斑馬技術公司 (ZBRA) 2004 Q3 法說會逐字稿

Good morning and welcome to the Zebra Technologies third quarter earnings release conference call. Joining us from Zebra Technologies are Mr. Charles Whitchurch, CFO, and Mr. Edward Kaplan, CEO of Zebra Technologies. [OPERATOR INSTRUCTIONS] At this time, I'd like to introduce Mr. Charles Whitchurch, CFO of Zebra Technologies. Sir, you may begin.

Good morning, everyone, and welcome to Zebra's third quarter conference call. We have some prepared remarks we'd like to make before opening the call to your questions. So at this point, I will turn the call over to Ed Kaplan, our CEO.

Thank you, Randy. Good morning, everybody. Once again, we're pleased to discuss our financial results, our fifth consecutive quarterly record performance. Just as in the first half of the year, the third had broad and strong growth across all dimensions of our business. Our results today and our performance so far this year demonstrate the increasing strength of the Zebra brand. They are the impact of strategies designed to gain share, accelerate growth and high potential applications, and build a company with the capacity to achieve long-term stockholder value creation.

These financial results, combined with emerging opportunities in delivering specialty digital printing solutions, and our strategy for capturing those opportunities give us great optimism for the future.

This quarter we had strong growth in nearly all product lines, setting several new sales records. In addition, RFID sales are gaining momentum. The number of placements increased for pilots and evaluations. Zebra's products are performing well in the field and beating the competition in head-to-head comparisons. In addition, orders for units to be used in production environments have increased.

Lastly, importantly, the outlook is bullish for all regions for all product categories for the remainder of 2004 and into 2005.

Certain statements we make on this call relate to future events and circumstances and therefore will be forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. In particular, any statements we make regarding our financial forecast for the 2004 fourth quarter, and expectations about trends in the Company's business will be forward-looking statements. The forward-looking statements involve risks, uncertainties, and other factors that could cause Zebra's results to differ materially from those expressed or implied by such forward-looking statements.

Additional information concerning such factors is available in the press release issued today by Zebra, as well as Zebra's filings with the SEC. In particular, we direct your attention to the Company's Form 10-K for the year ending December 31, 2003.

Just as in the second quarter, we had another period of superior financial performance. Sales growth was the best in four years. Income growth accelerated and we sustained high profitability. To give you some perspective on how strong our business has been year-to-date, sales and earnings exceeded the levels achieved for all of 2002. During the quarter we shipped a record number of printers and business surpassed 4 million printers shipped in the Company's history.

Our installed base gives Zebra an important competitive advantage, with reach into more end-users in better than 80 countries. Within the strength of our overall business, mobile printing continues to stand out. We ship mobile printers going into several applications, including those supporting mobile warehousing and in-store retail solutions. And we expect further high growth and enterprise mobility over the long term.

Wireless and computer technologies are converging to support data processing at the point of transaction and affect real process change to improve worker productivity. This trend supports our increasing success in vertical market applications.

Zebra's leading products are now being used, for example, in more route accounting applications. Building on our initial success, we will be launching a new mobile product during the fourth quarter optimized for route accounting. Initial customer response and product previews has been outstanding, and has led to several meaningful leads. Our ongoing commitment to product development has extended beyond mobile printing.

During the third quarter, we introduced two new card printers, and launched new printer encoders targeted at meeting the needs of RFID supply chain applications. Still, other products in all printer categories are slated for introduction over the next several quarters to keep our line fresh and competitive.

In 2004, we increased the efficiency of manufacturing. We consolidated manufacturing and service operations in Rhode Island to facilities in Illinois and California. Expected for completion by year-end, we finished one quarter ahead of schedule, and are already beginning to benefit from these moves.

Zebra is winning more business today because the strategy laid out at the beginning of the year is working. We are focused on gaining share in core bar coding applications, creating global demand for more business improvement and specialty printing solutions, and fulfilling that demand through more effective channel partners. We are accomplishing all of this within a favorable environment for the continued adoption of auto ID technology.

Now here's Randy to give you detailed review of third quarter results and the outlook for the fourth quarter. Following his remarks, I will return for brief comments on RFID and opportunities for growth in 2005.

Thanks, Ed, and good morning, everyone.

As Ed mentioned, this was a really strong quarter with a large number of new records both from a product and a geographic perspective. I want to briefly review the details of these sales results for you at this time.

Hardware sales were up $135.3 million, were up 31.7% over a year ago. Supply sells were $29 million, up 18.7%. Service and software, at 5.4 was actually down 10.5%, but overall sales for the Company at 171 -- $176,000 were up 27.1%. At this level, this is the 10th quarter out of the last 11, where we reported a sequential sales increase.

Now within the hardware category, every printer category had outstanding growth, with five out of six growing by more than 25%. Mobile printers, most of which now ship with wireless connectivity, had by far the highest growth rate of all categories with large deployments into retail and warehousing applications.

An important contributor to our sequential growth in what is normally a flat seasonal quarter, was the fulfillment of a large mobile printer order. A portion of this order was originally scheduled to ship in October, but was pulled into September at customer request. High performance mid-range and desk top printers also performed well, suggesting that our printers are finding their way into a broad array of bar code and specialty printing applications.

Supplies growth was 18.7%. We believe that expansion of our telesales and direct marketing efforts combined with consistent improvements and our price competitiveness, delivery and quality performance are responsible for these improved results.

Sales were also strong across all regions of the world with exceptionally strong growth in North America. Our European sales, at $48.6 million were up 19.1%, and that's actually the lowest growth of all regions for this quarter. Latin America sales set a new record at $9.6 million; they were up 27%. Sales in Asia Pacific, at $13.6 million, were up 28.6%. North American sales were $99.4 million, up a very strong 31.2%.

Now this increase in North American sales was the ninth consecutive quarter of comparable growth, and the largest rate of growth in North America in over four years. This beat North American sales -- this quarter sales beat our original record by $11.2 million. The foreign exchange impact in the quarter was negligible, contributing only 2.1 points to overall growth in the quarter. If you strip out the effect of foreign exchange and the impact of our recent acquisition of Atlantek [ph], our core growth for the quarter was 22.4%. We believe this is a clear share gain result.

Gross profit margin in the quarter was 50.9%, up 6/10 of a point from a year ago. Consistent with previous quarters, higher capacity utilization, product cost reductions and favorable exchange rates contributed to this result. Gross margin was sequentially down by 1 point, due exclusively to shifts in product mix. I expect gross margin to move up again as we head into in the fourth quarter.

Operating expenses were up 23.4%, including exit costs, with all operating functions up by approximately 20% over last year. Most of this increase was due to head count additions, but other contributing factors included higher legal expenses, product development work, and information technology. We will continue to add sales, marketing, and engineering resources in upcoming quarters as required, to support our growth plans. Higher sales, increased gross margin and moderate growth in operating expenses expanded operating margin by 1.3 points, to 23.6%, and overall growth in operating income of 33.8%, including exit and merger costs.

Third quarter investment income was $2.5 million, which equates to 2% on beginning balances. Net income of $31.3 million computes to 18.3% of sales and $0.43 per diluted share, setting another new record for the Company, and representing an increase of 36.2 % over a year ago. Sequentially, net income increased by 6.4%. Free cash flow for the quarter was $22.7 million, bringing the year-to-date figure to 60.1 million.

Our receivables increased by a modest $1 million for the second quarter, as day of sales outstanding decreased sequentially to 351 days. Inventories increased consistent with higher levels of business, and inventory turns were 6.2 times for the quarter. Our cash position at quarter-end was $523 million, which is 64% of our total asset base.

Anticipating a question, we intend to use this cash for acquisitions to support our growth strategy. There are no immediate plans for either a dividend or for a share repurchase. The state of Zebra's business is very good. Our channel partners report high levels of activity, and our order flow remains strong. Consequently we are optimistic about our prospects for the fourth quarter and 2005.

We expect sales in the fourth quarter to be between $170 - $174 million. Up at the high end, almost 19% from a year ago. For those of you who are focused on quarterly growth numbers, I should remind you here that these results are affected by the customer-requested shipment at the end of last quarter that I talked about earlier, and the unusual strength of fourth quarter of last year.

I expect quarterly earnings to be in the range of $0.41 to $0.44 per share, up 21 - 29% from a year ago. This implies gross margin in the range of 50.5 - 51.5%, and operating expenses of $43 million. These numbers are very much in line with current consensus estimates. This forecast will bring full-year results to sales of approximately $660 million, up 23%, and consistent with current expectations and net income of about $120 million, an increase of 30% over our full year result for 2003.

That concludes my formal remarks. Thank you for your attention, and I will return the call now at this time to Ed for some concluding comments.

Thanks, Randy. Our 23% sales growth forecast for 2004 is up from the 13% growth in -- for 2003, and it's the highest annual growth in Zebra since 1996. We believe we are gaining share in core bar coding segments, a product and market development investment for mobile printers over the past 4 years are clearly paying off. Card imaging remains another focal point of high growth, enhanced by longer term prospects in digital photo printing.

Indeed, the strength of just about our entire product line appears unmatched. We couldn't complete this conference call without bringing you up to date on developments in RFID. During the third quarter, we continued to bring Zebra's financial and operational resources to bear on bringing clear global leadership in this technology. During the second quarter conference call, we discussed the introduction of four RFID printer encoders to meet emerging market needs. These units include the industry's first and only EEC [ph] class 0 and matrix class 0 plus product available, and RFID printer which offers bar code printer customers a clear upgrade path to RFID technology.

Since that time, we added the print RO110 pax print engine to our product portfolio for immediate incorporation in the high speed automatic print and apply systems. This morning, we announced an agreement to incorporate ThingMagic innovative RFID reader module into Zebra's printer encoders to support multiple RFID protocols and multiple antenna designs. This move is an important step in Zebra's effort to make sure our customers get the best in RFID technology and the flexibility in accommodating evolving standards. The proof of any product is how well it performs in the field.

I am pleased to tell you that consistent with Zebra's reputation for product reliability, durability and quality, the feedback has been quite positive. And users like the way our RFID products integrate into their systems and their ease of use. They have beaten out competing products in head-to-head comparisons.

During the quarter, Zebra continued to bring together the elements of an RFID solution to end users. Integrator, and other hardware providers, middle ware vendors and software developments. We expanded our RFID qualified of our network further, strengthened alliance partnerships and leveraged our broad market coverage and access to end users. RFID order rates for supply chain compliance applications are increasing nicely.

A large percentage of companies have completed piloting and lab work, and the urgency for meeting compliance [indiscernible ]deadlines has now kicked in. Those who have postponed the buying decision are now placing orders, often, multiple unit orders. Although we do not disclose sales of RFID products, I can tell you that we are pleased with where our RFID business is heading, including indications of interest from other sectors seeking to adopt RFID to improve business processes within their industries.

This year has been one of outstanding growth and accomplishment for Zebra. We extended our global leadership through the success of our geographic expansion program, and met our 2004 staffing objectives in China, Mexico, and other parts of the world. In North America, we are capturing more printer dollars from value channel partners on the strength of our brand, depth of the breadth of our product line, and on a channel program widely viewed as the best in the industry.

Our optimism for further growth in 2005 remains high. All of the pieces put in place this year enhance our position to further success next year and beyond. Our leading industry position and business strategy are attracting more business than ever before. Companies are adopting bar coding and specially printing applications more widely through the enterprise, and Zebra position to increasingly meet their needs. At the same time, we will continue to take advantage of our overall business strength to increase investment in strategic areas that support further growth.

Our financial strength, continuing high levels of profitability, and an ongoing favorable environment for the adoption of RFID technologies enable us to take these expenditures and build a greater foundation for further increases in stockholder value. Thank you for your interest in Zebra. We'd now be happy to answer your questions.

[OPERATOR INSTRUCTIONS] The first question comes from Jeff Rosenberg with William Blair.

Morning. How are you?

We're doing great.

Sounds like it. Real quick, I wanted to ask on the RFID as you described a ramp-up of activity, can you talk a little birth about the supplies business, if you're seeing retention there or if you're seeing orders there as well, and maybe a little bit about your strategy going into '05 on the supply side of things?

This is a question that has to do with supplies as it relates to RFID, or supplies in general?

I'm sorry. The smart label supplies, the smart label stream, so RFID.

We have supplied some customers with smart labels. Concerning Zebra's overall strategy, as it relates to smart labels, I've got nothing to announce this morning. Our primary focus is in the RFID printer encoder space, and we intend, with our products, to be able to deal with a wide array of inlays, different intended designs, different chips, and be able to operate printing and coding devices in that market.

Okay. And then I guess differently, could you provide us an update on what you're seeing relative to the FDA mandate and activity there as people try to comply there?

I don't think there's anything new that I could really report relative to the FDA. I can tell you that this is an area of great interest for Zebra. We are particularly interested, you know, in patient safety. And we offer a series of products that will be useful in that segment of the marketplace. I also understand that there are some organizations that certify various hospitals, who are, oh, let's say, putting pressure on the hospitals for compliance in this area, in improving their patient safety programs. So that is an interesting twist on -- or addition to the FDA moves.

Okay. Thanks a lot.

Sure.

Your next question comes from Chris Quilty with Raymond James.

Morning, gentlemen.

Morning.

Question for you on the mobile printer product line. First of all, can you give us just from a technology perspective, are you seeing a migration from WIFI to Bluetooth, and does that have a negative ASP impact on your printer sales? And second question in this area, are you seeing any increases in competition on the mobile side? I know O'Neil has announced some initiatives, including one with Symbol.

The -- in terms of a wireless technology, far and away, 802.11BG, is where most of the demand lies within mobile printing. Concerning competitors, O'Neil, in fact, is a competitor. And the press release that they put out, you know, speaks for itself, and at this point in time, I don't have any comments on that particular press release. Other than to say that we have a very strong and vibrant relationship with Symbol. We work with them in a variety of ways, and we are expecting that that relationship will continue to develop favorably.

Okay. A question on RFID. I can't remember who was quoted within the Company recently about running into some supply shortage, tag shortages in the RFID area. Is that something you're continuing to see, and is it something that you know, might impact your outlook for 2005 in terms of the potential impact of printer and consumable sales?

The only comment I'll make is that everybody is speculating on just how great the demand will be. And I think that there's not really good intelligence relative to what the supply is. So we have an uncertain demand and an uncertain supply. So consequently, it's easy for some people to conclude that there will be a shortage. But I would say that none of that data is very, very, very certain kind of data on either side. The supply side or on the demand side.

Okay. How about the failure to ratify a standard earlier this month. Again, will be industry just roll forward with class 1 tags awaiting final approval, and that doesn't cause any sort of a speed bump?

It would certainly be better if, you know, the standard -- the issue of what the standard is would get behind us as opposed to always being in front of us. So what's going on certainly doesn't help the situation. As to how much it hurts the situation, I think that there are a number of companies that have expectations that ultimately it will get approved. Whether it will get approved exactly in the form that it is now, I think there is, at least a lot of companies that are hopeful it will get approved so the issue can get behind us.

And final question, since you didn't put a question limit on us --

I see. I think I got you up to four so far.

Did you put out a -- I may have missed it in your statements on the ID card business. Usually, you at least give us some sort of couched phrase that implies the growth. I don't think I heard anything this quarter?

No -- actually, the business is healthy. There are a couple of new product announcements, and no, we're pleased with the business. And we -- just as a side light, in addition to the card business, we do continue to make progress in the photographic printing business as well, which is part of that same division for Zebra.

Okay. Thank you very much.

You're very welcome. You're done, huh?

I'm done.

Your next question comes from Reik Reed with Robert W. Baird & Company.

Good morning. Could you guys talk a little bit more about the mobile printing side of things and what you're seeing in terms of trends and I guess a couple of questions on it. What is driving it? Has it been new product development? Has it been solution development? Has it just been the general trends that we're seeing with mobile computing and then secondly, are you seeing trends basically hold steady or are you starting to see them or have they been, and they will they continue to accelerate?

Our business in the mobile area is very positive. And from my perspective, when we started in the mobile business, it was predominantly a business that served the retail space. And it continues to do so. Retail space is -- many applications for the technology.

However, what Zebra has done is we have gone after additional applications outside the retail space. We have extended our distribution from being a direct to user distribution to a broader distribution model. And we have geographically expanded our position -- marketing position of mobile products. And so particularly in Europe, where we derive roughly 30% of our business, we have found a number of customers for the product. So mobile printing is an important piece of Zebra's future. It goes hand in glove with a lot of the PDAs that you find in the marketplace. So the growth in terms of the PDAs, the increased functionality, lower price points, all of those things -- and the basic proliferation of wireless technology in a variety of markets, not the least of which is, you know, the traditional PC marketplace, has, I think, all contributed to our success and the success of the industry relative to doing mobile printing.

And given that, Ed, you just mentioned that you have expanded beyond retail into what are a number of segments and added distribution, is this a situation where you would continue to see growth push forward and accelerate? Or is it kind of holding steady at this point?

In terms of the growth rate?

Yes.

I don't know if I can -- it's hard to really say. Even our sales in this particular area, they're not particularly stable sales. They're not stable because for us, so much of what it is we sell are larger unit types of orders. So you can see, you know a lot -- when you look at us from a quarter-to-quarter basis, it's, you know, the numbers are not consistent growth rates. They move around quite a bit.

So it's difficult for me to say -- it's even difficult for me to say, well what is the growth rate for '04? For us, it's a good number. And to -- to be able to tell you whether or not it's going to be higher, lower, or the same in '05, I just really can't answer your question. I mean, I don't have enough data to allow me to answer that question.

And just one follow-up on RFID.

Right.

You talked about the supplies business a second ago. I wonder if you can just elaborate from the standpoint that as you sell RFID inlays embedded in bar code labels, the average price would presumably be significantly higher. So therefore, as your printer sales accelerate and you sell more supplies with those printers, will we see a big bump-up in growth for supplies just because of that average price differential? Can you talk about if that's the case, what will that mean to the overall margins for the Company?

I know where you're going with this, and certainly the AUP of a label that's an RFID smart label is materially different than that of most other labels that you find going through a bar code printer or receipt printer. And yes, to the extent that that volume becomes significant for Zebra, it would have then a dramatic effect on our supplies business.

However, you know, we have not made specific announcements relative to the providing of smart labels to run through printers. As I mentioned earlier in the call, we do that, we provide that for some customers, but in terms -- to what extent Zebra is going to participate in that space, you know, we have not made indication of that.

Great. Thank you.

Sure.

Your next question comes from Mark Roberts with Wachovia Securities.

Good morning. A couple of questions, if I could. I know you don't want to talk about the specific customers, but when you were talking about earlier how substantially well you're doing in the RFID pilot trials that are going on, for DOD and Wal-Mart and some of the other vendors, could you give us a percentage, you know, round numbers of what market share you think you have in those trials? Is it half? Is it 2/3? Can you give us a sense of the magnitude of how well you're doing?

I don't think I can give you any kind of a numeric indication. But I can tell you that I don't offhand know of many trials where we're not participating in the trials. That's not to say that we're the only Company or the only printer/encoder company that's participating in the trials because sometimes there's more than one vendor. And, you know, what one person might call a trial or a pilot another person might not call that a trial. So, you know, it's not exactly clear what is a trial and what is not a trial.

We have gone through many, many, many, many evaluations. I don't know how many, but a very significant number. And we -- I can tell you that, you know, a reasonable number of those, you know, we've been to the best of my knowledge, the only company that's been involved with that particular pilot. But no, I can't quantify it for you.

My sense is that we are doing well, but we do see various competitors in various locations. I think there's several companies that have reasonable product offerings, and, you know, they should be considered -- they are being considered by some of the companies who are running their various pilots.

Okay. Also, one of your competitors has been asserting a licensing, an IP licensing scheme, whereby printer makers that contain RFID encoders would be liable for a royalty payment on each printer. Can you give us -- can you give us a status update? Have you signed a license to pay royalties or have you all drawn a conclusion as to whether or not you will need to license -- sign a royalty-bearing license with anyone?

I really don't have any comment on that at this point in time.

All my other questions have been answered. Thank you.

Thank you.

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

Good morning, gentlemen, and congratulations on a great quarter.

Good morning. Thank you very much.

On the gross margin front, one of the things that we've been hearing from some of the companies in the space would be that commodity prices might be beginning to impact your costs of goods sold. Is that something that you're seeing already and what kind of pricing contracts do you have for some of the raw materials that you use in your manufacturing of printers?

Ajit, we procure the materials that go into our printers on a global basis. We have, indeed, seen some price pressure in areas of steel, in particular, which go into our enclosures. But overall, I would say that we are are still able to get favorable -- negotiate favorable contracts with our vendor base, and we have, as you know, we have an active program to systematically reduce product cost. And we still think we have a ways to go on that. But yes, there are some price increases, but I would not characterize them as significant at this point.

Okay. And the second question is the Atlantek acquisition and some of your [inaudible - highly accented language] technology. Is that something you are able to actually apply from the technology [inaudible - highly accented language] into your card printers, and going forward, you know, that business, are you looking for other addressable markets, for Atlantek start-ups rather than the conventional studios that you've been targeting?

First off, within our card group, as longs a we've been in the business, we have been using dye to fusion technology, D2T2, and that same technology has been used by Atlantek. So there's really no change from the perspective of utilization of that technology in card printers. However, Atlantek, at the point in time of the acquisition, was manufacturing a product known as the ML-500. That is a professional digital printing device for photographs. It produces 8 X 10s, it produces banners, and we utilize in that printing device, also, the same actual printing technology. Now, we deploy the technology in a different way in that particular product.

With dye to fusion, you can get your colors by having panel ribbons, so there are several panels on the ribbon that have different colors, or you can do it by having several different rolls, each roll being a different color and having multiple print heads. So in the card printer business, it's by and large panel ribbon approach that we're utilizing in our issuance card printers. And on the other hand, in the ML-500 that I mentioned, that utilizes multiple rolls, multiple print head in order to do its imaging. So I think your question, this is quite a long answer, I think your question was are we looking to extend that technology to other customers and other markets, and the answer to that is, yes, we are.

And a follow-up question. Over the past couple of quarters, you have seen a number of your competitors in the bar code printer market, encoder market, come out with lots of new products of bar code printer RFID upgradable capability. Now is that you think is beginning impact your margins or you feel that most of the players in the space are still not competing and trying to shape their products in other ways?

Well, I don't think if you look at our reported margins, I don't think it's affecting our margins. The -- I mean, competition always has some effect on margin, but if you mean are the prices that are offered by our competition causing us to have to reduce our price in order to remain competitive, I can't think of too many situations where price competition has resulted in us reducing price. There are some situations that come up from time to time, and there are individual cases, individual customer situations, where we might become more aggressive -- might just become more aggressive.

But -- you know, Zebra -- Zebra's strategy is a strategy of trying to offer products that is differentiated from that of its competition that goes a long way towards satisfying the specific customer needs, and that match of the capabilities of our products together with what the customer requires, generally, if, in fact, the competition doesn't have that capability, and in many cases they don't, they're willing to pay the price in order to get that functionality and other benefits of our products. Our products tend to be -- we emphasize reliability and durability and quality and, you know, believe that we are one of the best at doing that in the marketplace and have done that for a very, very long time. So in essence, the answer is we try and not compete just on price. We try and compete on other basis.

Thank you so much and congratulations again on a great quarter.

Okay. You're very welcome.

The next question comes from Philip Auling [ph] with Bear Sterns.

Thanks very much. I wanted to circle back to the ThingMagic announcement your made this morning with respect to licensing technology in the RFID space. Are you licensing encoder technology from other suppliers, and could you speak to the need for proprietary technology in this area?

I really am not going to announce any other arrangements with any other suppliers. I do think this is an early stage industry. It's just -- I would hardly say it's even emerging. It's very early stages of development. And consequently, the technology is in the hands of many, many people. The importance of that technology seems to change very, very quickly.

So things that may seem to be very important today, perhaps in a month or two won't be very important because of other solutions to the problems that perhaps get around some IP that may be out there or maybe offer superior results to some of the technology that's already in the marketplace. And Zebra has an active effort in terms of advancing the technology, looking for better ways to deliver the capabilities customers are looking for. And I think it's -- one thing you can expect a lot of is more change as it relates to this.

You mentioned in your prepared remarks, really, about using the cash that you're building up there in terms of, you know, making acquisitions.

Right.

Should investors expect that RFID is going to be a focus of some of your acquisition activity, and could you give us update, I believe that you had planned to hire some staff in particular the M&A area, and whether those hires have in fact been made and if those people are up to speed.

We have a search in the M&A area, and we don't have anything to announcements to make as it relates to that. And I'm sorry -- the first part -- oh, the M&A activity. Yes. We would like very much to deploy that activity. And would we, in fact, consider opportunities within the RFID space, and the answer is yes. We certainly would consider opportunities in that space.

Should investors expect that maybe even diluted acquisitions could be part of the growth strategy going forward?

I guess that's possible, but probably not too likely. It really depends -- some of the companies in the RFID space in particular, they don't have revenues, so they'll be diluted and they don't have earnings in many cases. So they will be diluted for perhaps a short period of time. That wouldn't be the intent to remain diluted very long and in some cases, you're just going after technology per se, and if you just look at the bucks you put out and the fact that you get back technology, and the technology doesn't convert itself into product for some length of time, those are also dilutive. So in the RFID space, I think there's a reasonable chance for delusion.

Excellent, Ed, thanks very much.

Right.

Your next question comes from Richard Davis with Richard W. Davis & Co.

Yes. Congratulations on an excellent quarter.

Thank you.

My question relates to the technology on RFID, whether you're seeing progress, particularly on the reader side, in some of the known problems like reading in liquids and that sort of thing?

Yeah. Well, this announcement, of course, with ThingMagic, there is the module or part of the module that's used within the printer, is, of course, a reading device. So we learn and know a lot about readers. And, in fact, as you mentioned, or as suggested, that the technology is advancing. And it most certainly is.

Relative to reading and when you put the labels on various kinds of materials, progress has been made in that regard. And I think it comes down to a lot relative to the placement of a label on the individual carton and the intended design that you use based upon the contents that are within the carton. So there are a number of companies that are investing resources in that, and, yeah, progress is indeed being made.

I'd like to say at this point with respect to the timing of the call, I know it's a busy time for everybody, so we're going so have one more person request a question, and then we'll terminate the call at that point.

Your final question comes from Marty Mosier with Mason Street Advisors.

Hi, Randy. Could you quantify the mobile piece from October that was pulled forward just to try to get a normalized growth rate?

Boy, oh, boy, I finally get a question, and I can't answer it. No, it was, I would say, in the range of a couple million dollars.

Okay.

It was one of these things that -- you have to appreciate that the products we are making here are in very high demand, and this particular customer requested an advancement of a shipment that was originally scheduled to go out in October. The reason for us calling this out is it will affect the relative growth rates in both quarters, in both the third and fourth quarter. I think it's illuminating to look at the second half expected sales for Zebra versus the actual second half of 2003. And you will note, if you do the math, the sales were up 22%. So the strength of the business should not be, you know, I would say misinterpreted by the shift of the timing of this one particular order because it does affect the results.

Since you brought that up, I wanted to quantify it. And back to Ed, RFID historically said it was immaterial. And this quarter, I sensed that -- it was implied that maybe it was material, and then with the order comments, maybe it was material going forward. Can you maybe quantify that a little bit?

I really am not going to do any quantification of RFID sales. We have a policy of not segmenting our different printer product lines, and I don't see a particular reason to change that. Zebra has, I think, it's seven different categories of printer products, and to single out one of them at this particular point in time is not something that we choose to do.

I guess I was just noting a change in sort of the commentary.

In terms of improvement, there is no question that our business in the RFID space is improving -- significantly improving.

Yeah.

And, you know, into the fourth quarter, it is continuing to show us that there is, you know, real demand out there. People who have a real problem and they're serious about solving the problems that they have.

We're very encouraged by the order flow and the amount of evaluation work that is being done on an international basis, predominantly, the United States and Europe, but in some other places as well. And so the progress that we're making in RFID is very material. The amount of staffing that we've done, and the amount of increase in staffing that we're contemplating in the fourth quarter is important, and we're doing it because of our confidence that this is going the be a good place for us to be participating in. But lots of uncertainty.

Thank you very much.

Again, I'd like to thank you all for your participation in today's conference call. Just a reminder, our Q4 and fiscal year-end 2004 conference call is scheduled for February 9th. We look forward to talking with about some more great results from Zebra at that time. Well thank again for your participation, and have a good day.

Ladies and gentlemen, this concludes the Zebra Technologies third quarter earnings release conference call. You may now disconnect.