tail off a bit.

And like I said, I think we end up with a total year somewhere between 80 and 100, once again, in '05, as it was in '04.

Okay.

And then just to touch base again on the legal fees, while we have counsel on the phone, would we expect those legal fees to trend upward as the trial approaches and then tail off?

I think for us, we just don't know.

I think we would be guessing at best in terms of where those are going to actually end up quarter to quarter.

We just couldn't give you a great forecast there.

We would love to, believe me.

With the level of focus we have in this building an operating expenses down to the penny, we would love to forecast everything.

That is one of those very difficult circumstances where we just don't have any clue as to how it is going to roll out.

But you would think that as you get closer and closer to the trial that expenses may go up a bit, but that, again, as Mark said, we would be guessing.

There could be a number of factors that will offset that, as well.

So it really is unpredictable at this point.

I want to thank everybody for joining us on today's conference call.

We really appreciate your interest again in the Company.

I look forward to seeing you all over the next quarter.

Have a great day and a great start to Wednesday.

All the best.

That does conclude today's conference call.

Once again, I would like to thank everyone for joining us today.