Good afternoon, everyone, and welcome. I'm Toni Sacconaghi, Bernstein's IT hardware analyst. Really excited to have Bill Burns, CEO of Zebra Technologies, join us this afternoon. Great. Welcome, Bill. Thank you, Toni. Bill came to the conference last year, and I think he had been in the CEO seat for three months, so. Yeah, about that. And so I teased him, saying, "Well, you know, now you've been in the seat for over a year, so the bar is much, much higher, in terms of the answers, we're gonna get." So let me remind folks that if you do have questions, the easiest vehicle is to submit via Pigeonhole. I pick them up here. Quite frankly, it's an intimate enough group that if you do have a question, why don't you just raise your hand if you don't wanna do the Pigeonhole or that's inconvenient, and I'll call upon you, then. So, maybe, Bill, we can just start with, obviously, it's been really tough demand environment for Zebra on kind of both sides of the business. Maybe you can just talk a little bit about it. Is it macro? Is it COVID digestion? Is it select end-market pressure? What, what are you seeing just broadly around demand? Yeah, I would say that, you know, we look at end-market demand today, certainly, it's certainly challenging, but I think that the real story is back to, you know, kind of pre-COVID, right? If you look back to the business and the enterprise acquisition, you know, that Zebra did back in, you know, November of 2015, the business grew about $1 billion. You know, this 5%-7% growth rate we talk about from 2015-2016 through 2019, and then was flat 2019-2020, and then grew $1 billion in a single year in 2021, really is the trends that we saw prior to COVID had accelerated. Buy online, pickup in store, more e-commerce orders, transportation, logistics, building out to truly meet the demands of e-commerce. You know, healthcare spending, customers or consumer spending on their homes and manufacturing, all that drove our business to grow $1 billion in a single year in 2021. And then as we came into 2022, I think the belief of our customers, e-commerce, T&L, manufacturing, that that growth was gonna continue, and the challenge of supply chain drove them to buy even more product ahead, thinking that growth was gonna continue. So they built out capacity and then bought ahead, you know, as well. So I think you saw growth on top of that $1 billion in 2022, and then 2023 resetting back to what 2019 and 2020 was. Because 2019 was $4.5 billion, 2020 was $4.5 billion with, you know, the pressures from COVID, $1 billion up, up higher than that, then back to about $4.5 billion, which is painful in the short term, but, you know, really explained by the idea that this overcapacity was built out and people went back to stores. The e-commerce growth continued, but not at the rate it was. Parcel delivery reset back to 2019 levels. The economy shifted from a goods-based economy to service-based economy. People were traveling more. They were, you know, spending more on experiences and less on, you know, on goods overall. So I think the challenges around the economy played a role into it. I think as we, you know, got into kind of end of first quarter and the second quarter of last year, we saw demand drop off very quickly. So saw a lot of optimism beginning of the year at, you know, a national retail show early in the year, and then we saw, you know, our customers pull back, starting with retail and then moving into the T&L and manufacturing and others. And then what that drove was the level of inventory within the channel. Our distributors that hold inventory, they like to hold, you know, kind of 60 days of inventory we talk about. They pulled back because ultimately demand dropped. So they, they weren't overstocked before, but suddenly they were as demand dropped. So we saw about $300 million in just destocking in 2023 on top of softer demand levels. So I think that's really the story around it. I think that as we enter 2024, I think we see a lot of optimism on the part of our, our partners, our distributors, and others in the marketplace. But I think the, the recovery's been, like we've kind of called it, kind of slow and steady. We've seen retail customers pull back first. In first quarter, our largest quarters orders were from retail. They were mobile computing focused, which was really the first to decline as well. That's where we believed would kind of lead the recovery. We're seeing the capacity in e-commerce that was built out during the pandemic being, now being used and, and, being, them beginning to buy again. And I think we're seeing... We'd like to see even more activity and larger orders in retail, but we'd like to see T&L and manufacturing and healthcare really see more green shoots from those areas before we'd call it a full recovery. So I think we'll see, you know, clearly growth. We've got it guided to growth in 2024. It'll be a, it'll be two halves, a story of two halves, you know, down in first half because of the easier compares in the second half. So up 20% in second half of the year as the stocking goes away. Inventories right now are at the right level. We're working closely with our distributors to keep them there, so inventories don't get ahead of sales out, you know, when in what they're selling. And we feel good about kind of a continued progression of sequential increase in revenue growth, is what we're looking to, to target. And then the same thing from a profitability perspective. As the end markets continue to recover, and recover meaning use the capacity built off of the COVID, and from an economic perspective, a bit of a shift back to, you know, a goods economy from services, people feeling better about their businesses, they'll spend more money with us. You talked a little bit about almost this, some initial excitement at the beginning of 2023. Yeah. And then, you know, some weakness following that. Yeah. Almost like a false demand signal. Right. Right. I guess the question is: why did that happen? And is there a risk that that could happen again? Yeah. Obviously, you're acutely sensitive to that. Right. And how do you just feel broadly about the sort of the economic backdrop? What are companies telling you about their spending levels- Yeah ... et cetera? Yeah, I think that, you know, I think that, from a customer perspective, I think that they expected the growth to continue, and I think that we saw, you know, people begin to pull back, and then it kind of read on itself. So I think that, you know, as e-commerce slowed, suddenly parcel delivery slowed, suddenly the orders on manufacturing, and I think we saw that happen through kinda Q2 and Q3 as businesses really saw the slowing down. I think that the optimism we saw this year were on the backs of really, you know, a lower year in 2023 for 2024. So, you know, I think we've been more conservative than our partners have been. I think that was, you know, is prudent. I think, everyone wants to have optimism for the year, but ultimately, you gotta say, "Hey, we come back to the level of truth, is really what's sales out look like?" You know, our distributors today are asking us for more stock 'cause they have more confidence in the end market. They wanna make sure they have the inventory when the market comes back. We're looking at the sales out demand, meaning: What's the true end demand of the end customer? And we're saying, "Let's go track and work with you closely on inventory to make sure you have the right amount of inventory to meet the very end demand and not get overstocked again." So I think from our perspective, we've been cautious about inventory levels, continue a tight focus on what are the indicators that look like across... You know, retail is our biggest segment. What are the different segments of retail? What does that look like? Are they seeing real growth in their business, or is it really inflationary growth? What is, you know, metrics like IT device spend, and what direction are they going in? 'Cause that's highly correlated to our business overall. So we've been watching those trends very closely, and that's why we feel good about our guide for the year, is that, you know, we think we've been a bit more conservative than our partners have felt. I think our customers have been in kinda the same camp as us. And when you, and you talk about the channel and the risk of, you know, not being aligned with- Yeah ... with proper end market forecasts, what kind of metrics do you have in terms of either pipeline of business that they're working on or backlog committed orders or, you know, deal size deployment? Like, what are the metrics that you're able to observe that can help create incremental confidence beyond- Right ... just the sell-out metrics? Right. It's rare in our business that an order is ever canceled, so I think you gotta start there. So it's definitely not kinda cancellation or, you know- Right ... pulling back of an order that's placed. What we see more is, the confidence we see of things getting better is we are seeing clearly more deal opportunity quotes happening, more, working with our customers to price out different scenarios or, or different projects that they're doing, much of which have, you know, existed in 2023, but they haven't moved ahead with, right? It's kind of this pent-up demand that they're, they're working with us on, so that's a positive sign. We're looking at the run rate business that goes through the channel that, you know, we don't touch as much, but ultimately, you know, happens through our, our partner community, and we're monitoring that kind of very closely. So all those things are things that we look at to give us signs that ultimately, you know, our customers are buying in. We also, you know, spend a lot of time talking to them, right? Ultimately, understanding what's happening from a T&L perspective. Have they used the capacity they built up? What's happening with parcel delivery today? Is it quickening or slowing? You know, some customers are doing well. Airlines, for instance, are continuing to buy, right? We're still seeing technology pilots for, you know, things like RFID inside transportation logistics, where they see, as the market comes back, they wanna be more effective and more efficient within their business. So they're still buying a lot of product from us. They're still doing a lot of pilot activity in certain areas. They're still pricing out and using, you know, our teams to scope out new technology deployments for them. We just wanna see more of those turn into real orders for us. That's the real gauge. If we look back to Q1, and we talked about this in our earnings call, you know, our top 10 largest orders across the world in, you know, you know, were all retail. It was 100% retail for our largest orders. And they weren't even the largest size orders we'd typically receive. I'd call them medium-sized orders, right? You know, $5 million-$10 million projects, as opposed to $30 million to $40 million to $50 million projects overall, but all retail-centric. I wanna see more of that come through in retail. I wanna see more quote activity, but I really wanna see the real orders from T&L and manufacturing- Right ... and healthcare of size and scale. Are they out there? Some are, but not to the... Not when your top ten orders are all retail. You kinda say, "Okay, I expected this to happen. I expect it to be around mobile computing," so it's playing out the way we expected. We just wanna see more of it. Right. Now, you've also talked about continued weakness in China. Yeah. What is happening there? Is it, is it macro? Is there any, incremental, competitive, or geopolitical overlay? What, what do you think is underpinning the China weakness? Yeah, I mean, China today represents about 3% of our business, right? But I think us, like, most other companies, are saying, "Hey, it's an important market to continue to do business in," but it continues to drive, you know, pricing downwards in that market, kind of a race to the bottom on price. And I think that, you know, everyone's trying to figure out, you know, post-COVID. I think multinational companies in China are still buying Western product because they see the return on investment being there. I think Chinese companies within China have reverted to more Chinese suppliers of technology and kind of are okay with that, but at a much, you know, lower price point. So we've continued to tier our portfolio from, you know, good, better, best to kind of value tier that ultimately we sell in China, in places like India and in South America. Now we've done ultra value tier for the China market. I think the way to really get after that market is to really move away from some of our traditional JDM partners and our traditional contract manufacturers, and literally, for the China market, use, you know, China JDM-specific partners, where you can drive the lowest cost for a device using Chinese components and moving outside of some of the overheads that multinationals have, and attack that market, you know, at the price points that the Chinese competitors are, but build that product just for China. Do you have the same challenges in other emerging markets, whether it be, you know, India or other emerging markets? Not really. Or is it really unique, just given the, you know, the sort of the nature of competition in the electronics industry? Yeah, I think it's, as you said, we see our value tier product being used across, you know, the portfolio in multiple applications across geographies. More price sensitive in a place like India or Latin America. But, you know, I think that, you know, the tiering of the portfolio helps us protect the ASPs of the higher end of the portfolio. So we didn't have, you know, value tier product, we'd find ourselves taking our mid-tier product- Right and lowering it to the price to, you know, to compete in those markets and taking lower gross margin. I think in this case, you build a product for a value tier, you wanna... You're price sensitive. Well, you get a less robust device, you get less OS upgrades, you don't quite get the, you know, the longevity of security upgrades or guarantees around that device. So you don't get the same device. You get a smaller screen, you get less memory, all those things that protects the ASPs of our higher products. So I think, you know, there's value to your products in the rest of the world. I think China's at this ultra value tier. Right. But is there—I, I guess the question is: if it's not necessarily leverageable or unique to other countries, like, is China even worth it at 3% of revenues? You probably wrestled- Right With that a little bit internally, if you really are kinda developing- Right ...a separate, you know, supply base there and in some cases go-to-market base, and you're really only coming in at the super value level. Does part of you think, "Do I need this? Yeah, I think that we're no different than most others. I think that... There's still a multinational market there. So, you know, the Foxconns and Jabils and others, the contract manufacturers that are on a global scale still, you know, buy Western products into their environment, and they see that value. So there's clearly a market there. I think second is, can you learn something from building those lower-cost devices? You can't take those devices and go sell them into a Western market 'cause they don't have the quality- Right. ...that you'd really need somewhere else. But there are things ultimately you can learn. I don't know, this housing and this, you know, plastics and what we're using in this, I actually could use it for, you know, $0.50 or $1 less into my broader designs without taking a risk. So I think there's more to be learned by, you know, the experience there. I think that the other thing is, you, you wanna be careful that, you know, those suppliers don't get a foothold in China and get big enough, and then move outside of China, right? And go compete with you somewhere else. Right. So I think it's a big enough market that's worth competing in. At some point, you say, "That price point is just not worth it," you know? But I think for the moment, I think we're in the same position most are, is to go figure it out. But today, it's 3% of our business. I think that there's an opportunity there, but there's lots of other opportunities. Japan's a good example. You know, a higher margin, other places in the world, I've got 50% market share. In the Japanese market, I have 6%. So you know, we're working hard to win more opportunities there. We won the largest postal carrier there. We won the largest retailer in Japan, really, by working with larger system integrators in Japan, like NTT DOCOMO, or, you know, working with Sharp into retail, where we've used smaller channel partners and not being a Japanese company, and the amount of large companies within the Japanese market leveraging system integrators, is a better way to market for us. So we're growing our team in, in Japan to grow the Japanese market, which is higher margins, fits what we have, high quality hardware and software. That's what Japanese customers, you know, come to expect at the, at the highest level, quite honestly. Mm-hmm. It's a good market for us, but we just haven't really focused on it. Second largest market in Asia with real ASPs. Right. Right? Makes sense. So that kind of leads us maybe in this discussion of your longer-term revenue growth target of 5%-7%. If I go back to the Symbol acquisition in 2015- Yep ... I look at your CAGR, it's actually been closer to three- Yep ...which is below that 5%-7%. Yep. So I guess the obvious questions coming out of that observation are: Are you at sort of this cyclical low and sort of your baseline business actually should be higher, and you- Yep You'll grow into that recovery? Or, you know, are you doing things differently now that you think will lead to a higher growth rate over the next eight or nine years than it has been, you know, endpoint to endpoint over the last eight or nine years? Yeah, sure. So. Yeah, I think that if you look, kind of pre-COVID, we had guided to 4%-5% growth across the business. So think about this, the 2015-2016 to the 2019-2020 range, and, you know, the business delivered 5%-7%, right? And that's, that's where that, that number comes from, and it, it adds up to a couple of ways I'll take you through. I think that when you marry in the, you know, the extreme upward movement and downward movement associated with COVID, you come back to this 3%. And I think that we're likely... You know, what we see is getting back on this trajectory of 5%-7%, you know, moving forward, from here. There's no reason why we shouldn't do that and continue to improve even our margins to back to pre-COVID levels and then continue to grow. We look at the portfolio across, you know, our core products, which is the biggest piece of our business. So rugged mobile devices, we're the global leader. Inside industrial printing, we are the global leader. Inside industrial scanning or handheld scanning, we're the global leader. RFID readers, we are the global leader. So all of those, you know, we think across the portfolio in our core as growing at, you know, 4%-5%. That means that the market growth, plus we continue to take share around the world, and the example of Japan is a good example of differing shares around the world that creates opportunities to grow at 4%-5%. Then we think of places like RFID or our tablet business, where either I have less share or they're growing faster than our core. So we think of those as adjacencies, our supplies business to go along with our printers, and we think of that as growing, you know, high single digits. And then there's expansion areas and new areas we invested in, so robotic automation, machine vision, around retail software that marries up with our devices, and we think of those as growing double digits. So we marry 4%-5% in the core, and we see the core still having a tremendous opportunity to grow. Plus these adjacencies and these new expansion areas, that adds up to this 5%-7% growth rate. And while COVID's caused a wrinkle in that, and it's 3% through that time frame, I think that we'll see us get back to this 5%-7% growth rate. There's no reason why we shouldn't. Right. But is there, like, is there a catch-up in the sense that, well, if really you had been 5%-7%- Yeah ...the whole time, and you've really done three, then maybe you're 7%-9% Yeah -over the next, you know, five or seven years... We'll see. Okay. So, you know, I don't, I don't think we're there yet. I mean, I think that ultimately we'd like to see the markets continue to on a pace where we deliver, you know, increased revenue kind of quarter on quarter, and the same thing from a profitability perspective. At some point, there's, you know, a refresh cycle that comes, you know, as we go over the next couple of years. There's more devices in the market. Clearly, the amount of product bought in 2021 and 2022 is not sitting on someone's shelves, it's being used. They just don't need more of it at the moment. That capacity is being used, which means that, like in the mobile computing space, you know, there's a significant more number of devices that will be upgraded sometime in the future. So, you know, will there be a bit of catch-up? We'll see, but that remains to be seen. When you think about your mobile computing versus your scanning and printing- Yeah ...your core businesses, do you see them both as sort of 4%-5% growers, or do you see a little faster on the handheld side? And, and how do you, how do you parse that out? Yeah, I mean, we think that each one of those has an opportunity to grow, you know, at 4%-5%. It's the, you know, that's kind of the market growth rate. You know, typically we see, you know, kind of a base market growth rate of 3%. You see new applications about a percentage point above that, and then, you know, taking some share around the world. So, you know, 4%-5% is what we've seen over time across each one of those segments, so it hasn't differed much. You know, they're pretty closely related in the applications that they serve, the vertical markets they serve, and they're about the same. Is there any... I mean, I'm sure you think and analyze this all the time, but how do you think about just the average replacement cycle and whether that structurally elongates over time, right? Because I'm a- Hmm -Computer Hardware Analyst- Yeah PC replacement cycles have elongated. Right. Consumer, you know, smartphones have seen elongated- Sure -replacement cycles. Is there a risk, or why is there not a risk that you see the same thing happens, you know, particularly if you're innovating and adding more value to your products- Yep -and making them even more rugged and more, you know, condition sensitive, Sure You know, is there a risk to that? And how do you measure and analyze that? Yeah, so we look at it all the time. The, you know, mobile computing, you know, refresh cycle is typically four to five years. You see that about the same in inside scanning or mobile printing, and you see it elongated a bit in industrial printing, just because they're sitting on a tabletop or an industrial environment, and they're pretty, pretty robust. So you see a bit longer there. We've seen that, that trend continue over time. I think these devices are used in a, you know, pretty tough environments within our customer environment. So devices get, you know, lost, beat up, you know, you know, stolen in the environment. So we're always seeing continued refresh within our customer base, you know, with the same model, 'cause they don't wanna change kind of midstream. So a refresh isn't just a refresh, it ultimately comes with continued add-on devices every year. What you also see along with that is new applications being used. So a refresh of 40,000 units four or five years ago could be 60,000 units the next time we refresh. But that time frame hasn't really elongated for a couple of reasons. One is that, you know, chipsets, speed, memory, screen size, just use of those devices, things like Wi-Fi 6 and 5G, upgrades to OS, you know, and security, which is really, really important to our customers ultimately. Can I get security patches? Especially endpoint security these days, becomes ultimately important. So we've seen just the number of applications being used, the number of use cases, the fact that I wanna make sure the OS is not out of date, it's secure. There's more focus on those devices than they've ever been in the past. And we see new catalysts for upgrades as well on things like AI, right? So I think we could talk more about that, but the, the idea of leveraging large language models on the device without connectivity to the cloud is also gonna drive a refresh cycle within these devices. But I think it hasn't really changed over time, and four to five years is a pretty long time to begin with. And would most of your customers say these are, you know, like, I guess if I'm a CIO and I'm saying: "Look, you know, we think the world is changing, we really need to invest in AI broadly- Yeah. -and that's gonna take up more of our budget," is there a risk that Zebra products are deemed less mission-critical? Yeah —than those initiatives? Have you heard that at all? Yeah. No, I don't think we see real trade-offs to, you know, workers at the edge getting work done and that competing spend with infrastructure or AI or other areas. Because ultimately, we're at the point of productivity, where ultimately a customer has to, you know, digitize and automate that environment and truly get work done. So we're in the hands of a retail associate, we're being used to pick an e-commerce order, we're ultimately on the production line, inspecting production with machine vision. We're, you know, moving goods within a warehouse or a production facility using robotics. All those things are necessary for our customers to run their business, and we haven't seen that competition. And in fact, we see the opportunity with AI being the opposite. This idea that the mobile device in the hands of an associate, think of a retail associate or someone on a production line, having a digital assistant on that mobile device. So think of running a large language model, not in the cloud, but actually on the device itself, which means I don't have to go back to the cloud every time I need to go ultimately interface the model. I can interface it in a normal language or text way. I can populate the model with the standard operating procedures of the individual customer. So what do I do when I have a return without a receipt? What happens when this production metric goes out of sync? What do I have to do to perform maintenance on this machine? What do I have to do when I'm out of strawberries and I'm the new, you know, produce manager at the Walmart store, right? So all those examples are, how can I create a digital assistant on the device? And many of the locations, like our retail stores, don't have a lot of connectivity back to the cloud. And it saves you a lot of money if I don't have to go back to the cloud every time, if I can use a large language model on the device. Now, I gotta be able to manage that model. I have to manage the data associated with that model. I need to be able to continue to input that model. So how great would it be if I took my most experienced produce worker or produce manager, and they input information around what the new person would do? So can I make my newest worker as good as my best or most experienced worker within the environment? So I think of this digital assistant as a way to leverage AI and drive more devices in the hands of more associates, versus, quite honestly, less. So in a production environment today, there's a lot of fixed-screen environments. Now we see the move to more tablet, more mobility around communication, collaboration, around management, being able to talk to employees, employees being able to talk to each other, gamification, but also now this digital assistant. The same thing in retail. If you think about, you know, 100% turnover in retail associates, how do I keep those associates engaged? Well, our retail customers would tell us, "If you and I are two aisles apart working, we may as well be a forest apart. And we don't want us using our mobile devices, you know, our personal mobile devices, 'cause they want us to focus on working. But if there's camaraderie between you and me, we can text each other, or we can use push-to-talk, or we can at least have some communication across each other, or just some gamification within the environment, then ultimately, I feel more connected than I would've just working in an aisle by myself. So things like communication, collaboration, task management. How does the... The number one set of things said over a walkie-talkie in a retail store is, you know, "Toni, where are you?" Not because they don't think you're working hard- Right ... it's just the manager wants to have a conversation with you and doesn't wanna have it over a walkie-talkie. So how do I send tasks to you? How do I ultimately communicate and collaborate from a manager perspective? The only way to talk to a shift in a big box retailer is at the beginning of the shift, to get everybody together in this little tiny break room and have a conversation, as opposed to, how great is it if I can go communicate to everybody five minutes after their shift starts through a collaboration and communication tool? But everybody has to have the device to go do that. And if I add AI onto that, then there's no reason to use the device. So we think AI is a positive for us versus a competitive threat to somebody spending money somewhere else. Where, where are you on that AI journey? Yeah. How does that... So if you think about this notion of my handheld is gonna have this, at-the-edge digital assistant that is, you know, knowledgeable about product, trained on- Yep ... on the company's data, where are you? And, and A, who's gonna develop that? Yeah. Is it gonna be third parties? Is it gonna be in collaboration- Yeah ... with your clients? Is it gonna be, you know, done in part by you? And where are you along that journey? Yep. So we've demonstrated it now a couple of times, along with our, you know, technology partners, Qualcomm and Google. So we've demonstrated at the National Retail Federation show, too, and at our Innovation Day with, investors a couple of weeks ago. And then our CTO also, demonstrated it at the Google conference, their customer conference, a couple of weeks ago as well. We're in early kind of stages of pilots with customers, so we have customers lined up to kind of pilot the opportunity associated with it. And you've got to think through, there's a lot of aspects associated with it. One is, which model do you want to use, right? Ultimately, how do I control the data that populates the model, ultimately? How do I update the model with new documentation? Now it's held on the actual mobile device, so I have to, you know, deliver new information, new documentation to it, and have kind of revision control of, of that, as opposed to having one revision in the cloud. So there's a lot of sophistication around it that we're kind of working through with our customers. And then what is it ultimately, how's it priced? What does it look like? Who populates the model? All those things. But who's the systems integrator, right? So I, I can get a retail- Yeah LLM that's, you know, a manageable amount of parameters- Right -that can run on your device, right? But, you know, if I'm working in one retail environment and ask, "Where's the bathroom? Right. That's different from another retail environment. Their bathroom might be outside. They may, you know, I'm using a- Yeah, yeah ... you know, a silly example. Yeah. But where does the training and tailoring of that model occur? Who's the, quote, "systems integrator" per se, who's doing that? Yeah, so we looked at... You know, I think it's no different than we're seeing within, let's use retail, 'cause that's the example we're on today. The largest of retailers have, you know, large IT staffs that'll likely do this themselves, right? That ultimately they'll leverage our technology, our devices, our manageability on the device, and they will choose which model, populate it, and they'll have teams to go do that, and think of those as the largest retailers around the world. Others will use, you know, either us or third-party partners of ours, whether it's independent software vendors or our traditional partner community that sells into them to be able to do that, and that's kind of what we see today. The idea of implementation within our customer's environment is either done, and especially the deployment of software within their environments, is either done while their own internal team at the largest of large, and then by everyone else, third parties or ourselves in other environments. So the largest retail customers would have their own application, you know, my X, Y, or Z store, and then ultimately, even our software apps around communication and collaboration, around task management, workforce management sits within their app. Other retailers would say, "I want to use a Teams front end, you know, Microsoft front end to, you know, my devices." Others are using traditional, you know, Android-type front-end systems to interface for their customers, and the many others are just using third-party software houses. What is the revenue model for Zebra in an AI application model, which isn't largely developed- Yeah ...at the large retailer model? Is there, is there a revenue opportunity, or is it more about making your device more compelling, accelerating refresh, you know, potentially being more competitive relative- That's right -to other people? Like... Or is there an explicit sort of line item that you can point to? I think there's both. I think that the, you know, the second example of how do you make sure that you win the next, you know, upgrade opportunity, that it's a reason for a customer to move to a new device, that we're the winners in that ultimately by continuing to innovate, and that's what we've seen over time. Clearly, as we continue to, to innovate across our portfolio, it allows us to continue to be the leader and create a competitive moat within the environment. So I think that's kind of first and foremost, we want to be the ones that are offering this to our customers, along with our technology partners of, of Qualcomm and, and Google. Second, I think, is there is a monetization aspect. The question is, what is that today? And we're still working through that. Okay. Now, just on the handheld side today, I think about 75% of your revenue is product revenue, and is the remainder largely support services with very modest software revenue? Is that how we should think about that? Yeah, about 20% today is, we would think of as software and services revenue. If you took our supplies business, which was recurring like, you'd get to about 25% in, you know, overall recurring-like revenues. Yes. Right. But if I were to split that just on the, on the handheld computer side. Yeah ... that's, that's typically like a hardware maintenance contract that people are buying rather than add-on software per se. I would, I would suspect that the vast majority would be kind of hardware, either break- fix, or maintenance contract or whatnot. Yeah. So on the services side, there's kind of two elements to it. It's wrapped into kind of a break-fix services, but also, you know, security patches, software updates- Right -to those devices, which are ever more important to the customer. So that's the value proposition on the services side. There's value-added services on top of that, of managed services that we do for some customers, VisibilityIQ, where we give more visibility into those devices as well, so higher-tier services. But the majority is software upgrades, security upgrades, and break- fix. And then our software assets really are focused on retail today. So of that revenue, probably, you know, 25% of the total pie is our software revenue today, which is as a service across the multiple aspects we talked about. Got it. And then on the scanning and printing side, you talked about supplies- Yeah ... on the printing side. Is there also a maintenance break-fix element to that, or is that less so than on the- Less so. Less so. Okay. Yeah, the big attach rate of our services business is really tied to mobile devices. Yeah -and ultimately... Right. Yeah. Part of the reason I ask that- Yeah I know the aspiration over time is to grow margins by Yeah 50 basis points a year. And so, is that collective bundle? I don't think it was historically necessarily higher margin, but I think it might be today. So is that collective bundle of services and software higher margin and/or higher growing, and does that drive it? Or, what underpins the confidence in increasing margins over time? Yeah, so I think a couple aspects. I think that software and services has been a bright spot. A couple of reasons. One is recurring revenue streams, so, you know, have been less impacted, right? You know, software as a service, and then our service contracts, very similar to our supplies agreements, ultimately less impacted as product revenues have, have been impacted through the upcycle and the down cycle. They've been more steady, you know, across, across both. So you kind of start there. Second is we've done a lot of work to improve our services margin over time, and the software assets we acquired were smaller software businesses, so we're bringing those together into kind of single cloud instances, lowering our cloud costs, becoming more efficient across those software assets. So improving profitability is there as well. So we're well on that journey and are seeing the results of that. Our attach rate of our services business continues to be very high, which is great across our mobile, you know, computing devices as people see the value of what we do with them there. But I think the other aspect is just gross margin of our product overall. I think that, you know, we've seen challenges around gross margin, you know, initially around things like tariffs, and then we saw, you know, a lot of that be offset by manufacturing outside of China, and then we saw increase in piece part costs associated with getting supply, and then we saw increase in transportation costs. And all that's kind of flowing through. I think what we're seeing is that, you know, even today, the higher levels of inventory we're holding than we'd like, as those inventories come down, we shed some of those costs that are still... Those parts are holding higher costs associated with them or transportation, logistics, overhead costs, as well as just paid a premium. So we see opportunity to continue to grow gross margin and get it back to where it was pre-COVID, with all the variation you've seen across that. I think some parts will continue to hold a higher premium, but we're seeing also an opportunity where we have our teams working. In the past, they were working on replacement parts 'cause we couldn't get a part. Now they're back to the focus on really driving down, you know, part cost and finding lower cost opportunities to drive down our cost and improve our gross margin. So gross margin's first. Second is continuing to look at cost across the business. We've took, you know, $120 million annualized cost out of the business, you know, as a result of business slowing, and we see, you know, being very agile in adding costs back into the business. We're doing it in places that we see opportunity. So, you know, in our go-to-market, I talked about Japan. We've increased focus on, you know, government opportunities within the business. We've invested in our channel associated with machine vision to see more opportunities within that business. So we're making investments, we're making product investments where it makes sense across the portfolio, but being very selective about that, but making sure that as the market turns around, as the market leader, we're there to go address that. So I think cautious around OpEx expense drives and increased volume, all drives that profitability increase. Is there some sort of rough rubric that you say, "Hey, of the 50 basis points of margin, you know, 20 basis points is kind of to cost takeout, 10 basis points is mix shift to services and software, and 20 is..." I don't know if you or just even qualitatively, how you... 'Cause I understood all, like- Yeah -the sort of individual, smaller steps. Right. But I'm trying to raise it up to one level- Yeah, yeah In terms of, like, is there a mandate like, "Hey, we really should be thinking about getting 20 basis points of cost out per year, and the services mix is gonna help us 10 basis points or 15 basis points per year?" Or, you know, is there, is there any rubric? I wish it was that easy. I think it's, you know, I think ultimately- Analysts always want it to be easy, right? I know, exactly. You know what? It doesn't quite fit into that formula, but I think ultimately it is those... It is all those elements combined, and then it shifts quarter to quarter, right? I think ultimately, you know, you get higher volume, you drive higher gross margin 'cause you better use your overhead. If you can continue to drive costs out of your product or get higher ASPs, our sales teams are using pricing tools today to say, "Hey, what is the optimal price in the marketplace today? What have I sold that quantity for in the past?" And giving our sales teams more knowledge around pricing and our sales management and leadership when they're approving price discounts to our customers. So if I can get the highest ASPs I can within the marketplace, if I can continue to watch my costs, all of that, and be careful on the OpEx side of things, I think we see that's pretty achievable. So it's not- Right -quite as easy as breaking the 5% down. We talked about AI as an opportunity in terms of additional capability that you could bring to your clients. How about AI as an opportunity internally in your organization, either as in more higher efficiency- Right -or more effectiveness? Yeah. Where are you along your own, you know, journey for Zebra in terms of using AI internally, and how optimistic are you about that? Yeah, two other areas beyond what we talked about in the device. So the, you know, large language models and, and, you know, from the idea of traditional AI, we're using that across the portfolio today. So everything from learning navigation for robots, to machine learning associated with machine vision, to, you know, workforce management. You know, every time I assign Tony to work on Thursday, he changes it to Friday, and I know that, and apply those techniques of traditional AI across our other product offerings. That's happening today. Internally, we've got an effort across both internal IT and our CTO office, that we've blended those opportunities together and said, "Look, you know, both organizations, both externally and internally, should get benefits from... from AI. So our internal teams are using it, you know, across everything from how do we support our customers better to from a marketing perspective to, you know, ultimately, you clearly we're seeing the benefit, just like others are on, you know, code development, around the testing side of code. You know, there's, there's clearly benefits here ultimately. It also creates an opportunity, you know, where you've got to, you know, have a fair amount of governance, right? We've got our own model internally that's controlled with our data. As you'd expect, we continue to enhance that. I think also on the, you know, code generating side, you've got the costs of, you know, the GPUs and the software, and ultimately, you need to have... You know, think of, if you're writing code with AI, you need some editors, right? Ultimately, people to check the code, ultimately, to make sure, hey, are we happy with, you know, that quality of code and others, as opposed to just relying on an AI model to write code for us. So I think it creates another level of opportunity to, to where some positions have to be put in place around governance or check or audit, whatever you want to call it. So I think you've got to have to get efficiencies to pay for the added costs of software and GPUs and processing power, or ultimately, it's just an added expense to your business. We talked to most CEOs today. What they're talking about is, "Hey, this sounds great, but there's an expense to it, and I have to see the benefits from a productivity perspective, or I've just added the cost to my business of GPUs, processing power, software, and I'm not being more efficient within the business." So I think it's a realization of that most recently. Right. We have about five minutes left. I do have a question here. If there are other questions, feel free to raise your hand, raise now or hold your piece. We talked... Oh, please. Thank you for the conversation. Would you please comment a little bit on the particular machine vision piece? Yep. And the TAM you can go after, et cetera. Yeah. So our sales teams are continuing to work closely with, you know, our customers across all the segments. From a go-to-market perspective, we're leveraging for machine vision, you know, our core sales teams inside the idea of transportation logistics, which is one application within machine vision, and we've got strong relationships within those, you know, transportation, logistics, and e-commerce, you know, fulfillment areas today, which creates a, an opportunity in machine vision. The other opportunity from a go-to-market perspective is really into manufacturing. So manufacturing from a vision perspective, think of inspection of how high is a bottle filled or, you know, what's the-- is the label on correctly? Are they all whole cashews? Is the, you know, all the parts in the right place? So think of inspection. So one side is more barcode reading in within T&L of machine vision. The other is really around inspection and manufacturing. In those cases, we have the relationships with those customers, but I may not have a relationship with the direct persona that's buying machine vision solutions today. So I'm more on the manufacturing side, in a distribution center side of manufacturing, on the manufacturing line inside printing and our scanning products, not so much on our largest division around mobile computing. They're just not used as much inside the manufacturing facility. And then ultimately, so we're building relationships. They're bridging from the relationships we have in transportation and logistics or in warehousing back into the manufacturing line, and then if we have it in the manufacturing line, from printers and scanners, really into who's making the machine vision decisions. Sometimes it's more complex, meaning that the largest auto manufacturers use line builders as well. So now you've got a relationship with the manufacturer and then the line builder associated with. So we've added overlay teams to our sales teams to be able to support our current go-to-market teams, ultimately, to bring in the experts around machine vision across different vertical markets to drive more of the opportunity there. I think that we serve about $3 billion of the $6 billion, you know, machine vision market today. It's fairly fragmented. There's certainly market leaders, and the challenge for us is really, you know, while if somebody's gonna buy a mobile computer or, or scanner or printer, they think of Zebra. They don't think of us today in the machine vision space. So it's how do we get our name more out there? How do we get in front of more customers? How do we leverage the channel, and to get more visibility to more opportunities? I don't necessarily have to always beat the leaders in the market. I can—It's fairly fragmented below that. It's a growing market, so there's lots of opportunities for me to leverage the relationships I have, but end up with different personas within our, my customer base. I would maybe broaden that question. Thank you for that. Like, which new sort of beyond your core business opportunities are you most excited about? And maybe you could help dimension relative size of them today, qualitatively. So, you know, whether it be RFID or machine vision or workflow optimization or others- Yeah. If you had to dimension where they are today, and then what are you most excited about that could, you know, fundamentally change the growth profile of the company over the next five or seven years? Yeah. So I'd say, you know, first, we're excited that the core continues to grow, right? It's the biggest piece of the business and has an opportunity to grow to 4% or 5%. So I think that continued growth is really important to our business being the biggest piece. I think there's faster growth opportunities in things like machine vision. Because we're a smaller player, it's a faster-growing market than even our core markets are today, and we're a small player, and it's fragmented, and there's shift within the channel across some of our competitors that ultimately are doing more direct, leaving some of the channel partners behind. We've always been channel-centric, so there's an opportunity there. And we think that the barcode reading piece of that is closely adjacent to what we do in handheld scanning today. The machine vision piece, we've acquired an asset that has very high-end vision systems, so we're pretty excited about machine vision. I would say, you know, RFID technology, from the idea that it's a long time in coming, we are the global leaders in RFID readers. We're excited about the number of tags and the things being tagged. So, you know, working with, you know, our partners of, you know, Avery and Impinj and others that are providing the ICs and other people providing the antennas and source tagging that, you know, Avery does. All the more items that are tagged, the more ICs that are sold to tag items, the better it is for reading opportunities and then automating within our customer environment. So I think that's where everybody's excited about, really, how many items are tagged and ultimately creates the opportunity. So I think those are two I'd point out. I think software recurring revenue, leveraging the mobile devices, is another opportunity for us. Robotics, still at its infancy. So still small, fast-growing market. Lots more to come, but just small today. Great. Well, we're at the end of our time. Thank you very much- Thank you. -for your participation. It's been a great conversation. Thank you, everybody. Thanks, everyone.