Monday, January 11th, 2010 | Posted by Reik Read

More Signs of Barcode and RFID Market Improvement

We completed our December survey of 65 bar code resellers and observed encouraging trends, similar to those reflected during our September survey for both broader bar coding and RFID. While the environment remains generally soft, we were encouraged to hear of stability/improvement in several important verticals, including Transportation & Logistics, Healthcare and Government. Mobility products are leading the recovery and new printing applications continue to see increasing demand. We saw an increase in the percentage of respondents who indicated that RFID is becoming important; we continue to see improved levels of activity.

Demand Trends Encouraging
While the overall results were slightly down from our September, we view the overall trends suggesting stability. The ratio of positive responses regarding the current state of business to negative responses came in at 2.7:1 versus 3.1:1 in September. These responses are well ahead of the 0.9:1 that we saw in June, and the March low of 0.2:1. A corollary to the positive to negative ratio is the average response, which slightly decreased to 3.38 in December from 3.42 last quarter. These values show improvement from the June and March averages of 2.78 and 2.14, respectively. Recall, our survey uses a 1 – 5 scale, where “1” = business is significantly worse in the past three months, or declining by more than 10%, “3” = business in neutral, and “5” = business is significantly better, or increasing by more than 10%.

Our contacts have indicated that pipelines remain robust for 2010, with mobility applications and asset management continuing to provide the primary areas for demand. Most of the larger mobility deals are coming through transportation and logistics providers, but we also hear of interest from consumer product companies. There appears to be an incremental interest in integrated GPS devices. We are also hearing more resellers indicate optimism towards advanced printing applications, such as those involving mobile printers, color printers and card printers. RFID has also gained some momentum, particularly for asset management and security/access control applications. Fifty-five percent of resellers surveyed indicated RFID was “somewhat important” to “important” to their business, this is a reasonable increase from the previous five quarters, which averaged 44%.

Reseller Optimism Continues to Grow
With respect to future business trends, the December positive-to-negative ratio increased to 8.7:1 from 7.3:1 in September. The December ratio represents four consecutive quarters of improvement and is the best score since December 2007. The December ratio aligns with consistently cautious but optimistic tone of most resellers. Our contacts are reporting a gradual loosening of budget constraints and see more activity in 2010 as 65% respondents are expecting 2010 AIDC budgets to increase over 2009. We are hearing of continued interest in projects providing compelling ROI. Software continues to be the focus of most investments, but we are hearing of a modest change in tone with respect to hardware. Resellers suggest some demand improvement will be generated by hardware refreshes that have been delayed, but simply can’t be pushed back farther as devices will no longer function sufficiently.

Improvement Evident in Important Vertical Markets
We saw continued strength in healthcare, pharma, government and education. We also observed improving trends in key verticals such as transportation & logistics, retail and financial. Healthcare became the highest rated vertical with a score of 3.50 (on a 1 – 5 scale), while pharmaceutical/healthcare distribution and government also came strong at 3.32 and 3.30, respectively. We are encouraged to see stable to improving trends with verticals that saw the most impact during the downturn, such as transportation and logistics, which increased to 3.12 from 3.08 last quarter, and Warehousing/Distribution which remained flat at 3.11. Retail also saw another increase, with its score increasing to 2.90 from 2.73 in September and 2.54 in June. While manufacturing decreased slightly to 2.80 from 2.89 last quarter, we remain encouraged that the supplies business has held up, which is often a leading indicator for future printer demand. Anecdotally, we are hearing of improvements in the manufacturing vertical; the weakness seems to stem specifically from the Northeast. With respect to RFID, we are anecdotally hearing that apparel, oil and gas, DoD, healthcare and returnable projects are seeing traction. Oil and Gas largely appear to be active opportunities, while DoD and healthcare have both active and passive plays. We also see activity in the retail supply chain. Automotive, by contrast, and despite some successful projects, remains soft.

Positive Trends Somewhat Offset by Pricing and Product Availability
Contacts have indicated that some vendors were unusually aggressive with price exceptions as they sought to close deals during 2009. We are also hearing of cases of continued over-distribution of some hardware products. In our December survey, 35% of respondents indicated that vendors are encouraging resellers to work with broadline distribution over specialty retailers, up from 32% during the September survey.

Product availability also became a growing concern during 4Q09, which we believe is likely due to component supply issues. This issue appears to be broadly impacting most bar code vendors, but not RFID vendors. In our December survey, 42% of respondents indicated changes in Zebra’s ability to deliver product, up from 15% during the September survey. In some cases, contacts have indicated that orders that were placed in November will not be filled until January. We believe this is in part due to component shortages, but also in Zebra’s case, the company has been lowering inventory levels in conjunction with the completion of its manufacturing operations to Jabil. We specifically surveyed for Zebra to sample for this transition.

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