Good morning, everyone, and welcome. We're super pleased today to have Bill Burns, the relatively new CEO of Zebra Technologies, join us. Just one housekeeping item. I do have a pretty full list of questions for Bill. If there are questions that you have, you can submit them via the Pigeonhole application. There is a, you can scan an item from your program, and that'll take you to Pigeonhole, and you can submit them, and they'll pop up here. Without further ado, we'll plunge right in. You became CEO officially in 2023. It was obviously a planned transition. You've been at Zebra since 2015. You know, Anders set a tough precedent. Right. I think the stock was a 10-bagger during his tenure. Maybe you can just talk a little bit about what might be different under your tenure, what you think are kind of the principal areas of focus for you. As you said, I've been with Zebra seven years, leading their product and solutions team, so all the engineering teams and product management that really, you know, innovate and continue to invest, not only organically but, you know, through expansion in new markets. Zebra perspective, you know, we really think about, you know, empowering our customers to thrive in an on-demand economy, right? I think that that's not gonna change. We think about digitizing and automating the environments our customers are in. You know, 86% of the Fortune 500 customers, you know, or businesses are our customers today. We serve those... You know, you see our products in everyday life, the, you know, scanners at front of store, you know, sales, point of sale. You see us mobile devices being used for parcel delivery. You see our devices being used, you know, in hospital environments, where we're printing hospital wristbands or scanning, you know, patients or medications. Everyday life, Zebra is used, you know, each and every day. That's not gonna change. We invested in some new areas, robotics, you know, autonomous mobile robots, machine vision, fixed industrial scanning, and our retail software. We layer that on top of our mobile devices, our scanners, our printers, our tablet portfolio, RFID, and these three new expansion areas. You know, from my perspective, my focus is, you know, where you'd expect, first and foremost, our customers and partners. About 80% of our business today is done through our channel partners around the globe and through two-tier distribution. You know, continue to focus on them. They're really important to our success. Second is driving the growth of the portfolio, so profitable growth across the portfolio, which means, you know, our core businesses continue to grow. These adjacencies I talked about grow a bit faster, and then these expansion businesses are really taking them from a small piece of Zebra's revenue to much larger. Then, as you'd expect, talent and culture, right? We've got a great culture at Zebra. As you said, you know, Anders is the only, the second CEO of a 50-year history of Zebra. I'm the third. We've got a great culture, a great team around the world, and how do we continue to attract and maintain and grow the best talent we can around the globe? A inclusive and diverse nature is really important to us as a company, and I think that, you know, if we do that, we'll continue to drive profitable growth for the company. Great. You just reported earnings at the beginning of May. Yep. You did lower your earnings outlook for the upcoming fiscal Q2. Yeah ... and for fiscal 2023. Maybe you can talk a little bit about what you're seeing and what changed over the course of the quarter, to lead to that change in outlook, and maybe, you know, start just kind of macro, either sectors, geographies, et cetera. For sure. You know, I think what we saw in, you know, going into the year is that, you know, we're seeing a trend that ultimately our run rate business continued to be strong in the Q1. Think of that as orders through distribution, ultimately below $1 million. We saw projects continue to develop within our customer base and some projects move ahead in Q1. You know, the verticals we serve are retail, transportation, logistics, manufacturing, and healthcare. Across most of our retail customers, at towards the end of Q1, we saw, you know, their larger projects, you know, kind of being pulled back, and I think our Chief Revenue Officer described this well on our Q1 call. You take a retail customer. They ultimately are gonna spend X amount of dollars with you in the year. You know, they spend $5 million with you in the Q1. As their budgets kind of get released, they move ahead with their capital program. As we got towards the end of Q2, our lead times have come in to more normal levels, so kind of four to six-week delivery. Our sales team sit down with, you know, the end customer and said, "Okay, that $20 million project you were gonna move ahead with in Q2, you know, you know, time to kind of move ahead with those." The customer says, "Well, we're cutting back on our CapEx spend. I'm gonna move ahead with $10 million of those projects, but the other project, I'm gonna hold off on." We say, "Okay, you know, does that still make sense? Is this still gonna move forward? Do you see it happening?" He says, "Yes, it has an ROI. It has a strong ROI. It's something we want to go ahead with, but I just don't have the capital dollars today to go do that. We're cutting back from an expense perspective, as we're seeing our top line slow." "When?" The question then ultimately becomes: When does the next $10 million come back? "Well, if I get year-end money from a CapEx perspective, I'll move ahead with the project. If not, we'll move ahead in, you know, in 2024. It's that visibility that's been challenging for our sales team, and we saw that most pronounced in retail, in towards this, you know, latter half of, Q1. In Q1, we saw transportation, logistics, manufacturing, healthcare all grow within the quarter. As we got towards the end of Q1, we started to see the run rate continue to moderate a bit, which, you know, tells us the other verticals are slowing a little. You know, and I think also what we see is, because we sell through two-tier distribution. what we see is that if the end demand slows, this run rate business, we see an oversize effect immediately from our distributors, meaning the inventory that they hold, they have to hold, they'll hold the same amount of inventory, but they're selling less out, so they have to buy less from us, which is really what our revenue is counted on, is sales into distribution. You see an outside effect associated with that, which is really the impact you're seeing on Q2, is this large order delays that I described and some of the run rate slowing, which is causing our distributors to say, "Okay, I have the right level of inventory. I'm selling less out, so I don't have to buy as much from Zebra. Zebra's delivery intervals have come down, so I don't need to hold as much inventory 'cause I can get the product for much, which is a good thing for customers ultimately, but bad for us in the short term. My cost of capital is higher, so I don't wanna hold excess inventory if I don't have to. I think what we're seeing is in Q2, you know, an oversize effect on distribution pulling back and these large orders delayed, and then, you know, that impacted the full year guide as well. I think the biggest challenge we have at the moment is visibility. It's primarily in retail today. We see some slowing in the other vertical markets, but to date, they've been holding up better. I think it's primarily because the projects in retail were kind of smaller in nature, large TNL projects, large manufacturing projects. You know, when a project started with Zebra, it doesn't get canceled. It just gets, you know, new projects aren't started as quickly. Retail is, you know, kind of the $5 million to $8 million to $10 million projects, wherein, you know, manufacturing or TNL, you see larger projects, and they continue to roll out, so. Bill, you mentioned the U.S. What were you seeing outside the U.S.? Yeah. Did you see the same kind of phenomena, or were Europe and Asia-Pacific, you know, less impacted in terms of the slowdown that you saw in retail and perhaps some of the other... Yeah, I think we saw about the same in retail across both Europe and North America. I would say Asia's a little bit different, where we, you know, we're hoping for a bit more rebound, coming out of China from a COVID perspective that we haven't quite seen. I think we've seen others kind of comment at that as well. We were hoping for a stronger recovery in the China market that, you know, we haven't quite seen yet. We've seen some recovery, but not, I think, the level that everyone would like to see. Latin America had some tough compares from the prior year, I would say predominantly retail and predominantly in North America and Europe. When you talk about customers placing orders, typically, you know, or, you know, are you, how much of your business is backlog driven? You know, how do we think about, you know, that backlog level relative to historical levels? Yeah. I think in COVID, we clearly saw, you know, backlogs significantly increase as our lead times, you know, grew. Customers, typically, we have visibility, you know, three-month, six-month, larger projects, even longer than that in our customers' planning environments, that ultimately are gonna move ahead with larger projects, depending on the size. You know, we have a fair amount, we have tight customer relationships, either direct or through our channel partners with the end customer, so we have visibility to those projects. The orders for those projects don't need to be placed until, you know, four, six, eight weeks, 12 weeks before those projects. Some of the projects are ordered and then delivered over time. If I'm doing a full rollout of retail stores or manufacturing facilities or warehouses, I may take delivery of that order over a 12 or 18-month cycle as I go roll it out. We typically, it's not as much about, you know, the backlog we hold. Backlog today is in more normal levels. It's kind of, you know, grown very high during COVID, to come back to more normal levels. I think it's more the visibility of the end customer orders, which is this six to eight week. We have visibility to the project, but as the example I gave earlier, in the past, we were fairly confident that project was gonna go through. They were gonna spend that $5 million in the Q1, and they were gonna spend that $20 million in Q2. Now it's, "I'm gonna spend $10 million instead. Right. That's the dynamic I think we see typically in a tougher macro environment, that the visibility is there to the project, but they don't always move forward. The project is visible to you, but not contract? That's right. Correct. Okay. Not ordered. Right. Yeah. Is, I mean, typically, do you believe your business is correlated with, you know, historically, IT spending at the corporate level is correlated with corporate GDP and-? Yeah Corporate earnings. Is that ultimately what you see, that it's correlated with those factors, or is it more correlated to employment, or is it more correlated with, some other factor? Yeah. I mean, we use a number of factors to kind of look at, you know, predicting the future of the business, a lot of which is just our solid customer relationships and conversations with them. That's where it starts. From a broader perspective, you know, GDP obviously is a factor we look at. Across our mobile computing, our mobile device portfolio, we look at IT device spend. That's a, you know, CapEx spend of our customers. That's another, you know, indicator, clearly. You know, what our customers typically say publicly is what they typically go do. You know, we've seen the largest e-commerce supplier in North America publicly say, you know, "I'm pulling back on my spending. I overbought." They were one of the few that actually overbought. You know, most have bought the right amount of inventory. They're just cutting back on what they're spending. IT device spend correlated to what we do, GDP, a bunch of other factors, CapEx spend of our customers. Clearly, their top line is influenced as well. I mean, you've seen some of the, you know, the home improvement retailers, you know, be challenged on the top line, and then they've ultimately become more conservative about what they want to spend. In response to a more sluggish demand environment, what are you able to do, either from a demand stimulation perspective or from a cost-cutting perspective? Yeah, we're focused on both. I think that, you know, the only positive of a, you know, kind of a downturn from a macro perspective is, you know, it makes you kind of look at your business a bit harder in both areas, right? Is there areas where I can get more share of wallet? Are there areas in which I could do more business that I'm not doing today? You know, from a vertical market perspective, government's a good area where our sales teams are focused more on government spending than they have in the past. There's markets such as, you know, Japan in Asia. It's the second largest market for our products and solutions, but we have very little share. You know, around the globe for printing and mobile computing, we have about 50% share. In Japan, overall, I have 4% share. It's grown to 6% share. We've addressed that market in a different way now. We've partnered with larger Japanese partners like Docomo and Sharp, and we've won the largest retailer and a large postal opportunity most recently in Japan. I think that we're staying close to our customers, really understanding when that buying signal is gonna come back, when they're gonna have more, you know, CapEx to spend. How do I sell them more? How do I analyze across my business where I have differing shares in different geographies or different vertical markets? You know, Do I have large share in manufacturing in one geography, but less, you know, scanning, portfolio? 'Cause I compete many times around the world with the same competitors, so there's no real reason why I should have differing share other than kind of focus of the sales team. How do I do more with my current customers? I think from a cost perspective, I think that, you know, overall, we have a bit of variable cost structure around things like incentives and others that come down, obviously, if we're selling less and not meeting, you know, where we wanna be at from a business perspective. We've tightened, you know, hiring and really have looked at, you know, only critical requisitions and hiring. There's always some critical positions you need to hire. For the most part, we've slowed down hiring. Real estate, all the things you'd expect. We're looking across the portfolio and saying: Are there places ultimately that we could be more thoughtful about spending in the short term? I think we have conviction around, you know, the long term, really around the idea of digitizing and automating environments is something our customers need to continue to do. We feel good about the investments we're making across the core, the adjacencies, and these new expansion areas. Wanna be thoughtful about what we do on the expense side of things. We're clearly gonna bring down, you know, our expense levels in the short term to marry what the top line's doing. Right. I mean, you have relatively high gross margins, so do you think about marginal contribution on the way up and way down? So do we think about marginal contribution? Mm. -being, like, 30% or 35% on the incremental dollar, either gained or lost? If so, you know, can you really get expense out quickly enough so that you don't have, you know, more asymmetric pressure- Right ... on operating profit and EPS? I mean, it's always easier to be growing on the top line. Of course. ... and scaling e-expenses along with it, versus the reverse side of that. You can't save your way out of, you know, the environment we're in today. We certainly can be very cautious and thoughtful around spending, and we're gonna go do that, and we have a history of doing that. We've also seen recovery come very quickly, you know, and, you know, the most recent example is, you know, during COVID, we were flat in Q1, down 10% in 2nd, flat in 3rd, and up 10% in Q4 in the same year, right? I'm not saying that's the same environment we're in today, 'cause I think this is a more pronounced and a bit longer, but we will see our customers come back and spend. They need to go move forward. The biggest challenge to gross margin has been really the supply chain challenges, is, you know, freight and costs, which were, you know, $180 million a year ago, down to $40 million this year. That's helping gross margin. Then, of course, we're being cautious on the, on the expense side. You know, gross margin's coming our way for other factors other than macro. We've had some price increases, you know, put through, primarily as our costs have gone up. You know, they're, you know, we're seeing those flow through in H2 of the year as well. You would think that's kinda counter to what's happening from a macro environment. I think we've seen our competitors and us pass on some of the cost that we're seeing from an increase, you know, perspective. There's no cap on, you know, EBITDA margin, necessarily. I think that, you know, we see, as our expansion businesses continue to be a bigger part of the business, they have higher gross margin areas. Software, for instance, our retail software portfolio, machine vision, and fixed industrial scanning, our robotics, you know, really as a service revenue is higher gross margin than our core. As they become a bigger piece of the business, we see, you know, EBITDA expansion, you know, opportunities as well. You have a longer-term growth target of 5%-7%. Yes. You know, just going back, 2018 to 2023, you've grown 30%. That would be a CAGR of 5.3. Yeah. you're kind of in that ZIP code. Yeah. Are you still confident with that revenue target? How do you think about it between your AIT business and your EVM business, in terms of which, what each of those grows, and then kind of how do you layer in the new opportunities? What's the waterfall build? Yeah ... to the five to seven? Yeah. I think that, you know, for a long time, we said, you know, the long-term growth rate was 4%-5%. We, you know, since the acquisition, the history is, you know, billion-dollar specialty printing business that Zebra acquired, $2.5 billion revenue stream, and the Symbol business from Motorola back in November 2014. Since then, you know, $3.5 billion business grows to $5.8 billion. You know, the growth rate through that cycle, we've exceeded the 4%-5% growth rate. That's why we moved it up to 5%-7%. We believe the portfolio supports that. Ultimately, we believe that the core portfolio products are rugged mobile devices, are scanners, that you see in everything from retail to industrial applications. You know, our industrial printing portfolio, all of which we're the number one market share leader, by far, across the globe in those three areas, it'll continue to grow at this 4%-5% level. We layer on top of it. Do you think of each growing at the same, or do you think of your? There's- ... device business growing faster than the other business? Yeah. I mean, there's always variation across it. Our largest, you know, portfolio is our mobile devices. You know, we've seen, you know, most recently, you've seen a lot of variation in growth rates because of supply chain challenges, you know, of a year, over the last 1.5 years or so, but all of which have opportunities to grow in that range. As we continue to see market growth rates, but opportunities that still take share even higher than we have today, you know, across the portfolio, across different geographies, we believe all those product segments can pretty much grow at that rate. We think of, you know, high single-digit growth rates for some of the adjacent areas. Think of rugged tablet. You know, I go back, you know, four or five years ago, you know, we had no real tablet, rugged tablet portfolio, even though we had mobile devices. People wanna use larger screens. Think of a manager in a retail store, think of somebody doing dock walks inside TNL. They want a larger screen format. We just didn't have a portfolio there. We made an organic We actually OEM'd a tablet initially, then made organic investment, then acquired Xplore. Now we're the leader in rugged tablets. If we put our mind to something, you know, we can go win share in those markets. They grow at, you know, high single digits, so think of RFID technology, think of rugged tablets. Bioptic scanning is another market, so flatbed scanning you see in supermarkets. We weren't in that market at all seven years ago. Now we're the market leader. Our supplies business that go along with our print grows at outside growth, you know, beyond our printing portfolio. We think of those adjacencies growing high single digits. growing even faster than that, but much smaller businesses for us today are the three new expansion areas. machine vision, fixed industrial scanning, our retail software that ties those mobile devices inside the hands of the associates in retail, and, you know, and then our autonomous mobile robots is really its infancy today. All of those grow outside growth, but are a smaller piece of the portfolio, but create a tremendous opportunity for us moving forward. We marry all that together, we come to about a, you know, a served market of about $30 billion. you know, it's a interesting market for us. If we think about the core businesses, I mean, you have been a share gainer. I think you have greater than 50% share in the mobile... Yeah handhelds. you know, that would sort of imply that the core markets themselves probably aren't really growing much, right? 'Cause you're gaining share, and then you're growing at kind of 4%- 5%. Yeah. This continued growth feels predicated on continued share gains. How do you feel confident, particularly as you start to get to those dominant market positions? Yep that you can continue to gain share? I mean, we see the share of our core portfolio, you know... Sorry, we see the market growth rates of our core portfolio really being kinda 3%-4% growth, and then we layer one point of share on top of them, right? That's how we think about it. You know, market share doesn't come easily, even though, you know, we are the market share leader, and we've continued, even in down markets, continued to maintain or gain share. Clearly, this is about macro in the short term, but we think of it as them growing 3%-4% and then layering one point of share on top of it. We don't need all share gains to go grow our core portfolio at that rate. Some of the new expansion businesses, you know, grow faster. Machine vision and fixed industrial scanning is, you know, we have very small business. In that case, we're, you know, number 10 in the market today, both through an organic investment and the acquisition of Matrox and Adaptive Vision. We see a tremendous opportunity to take some of that growth away and actually go compete in that market, which is fairly fragmented today. People think of the leaders, but we have an opportunity where we put our minds to something to really take share. In your core, you know, handheld business, like, which competitors do you think most about? I mean, you know, there are a lot of players in it, Panasonic, Honeywell, Datalogic, et cetera, et cetera. Yeah. Like, is there an emerging competitor that? You know, how do you describe the competitive environment? Yeah. You know, today, you know, inside, you know, rugged mobile devices, I've got, you know, 50% share today. The largest competitor is probably at 15% share, you know, and then, you know, lower from there. We clearly are the market share leader. I think we continue to spend the most in R&D across the portfolio. We continue to look at tiering the portfolio, good, better, best, to make sure we're serving the markets around the globe. More, you know, value-conscious, you know, buyers in China and India and locations like that, Latin America. Continue to have the high end of the portfolio for buyers, ultimately, that want more rugged designs, want more memory, faster processing speeds, bigger screens, those kind of things. We think a lot about the portfolio and then how we continue to enhance that. We developed some specific products for the Japanese market that I mentioned, you know, before, that ultimately allows us to compete in markets that, you know, we weren't in today. We're very thoughtful across the portfolio, and we see, you know, we're always gonna have competitors. As the market leader, you know, we spend more on research and development. We have more advances across, you know, software and hardware. We've got the more resources to blend gross margin around the world, so we can be more aggressive on price where we need to be. I think that's all an advantage for us. Right. I mean, I've You know, when I first looked at Zebra six or seven years ago, when Anders came to the conference, I was struck by how high gross margins are in that business. You know, I'm a hardware analyst. PCs have 10% gross margins. Right. Tablets have, like, 15% gross margins. You know, your products have 45% gross margins, right? Mm-hmm. You talk about growth in emerging markets, where, you know, price points probably are lower. Yep. Why has this business, or why won't this business, I guess, going forward, particularly in emerging markets, move to lower price points and lower margins going forward? Yeah. I think we have seen, you know, some markets where we've tiered the portfolio, you know, move to a lower ASP-type device. We've been able to maintain, you know, the same level of gross margin. You know, prior to COVID. Even same level? 'Cause typically, the rule is the higher the ASP, the higher the gross margin percentage, right? Yeah, not... Yeah, not necessarily, right? I mean, obviously, you get less- Well, that's impressive if you can do it. ... dollar, but we try to get the same, you know, same amount of gross margin dollars where we. Sorry. Percent ... percentage Right ... you know, where we can. Can you always get that? No, right? There's other markets that are price sensitive, but you know, as the global leader, it allows you to be able to balance gross margin and profitability around the globe. I can go compete where I need to go compete. You know, largest customers get the biggest discounts, right? Some markets are more price-sensitive than others. You know, we spend a lot of time understanding pricing of both our pricing into the market, our competitor's pricing into the market. Ultimately, we look at it not just at end pricing in the market, but also what's the amount of money that our partners are making on each sale, both distribution and our end partners? It's really important that we want them to sell our product versus our competitors. We spend a lot of time on price and really understanding price in the marketplace. We've been cautious around, you know, raising price as the market leader to be, you know. Despite that, you know, we have raised pricing, and then that has made sense. We've been able to. You know, there's no reason why gross margins, you know, prior to COVID, were reaching almost 50%, you know, 49.5%. There's no reason why, as supply chain challenges abate, as FX comes our way a little bit, as we get back to our supply chain teams, really working with our suppliers to lower costs versus raise them and pay premiums for parts to go get them, that we couldn't see gross margin go back to what it was pre-COVID. There's no reason why not. Right. Yeah, no, I mean, it's to your credit, margins have gone up. You know, historically, this is hardware's not a business- Right - where one's able to differentiate. I think that, you know, the value is really in our software as well, right? Yeah. I mean, we add a lot of, you know, on top of those, you know, rugged mobile devices, first of all, they're mission-critical in our customers' environments. You know, we layer a layer of, you know, security on top of those devices, usability on top of those devices. We layer software that allows them to provision those devices and put them in the environment, right? There's a lot of value we bring to our end customers that ultimately is really software related. The predominance number of our engineers are really software. I've got very small hardware teams, quite honestly. Right compared to the amount of hardware I sell. third parties can write to that platform, right? Yep. Typically, when you have hardware where third parties can write to that... Yep ... it becomes more difficult to capture that software premium. Yeah, I think that, you know, we layer on our mobile devices on top of Android. We've got a close working relationship with both Google and Qualcomm, so we're at the forefront of, you know, chipset development. We're on the forefront of, you know, Google Android releases. We're first to market in technology, right? You know, first to market on 5G devices, you know, Wi-Fi 6. As the emerging of technology moves forward, how do I go to faster speeds to support more applications? There's a lot to being the market leader and maintaining that, and we have a great product management team that really understands our end markets and, you know, keeps us ahead and leverages those relationships we have, you know, with our partners like Google and Qualcomm, to really bring the best to market. Right. This is principally a replacement business. There's obviously new customers, new geographies that you talked about. Yeah. How do you think about the replacement cycle? Yeah. You know, to the degree that the products are becoming better and more durable, and software is upgradable, what have you seen with replacement cycles, and do you worry about lengthening replacement cycles? Clearly, something on the, on the consumer handset side- Yeah ... you know, we've seen at play- Yeah this is. Yeah. I think that we, you know, a large portion of the business clearly is replacement and the idea that, you know, we have customers of all sizes, from mom-and-pop retail customers to small transportation logistics customers to the large postal customers to the largest, you know, manufacturers and TNL customers in the world. As I said before, 86% of the Fortune 500 are our customers, so are a lot of small and medium businesses across that. A lot of our business is, you know, repeat business or refresh business across the portfolio, but there's also new hands to be served. You know, you think of retail stores and a device in the hands of every retail associate. That takes place today in the largest retailers in the U.S. It doesn't take place, you know, in a lot of other retailers. You think of, you know, inside a retail store, now communication and collaboration across the associates is ever more important. You know, some of our retail customers would tell us, "If you and I are working two or three aisles apart, we may as well be in a forest away from each other." That doesn't cause camaraderie or be able to have communication between, you know, the two of us that makes me actually feel like I'm engaged and involved and have a camaraderie with my counterparts in the store. How do I engage those associates? The number one thing said in a retail store across the walkie-talkie is, you know, "Bill, where are you?" Right? You know, so things like communication and collaboration software drive the need for devices in the hands of every retail associate. Think of a hospital environment where nurses have devices today, but what about cafeteria workers, or what about the cleaning staff that's turning over rooms that are, you know, that are very expensive to leave empty, right? There's lots of other unserved hands that we could see mobile devices being used within. We think this trend to digitize and automate environments drive other aspects of our business, like RFID. Not just, you know, how do I have a barcode label, but how do I have an electronic label, ultimately, that there's more automation to allowing me to tell, you know, where something is in the environment without having to scan a barcode? How do I do that in a more scaled way overall? I think we're seeing other elements of our business, not just, you know, more served hands within mobile devices, but also new applications like RFID driving our business. Right. I appreciate that opportunity. Thank you. Just back on the replacement cycle. Yeah ... how do you think about it? Oh. What do you think is kind of length now? Is there a risk that it could structurally elongate? Oh, yeah, I mean. Structurally shorten to your benefit? Typically, you know, typical upgrade cycle, you know, or refresh cycle of, you know, would be 3-5 years, could be a bit longer on printing, you know, in that area. Think of it as kind of 3-5 years across large deployments. Across a large deployment, a customer typically would buy, you know, 30,000 devices to roll across retail or warehouse complex or TNL drivers or others, then they'd continue to buy along the way. They probably buy another 25%, 30%, maybe more of devices over that time period. They don't just buy, stop buying. Right. They replace devices that get lost or stolen or, you know, broken or others within their environment. They have new employees coming on. They open new warehouses or new stores. We continue to see that ongoing, you know, refresh of what they have. We track the largest, you know, customers, and ultimately, when their refresh cycles come in, they're all on a different cycle of when they're deploying, you know, products, you know, across the different verticals and others. That gives us. You know, right now we're seeing the challenges certainly around retail and people holding back from a macro environment. Typically, you see kind of a cycle where each different customer across each one of the vertical markets, you know, which makes us less cyclical, even though we're seeing clearly cyclicality now in retail. less cyclical as a business when you take it across transportation, logistics, manufacturing, healthcare, retail, and then you have different deployment cycles or refresh cycles across those. What's the catalyst for upgrading? Again, part of the reason I harp on this is obviously, if you go from a four-year- Yeah -average replacement cycle to a five-year average replacement cycle, that really changes your growth rate. Mm-hmm. You know, we've recently seen enterprises extend depreciable lives on servers from three to four years. Sure. We saw significant extension in PC life cycles over time, right? It's structurally like a really important question. Yeah, yeah. Which is why I'm- Yeah, yeah, no, it's fine. Really trying to get underneath the company. I got it, yeah. You know, what, like, today, is it because it breaks? I mean, you know, the software is continuously updated, I believe. Yep. Is some of your software not compatible with... newer software, not compatible with older versions of Android, that the devices can't be upgraded to? What ultimately is the catalyst for people to upgrade? It's a combination, as you'd expect, of both technology, you know, moving on first and foremost, right? It's, you know, I need to move, you know, I want to move to 5G, right? I've got Wi-Fi 6 deployment, so it's technology. You know, second would be, I want a different form factor of the device, larger screens, smaller screens. I want to move to tablets in the specific application, so it's technology deployment, you know, first and foremost. Second, and driven many times by putting more applications on those devices, so I need more memory, I want faster processing, I want, you know, private 5G networks. I want to use faster speeds of Wi-Fi. Typically driven by applications being used on the devices, which are becoming more and more. As I said, collaboration, task management, workforce management from Zebra alone, the applications of point of sale, applications of payment on those devices are all driving the need for more and upgraded technology. Second is OS. The moving ahead, as I mentioned before, our tight relationship with Qualcomm and Google allows us to get to the forefront of, you know, both chipset rollout as well as, you know, Android release rollout. There still comes to a time, ultimately, where those patches aren't available for those customers, and ultimately, we extend the life and pick the chipsets and the Android releases we want to go on to get on the forefront of that, but eventually, that will run out. Security and upgradability of OS drives the cycle as well. I think ultimately, breakage, loss, all those things are turn into more run rate business for us or those customers. I don't see. Could somebody sweat the assets a little bit better and a little longer in a tougher economic environment? Sure. I think we're seeing that's not going to elongate from 3-4 years to 6-7 years. Those devices just become older in their environments. Right. Bill, maybe we can talk a little bit about software, which you alluded to. Yeah. Higher margin business. Everyone loves software. I think it's 14% or 15% of your revenues today. Do you have an explicit aspiration for what that number should be five years from now? Can you know, question one, question two, is it more subscription or traditional license plus maintenance? Yeah. Number three, what are the biggest software opportunities for Zebra? Yep. The mid-teens is really our software and services business combined. It's the recurring revenue of our SaaS business, as well as recurring revenue across services. Those are principally break-fix maintenance. That's correct. ... contract services? Yes, a combination of OS, you know, upgrades... Yep ... from a security perspective, right? Software upgrades as well as kind of break fix. Okay. That's about 15% of the business is recurring. We think of our supplies business as another 10%, which is quasi-recurring. Right. Kind of recurring, right? Right. Meaning that they continue to buy supplies from us. Right. It's not under contract. Right It's about 25% recurring. The software assets we have predominantly today are focused on retail associate enablement, so leveraging the mobile device in the hands of the retail associates, so communication, collaboration, task management, workforce management, I mentioned before, planning, so retail planning software that ties back to execution, prescriptive analytics, does analytics to the data within a retail environment, and then drives a task to associate. It has the highest value. Those are really focused on. The reason we acquired those assets or developed some organically ourselves, was to leverage that mobile device in the hands of the retail associate. We would obviously like many other businesses, to have more recurring revenue. That's a focus for us. There's some areas that we do have, in the assets we acquired that have more software, revenue content. Our machine vision business, about 15%-20% of their revenue is software, machine vision software, that they ultimately sell. Our robotics business, while it's very small today, one of the key value propositions is our FetchCore software that controls, in the cloud, a whole series of robotic applications. That drives more software content today. We continue to be, you know, inquisitive, in the market around software assets that would make sense, that are within kind of the orbit of what we do today, right? Closely adjacent, selling to the same customer bases. Maybe a different persona within the customer, we've got to go to, you know, reach out a little further than we sell to today. It would make sense from a software perspective. We continue to look and see what's out there, you know, from that perspective. Our focus is grow that software base we have in the retail, grow our machine vision software base, grow our FetchCore software base. You know, we've got software on the mobile devices, most of that's embedded today and comes along with the device. We'd love to have more recurring revenue. That's a focus for us. Right. Do you have an explicit target or a growth premium for the software and services business? No, we haven't specifically come out and said, "You know, I wanted this piece of the business." You know, the challenge there is always, you know, we continue to see growth opportunities across our core and adjacent markets that are, you know, more hardware-oriented. You know, sure, we can have a higher percentage content of software, but that means the growth in those areas is slow, and we don't see that happening. The software business grows faster than that, but it doesn't quite catch-. Right you know, the hardware side of the business. We clearly see an opportunity to add software content to our offerings, but we also continue to see strong growth opportunities within our core and adjacent areas. In the spirit of kind of recurring revenue, have you or do you offer device-as-a-service type offerings? If not, why not? Yeah. In some cases, we do. In the robotics, in autonomous mobile robots, we're seeing more opportunities to do that, where you're marrying kind of robotic software and applications along with robots and the software associated with it. In the mobile device side, we've seen a little bit of it, but not a lot. The primary reason is that as a end customer, say, a store operations manager, it sounds good that I don't have to go get CapEx approved for a big project to, you know, spend more CapEx to re-outfit my store and do an upgrade, you know, or a refresh within the environment. Ultimately, when it comes down to the CFO, it's really a lease, right? Ultimately, let's go spend the capital. We have the capital dollars to go spend. We've seen less interest in that. They want to buy the devices as a capital expenditure. They're layer on a software service agreement with us for, like you said, break, fix, and as well as software on top of that, but less so on a device as a service. Some, but not a lot. Maybe I could ask you about AI broadly. Yep. Is there a role for AI in Zebra product offerings? Is there a role for AI within Zebra itself in a way to improve effectiveness or efficiency? Yep. I think, you know, across the product offering, we think of it as, you know, machine learning kind of first and foremost, and then leveraging, you know, AI. You know, learning across our retail software, we leverage, you know, AI and machine learning around our workforce management software, you know, preferences of employees and others to, you know, in the workforce, and when, what shifts do they want to work, where do they want to work, those kind of things, basic applications. We're using machine vision and AI inside our machine vision portfolio, right, to learn an environment and train models more quickly, ultimately. We're using it in areas like product recognition. Think of identifying, you know, fruits or vegetables at the front of store, at a self-checkout so that it makes it easier for the consumer to ultimately. You know, using algorithms that ultimately, you know, learn what an apple looks like and then ultimately say, "This is an apple," right? More applied. We see AI being used in a combination of not just in the cloud, but at the edge as well, which we believe will drive more mobile device sales moving forward. Again, this upgrade cycle around technology, faster processing, you know, more memory, more use within those applications on those mobile devices, because there's things that'll have to be done in the cloud, that'll have, you know, high processing power needs, but there will also be, you know, product recognition and things that could happen on the device, that ultimately you won't have the connectivity from everywhere to be able to go back to the cloud and get the answer fast enough. We think kind of AI at the edge. We use AI as well in our demand planning software today. Think of taking in, you know, weather and past forecasts, social media and others, as we provide demand planning software for our customers. Multiple different pockets, we're leveraging machine learning and AI within our offerings today, and I think that continues to grow and it creates an opportunity for us, especially the upgrade cycle within mobile devices. You know, across our business, I think that, you know, like everyone else, we're trying to figure out, you know, beyond the hype cycle of AI, how do you go leverage it within the business? Whether it's, you know, leveraging code writing or, you know, just, you know, specific jobs that can be done, you know, in a different way. I think, like everyone else, we're thinking to, figuring out how to sort that out and figure what that really means to our business overall. Right. If, you know, if we come back here 10 years from now, I might be too old... Is there a business that you think could really be a substantial part of Zebra today? I mean, whether it's robotics or machine vision that, you think you're well positioned, given your incumbency with your existing customers at retail, et cetera, and given technology advances, that you think could be, you know, a significant part of your business, 10% or 15% of revenues or more? I mean, I think we're excited about all three of the expansion areas around retail software, primarily because we have the devices in the hands of the retail associates today, and how do we continue to leverage that? You know, robotics, I think, ultimately are still, you know, in their infancy, you know. I think that we're still focusing on two primary applications, goods transport and then fulfillment within e-commerce. We find that as a very interesting area for us to drive growth, but it's a much smaller business today. Is it the most competitive of the three? I wouldn't say... there's a fair amount of competitors in this space, but no one large, formidable enough to say anybody's secured the space yet, so I think there's lots of opportunity. In machine vision, fixed industrial scanning, I would say that that is, you know, software's the largest of those, and fixed industrial scanning and machine vision are second largest. I think we're excited about that portfolio overall, both through organic investment and our acquisitions that we've made of Matrox and Adaptive Vision. The reason is that I see that, you know, in that case, we invested in the low end of the portfolio, which is really tightly coupled to our scanning business today, and we acquired the Matrox Imaging, Matrox assets, which were really at the high end of the market, the high end of vision systems. We're marrying those two areas from the low end of the portfolio and the high end of the portfolio together across the entire smart camera marketplace and stitching that together. We're growing channel partners. We're doing a lot in that space as well. You know, we're excited about all three. I would say, you know, in the short term, we're really excited about fixed industrial scanning and machine vision is, you know. All three, I think, create a great growth opportunity for us. I think if you said, "Pick one, you're really excited about," I think that, you know, machine vision, fixed industrial scanning and. Is that ultimately what drives your kind of M&A agenda going forward, or do you see new adjacent market opportunities through that? I think when we think about capital allocation, we like to organically invest first. We see tremendous returns associated with that. Many times we'll make an organic investment first before we go acquire something, or if we don't wanna make an organic investment, we'll make a venture investment before we acquire something. We don't always acquire the things we have venture investments in, but we look at it as ways to learn about the business. In the case of robotics, we had an organic investment first, then we ultimately put a venture investment into Fetch then acquired them. Inside retail software, we had our investment in collaboration software then a venture investment into Reflexis then acquired the business. Inside machine vision, we made organic investment into the low end of the market, which was closely adjacent to what we do today, which is really focused in TNL and fixed industrial scanning. We stepped a bit in the machine vision, then we acquired the Adaptive Vision assets to give us machine vision software for those smart cameras. Then as we learned more, as we talked more to our partners, as they said to us, "Look, it'd be really nice, Zebra, if you had the whole breadth and depth of the portfolio," then we went out and acquired the Matrox assets. We're very thoughtful across what we do. We make sure that those acquisitions will increase our time to market. They align with our asset intelligence vision of really digitizing and automating customers' environments and really focused on the front line and giving, you know, every worker and asset, you know, visibility and connectivity and how it ties to the portfolio. I think that, you know, across all of those, we're very thoughtful in organics first, venture to learn, and we're still inquisitive about M&A, where it will lead to faster time to market or give us a, you know, a bigger piece of the pie in a market that we're excited about. What is the likelihood of larger transformational M&A at Zebra? Yeah, I mean, I think that, you know, we're looking at things that are large and small, right? I think ultimately, you know, we're committed to continue to grow the business organically, first and foremost. If we found something that was attractive at a, at a larger size, we'd be interested in it. We don't have anything right now that, you know. Mm-hmm. Yeah. I mean, because Symbol was this really galvanizing acquisition for the organization. That's right. I mean, I think that, you know, the acquisition could not have gone better, right? You know, as I said before, you know, $3.5 billion to $5.8 billion seven years later. I think that, you know, would we do something that big in the future? Probably not, but, you know, who knows? Maybe you could just talk about China, both as a end customer country and also as a manufacturing country, and what opportunities and risks China brings. I mean, I think that, you know, we're still committed to the China market. We sell a lot of products and solutions into the China market, both local Chinese companies, as well as international companies manufacturing in the China market. You know, that's an important market for us overall. It is more price sensitive, so we have, you know, our value tier products into that market, but we sell a lot of our higher-end products as well. Like I said earlier, we were hoping for a bit more rebound in the short term, but it's a market ultimately that, you know, despite all the, you know, the noise around, you know, the geopolitical perspective, we find it is a continued important market for us as an end customer. You know, like others, we're continuing to build out resiliency of our supply chain. Initially, I think, like others, we looked at that more in the area of, you know, U.S. tariffs, and we've diversified our manufacturing not just in China, but also in Vietnam and Malaysia as well. But we still do the predominance of our manufacturing within China with our JDM and contract manufacturing partners. That's where they're based. I think to totally extract yourself from China is very, very difficult. What would happen if there was some political situation that effectively put China manufacturer on the Entity List or whatever it might be? Yeah, I think we. Like. Yeah. What are the contingencies? Right. I think we continue to build out, you know, our resiliency across manufacturing. I think, like, others, you know, it's hard to totally extract yourself from China. Even the places where you manufacture, outside of China, parts are still coming from China predominantly. It's, you know, it's difficult. Could you get parts somewhere else outside of China? Yes, but likely not in the volumes in which all of us as electronic manufacturers would need. You know, that's a difficult one. Right. Bill, we're just at the end of the 50 minutes. Any last comments you'd like to make about? No. Yeah. Yeah, I would say we're excited about the long-term growth aspects of our business. Clearly, we're being impacted by the macroeconomic environment in the short term. You know, the secular trend of digitizing and automating our customers' environments is where we're focused, and I think we've got great customer relationships around the world, across all of our vertical market segments, and we're excited about our business. Great. Thanks very much. Thank you. ... coming to the SDC.