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Zebra Technologies Corporation (NASDAQ:ZBRA)

Investor Day Call

February 22, 2012 09:30 ET

Executives

Douglas Fox – Vice President, Investor Relations and Treasurer

Mike Terzich – Senior Vice President, Global Sales and Marketing

Debbie Murphy – Vice President, Global Marketing

Mattias Douhan – Vice President and Chief Technology Officer, C. Wonder

Robert Urwiler – Executive Vice President and Chief Information Officer, Vail Resorts

Todd Berner – Chief Executive Officer, StepOne Systems

Huge Gagnier – Senior Vice President, Global Operations

Mike Millman – Vice President, SPG Engineering

Mike Smiley – Chief Financial Officer

Analysts

(Chris Quilty)

Douglas Fox – Vice President, Investor Relations and Treasurer

Well, welcome everyone to Zebra's First Investor Day in four years. Thank you for being with us here today and also for those of you who are dialing in over the Internet. For those of you who were with us four years ago, I promised another Investor Day by February 29, 2012, so we made it by a week. So, I am real pleased by that. I hope you enjoyed what you saw of the tradeshow and the innovation fair this morning.

And while you were learning about our products and other things, I also hope you had a chance to take in the live demonstration of our ID and tracking solutions that you were a part of. These solutions integrate passive RFID and active RFID to really enable a real-time identification and high precision location solution. They have already been implemented in various forms around the world identifying and tracking products and tools and manufacturing and doing repair also at servers, with servers and data centers and even students and faculty at various colleges on campuses around the world. These solutions are part of the future for making valued assets, more visible, and therefore, better managed. I want to thank our marketing and product managers today for their assistance as well as other Zebra associates for putting on this important event.

We'll have an opportunity as I said to revisit the show following the presentations and the Q&A as well as the short break that we are going to have in the middle during this morning. This is a very good time to have an Investor Day for Zebra. A lot has happened over the last four years and we look forward to sharing what those changes are, what those changes have been, but more important, we look forward to talking to you about Zebra's future.

Several executives will be making presentations today to provide an in-depth look at the business and Zebra's future and I'd like to introduce them and if they could please stand when I recognize them. First, we have CEO, Anders Gustafsson. He will start out by providing an overview of our business strategy and how Zebra is positioned for growth and shareholder value creation. Following Anders' presentation, we'll hear from Mike Terzich. And Mike will be talking about Zebra's sales and marketing initiatives. We'll then hear from some of our customers and a channel partner, Debbie Murphy, will lead a panel that we expect will give you a valuable perspective on Zebra, and after a short break, Hugh Gagnier and Mike Millman will give us an update on operations and product innovation. Finally, we'll hear from CFO, Mike Smiley and we'll conclude with an open Q&A session with our senior executives.

I want to recognize other Zebra executives who are with us today, Lou Chauvin, who is our Vice President of Engineering for Location Solutions; Mike Cho, Vice President of Corporate Development; Ashley Ford, Vice President of North American Sales; Phil Gerskovich, Senior Vice President for new growth platforms; Keith Lefebvre, Vice President of Product Management; and last but not least, Joanne Townsend, Vice President of Human Resources.

Before I introduce Anders, first, a word from our attorneys, certain statements, I am not going to read the whole thing, don't worry, but certain statements we will make on this presentation will relate to future events or circumstances and therefore will be forward-looking statements within the meaning of the Securities and Litigation Reform Act of 1995. Words such as expect, believe, and anticipate are a few examples of words identifying a forward-looking statement. Forward-looking information is subject to various risks and uncertainties, which could significantly affect expected results. Risk factors noted in the presentation are also described in Zebra's 10-K for the year ended December 31, 2010, which is on file with the Securities and Exchange Commission. We expect to file 2011 10-K tomorrow.

Now, it’s my privilege to introduce CEO, Anders Gustafsson.

Anders Gustafsson – Chief Executive Officer

Thank you, Doug. And let me also welcome all of you to our Investor Day presentation today. I very much appreciate you all spending a day with us to get to know our story a little better. Our performance, our strategy and how we are position to continue to drive significant revenue growth and create shareholder value. Some of you think of us as a barcode company, but we are so much more than that. We are involved in mobile applications, kiosk, we put barcodes, wristbands on patients. We have technology in some of the most leading edge retail stores and we track food from farm to fork, and we are committed to continuing to grow these universal applications.

Investor Day’s create the unique opportunity for both investors and analysts to get to know us better and I know many of you has have know us very well and have been with us since our IPO, 20 years ago, but others are new to our story and the investment opportunity. So, the presentation is today have a little bit of something to help everyone, but there are few things I hope you will all takeaway from today’s presentations.

First a better understanding of Zebra’s financial and operational performance and some of our key achievements over the past several years. A key trends that are driving our business today and into the future, our strategic focus both near term and longer term to deliver profitable growth and significant value for shareholders. And finally a chance to meet more of our management team, our strong management team that will be responsible for implementing and executing on all our strategic imperatives.

So, let me begin with our track record and some of our key achievements. So, as you can see the last few years have been very successful for Zebra, albeit a bit more turbulent and we expected. But we are in most companies, we are pulling back in the downturn, we were able to leverage our strong financial position to continue and maintain investments in the most promising opportunities for Zebra.

So, at the bottom of the 2009 recession, we moved quickly to more offensive posture and that enabled us to accelerate market share gains and further consolidate our leadership position in the industry. And based on our strong execution of our strategies and these investments, we have been able to drive significant top and bottom line growth. And in addition, our financial strengths and flexibility has enabled us to return a significant amount of capital to our shareholders in the form of an aggressive buyback program.

And our strong financial performance is a direct result of executing well on a number of operational objectives and very well defined strategy. As I mentioned since 2009, we have invested significantly in new product development, expanding into new geographies and further penetrating from attractive vertical markets and these investments have been very productive. We launched a record number of new products last year and our international revenues have grown by 47% over the past two years.

In 2011, we also divested two businesses, Navis and Proveo. After careful consideration, we determined that these two businesses were no longer tightly aligned with our going forward strategy. We therefore took our medicine and divested them, but we were able to obtain very attractive prices, which generated a capital gain of over $68 million for the company and we now have much more sharper focus on our core business.

So, then we also have been able to totally transform our supply chain with the outsourcing of our operations – of our manufacturing operations. This is a project I am very proud of how we executed. Our supply chain today is much more robust, flexible, and cost effective, and this is a project that delivered between 3.5 and 4 percentage points of gross margin improvement and that's ahead of our original expectations. So, these investments combined with our strong execution has enabled us to continue to extend our leadership position in the industry and positioned us nicely for continued top and bottom line growth.

So, let me now briefly talk about some of our core strengths and how they provide us with a competitive advantage. It might be a little bit unusual to start with a brand, but if the brand is the promise a company makes to its customers. Zebra is wholeheartedly succeeding in being a trusted partner. We routinely hear from our customers and channel partners across the world that our products are reliable. And if you're in charge of a supply chain for a billion dollar company, you know that reliability will also be on top of your priority list.

Our customers also know that our products have a very rapid payback, and in these economic times, that is an increasingly attractive value proposition. But our leadership position ultimately stems from the strength of our product portfolio. And we have the broadest product portfolio of anybody in the industry ranging from barcode printing, card printers, supplies, passive and active RFID, and a variety of software and services solutions. So, we definitely have the product and solutions to enable our customers to improve their business operations and to increase visibility into their supply chains.

We also have the most extensive global customer base and the most comprehensive go-to-market channel network. So, let me put that in context for you. So, the vast majority of the Global Fortune 500 companies are our customers, the top 10 manufactures, the top 10 retailers, the top 10 transportation, and logistics companies.

And finally, Zebra is in a very solid financial footing with high margins, low CapEx requirements. We have the ability to generate significant free cash flow and that gives us flexibility to both invest in new growth opportunities to ensure we stay ahead in technology and also to generate attractive returns for our shareholders.

So these strengths position us well to capitalize on attractive new growth trends in the industry. So there are a number of important trends that have been supporting our growth historically and they continue to remain robust. First, as supply chains continue to stretch out and become more global. Companies are investing in technology such as barcoding to enable them to better manage their increasingly complex supply chains.

Next, companies have always invested in productivity-enhancing technologies, but with the recent economic turmoils, there is a heightened interest in investing in solutions that create more flexible or automated operations to enable companies to better cope with the ups and downs of an economic cycle. And I believe this is a significant growth driver for Zebra.

And China is the most visible example of the speed and scope by which emerging markets can become industrialized. But there are number of other countries in Southeast Asia, Latin America, Central and Eastern Europe. They are still in the early days of economic development. And as you show in China, barcoding goes hand-in-hand with industrialization. So, beyond these current trends, we're also starting to see a number of new and important trends that open up tremendous opportunities for Zebra to deliver much more value to our customers over the longer term.

First, with the saturation of wireless networks and the abundance of cheap bandwidth, there is an opportunity to leverage barcoding and other sensor technologies to provide much more real time visibility into supply chains. Next, there is about 35 billion devices connected to the Internet today and that number is expected to grow to well over a trillion in the next several years. And every connected device creates an opportunity to provide a much richer set of information about critical events that are happening in supply chains. And our passive and active RFID solutions play an active role in this.

Next, as data from these connected devices is growing exponentially, there are new tools, new analytical tools being developed to help process this information more timely, more quickly, and provide real insights to customers or companies to be able to in order to make them be able to take quicker and more relevant business decisions.

And lastly cloud computing, it provides an instantly available and scalable architecture to capture, analyze, and process and store the avalanche of information coming from all these connected devices. And today, in our innovation fair over there, we have a nice application that really demonstrates this. We are taking a traditional handheld scanner connected it via Bluetooth to one of our mobile printers, that's running a price markdown application in the cloud. So, I believe that the convergence of these mutually reinforceable trends create the revolution really in how companies will leverage technology and information to create the step function change in the improvements of their operations.

And I'm particularly excited about how well Zebra is positioned to participate in this revolution? And these trends help to create the smarter or connected global business community and that's the basis for our vision. So, as we look to the future, it's important to understand Zebra's vision and where we're heading. So, our vision is together with partners create the smarter, more connected global business community. I wish you remember this is a vision, so it's not limited to what we do today, but rather more focused on what our customers needs are in the future, solutions that enable the smarter, more connected global business community.

As you know, Zebra is a very partner-focused organization and we will continue to leverage our extensive partner network to continue to grow and develop our business. And our vision is tied to our mission. I am particularly proud of our mission statement as it makes it abundantly clear that we want to do nothing short of delighting our customers. We don't really want to satisfy them. We aspire to delight our customers with the ability to take smarter actions through innovative products and solutions that enable visibility. This really embodies everything we do today and what we aspire to do in the future.

It explains how we extend – help our customers extend visibility into their supply chains by providing a digital voice to their assets and people. And this allows our customers to know what their assets are, where they are, and its conditions. It gives our customers the critical information they need to make quicker and smarter decisions. It enables our customers to see more and do more, which is our new tagline.

So, how will we accomplish our vision and mission and how we drive revenue? So, when we think about the next several years, there are five core pillars to our growth strategy. You will see from each pillar that we have a comprehensive set of strategies and initiatives that are guiding our day-to-day activities and positions us for profitable growth and long-term success. Our first strategy is to further penetrate our traditionally largest geographic markets, North America and Western Europe. In these markets, we've already established very strong presence in manufacturing, retail, healthcare, but over last couple of years, we have also invested in market research, which has really reconfirmed the attractiveness of these markets to us. We are absolutely convinced that these markets continue to hold attractive growth opportunities for Zebra. And we intend to drive this growth by having the sharper focus on our competitive instincts and more emphasis on first, taking share in our traditional markets; second, expanding the range of new applications that we serve; and three, further penetrating attractive vertical markets.

And we will be executing on these opportunities by investing in new relationships with key influencers in our ecosystem such as ISVs and system integrators. By partnering with ISVs, we can bring together a much more – much broader set of hardware and software capabilities that we can combine in different ways to offer solutions to our customers that will truly delight them. We are also building a stronger high touch sales capability. This will enable us to forge much stronger ties with our most important strategic accounts. And this initiative should also enable us to generate more demand.

Our next strategy is about accelerating growth in fast growing emerging markets. As I mentioned earlier in 2009 at the bottom of the recession, we moved to more offensive posture. We leveraged our financial strength to accelerate investments into a select number of high growth countries. We initially targeted China, India, Brazil, Turkey, and the Middle East and later on we added on Russia and few countries in Southeast Asia, but we took a fundamentally different approach to doing this how we run about this historically.

We started by doing a lot of primary market research to truly understand the growth opportunities in front of us. We want to know within each country which vertical markets would be the most attractive, which sub-region would have the highest potential for us, which end users would we really want to penetrate? We also did a lot of competitive analysis to ensure we understood the regional product requirements. And this led us to develop three new printer products, specifically aimed for China and other emerging markets. This is the first time in the history of the company that we have developed a new product not intended to be launched in United States first. And this approach – this data-driven approach gave us a lot of confidence to be able to accelerate these investments and the results have been very encouraging.

So, over the past two years, China has grown 122%, India is up 158%, Brazil is up 79%, and Russia has grown 133% over last two years. So, we continue to be committed to invest in expanding our markets as we see expanding markets as opportunities to also increase shareholder value. Our people and culture are core to executing our strategy. I won’t spend too much time our third pillar, but as any successful company, we are absolutely dependent on being able to attract and retain the best people in order to sustain our long-term success. And over last few years, we have invested significantly in both developing and expanding our resources to ensure that we could not only manage our growth, but also lead it. And we have been able to attract new talent from a lot of leading companies, HP, Cisco, Motorola, McKinsey & Company. So, I think we are making all the right moves to deepen our bench strength and enhance our ability to execute.

Innovation has always been and continues to be core to our success. And our fourth strategy is about how we can out innovate their competition whether that be in new product development, customer service, or marketing. Zebra is always looking for new and innovative ways to conduct our business. In the last few years, we made substantial changes to our product development processes. Historically we’ve tended to develop a new product as a unique one-off development. Today, we are much more focused on developing platforms that we can spin into a portfolio of good, better, and best products. And this also freeze up our engineering resources to focus much more time on developing truly value-added functionality or products that has that power factor. And these changes have been very productive.

In 2011, we launched a record 13 new printer products, 10 new software and hardware products for our location solutions business. This is about twice our historical run rate. And for 2012, we positioned to release a similar amount of new products again. So, these improvements coupled with our scale. So, we invest roughly four times more than our nearest competitor in product development and this will position us to continue to out-innovate our competition.

Our fifth and final strategy is to maximize operational effectiveness. And as always, we are looking for new ways to improve how we conduct our business. Efficiency improvements create investment headroom and we can use that to either redirect those resources to other more productive uses or to expand our margins. Outsourcing of our manufacturing operations is a great example of the project in this area. Another one is the investments we have been making in a new ERP system. That will significantly improve our business processes. And when we are done with this project, we will be able to consolidate 127 disparate software programs onto one platform.

So as you can see, we have a comprehensive and focused strategy to drive growth fueled by a healthy product pipeline, which positions us to outpace the underlying market growth and capitalize our new growth opportunities. So, Zebra has always had a history of outpacing the growth of our underlying addressable markets and this has not been by accident, but rather through a relentless focus on developing and executing on our growth strategies. This graph starts to layout our framework for long-term view – for long-term growth, sorry. According to the VDC, our current markets are expected to grow by 6% to 7% per year. When you layer on the five pillars that I just discussed, we believe we can achieve growth rates in the high single digits and that we can do through an economic cycle.

But as to start to look into the longer term, say two to five years out and the new opportunities that are beginning to materialize based on the trends I discussed earlier. I believe we have a tremendous opportunity to expand our markets beyond our traditional AIDC space. So with that, let me provide you some insights into how we might expect to play in these extended markets.

So, I am convinced that the five-pillar strategy we have will generate attractive growth rates for the company for the next several years, but we are also focused on identifying the next growth rate that will generate momentum and growth for the next 10 years and beyond.

Today, I will focus my comments on one emerging trends, the Internet of Things. The Internet of Things in its simplest form really allow us device to communicate with other devices and exchange critical information without human intervention, essentially giving them a digital voice. It's like barcoding on steroids. When you scan that barcode, you know exactly where that asset it is at that time. It's a more static and event-driven environment. With the Internet of Things, you will know where all tagged items are and what they are doing all the time. And now we are talking much more dynamic and real-time environment that creates the ability to have a greater real-time visibility into an extended supply chain. And that's exciting.

And one aspect of Zebra's vision is to leverage the Internet of Things to help our customers connect. There are digital worlds, but there are physical worlds in a much broader way. We can increase their visibility into their supply chains enabling them to see more and do more and ultimately helping them to make smarter and quicker decisions. And in our innovation fair here today, you'll see several examples of applications that demonstrate how Zebra is enhancing visibility. And this is a space that we believe has tremendous growth opportunities for us over the next several years.

And Zebra always supports a large number of applications that could help customers leverage the Internet of Things. So, let me give you a few examples that demonstrate how these technologies can be readily incorporated into our traditional products. So, let's start by taking a look at the pharmaceutical cold chain. Back since our products are required to be maintained within a very tight temperature range. And the CDC estimates that some 44 million doses of vaccines are wasted every year because of temperature issues. That's causing a loss for the industry of about $0.5 billion. So, clearly, there is an important customer need that is not being met very well today.

In the future, this loss can be largely eliminated by a much more connected cold chain, which would include barcodes and passive RFIDs on bios, on shipping boxes, on wristbands, but also temperature sensors connected to active or passive RFID tags to create the real-time temperature monitoring capability. Another example is RFID item level inventory management. We provide a lot of retailers with improved visibility into their in-store inventory positions. We've rolled this out to a number of retailers already, and they generally see an increase in improvement in their inventory accuracy from about 60% all the way up to like 95%. So, clearly there are some very hard business benefits associated with this application. It increases revenue, it reduces inventory, and it improves customer satisfaction.

And lastly, we have industrial automation, where our barcode and passive and active RFID solutions enable improved visibility on factory floors through the better tracking of assets, but also improve visibility through a better tracking of the flow of parts through an assembly line. So, I think it's truly exciting to see how these trends create so many new growth opportunities, and most importantly, with how well they are aligned, we've got customers expect from us. So, I hope you can all see now that Zebra is a company equipped for today's challenges and prepared to seize the opportunities of the future. We are ready to capitalize on major new market trends that create more demand for information. We have the financial strength to continue to invest for the long-term.

And I believe in this company, I believe in a management team and I am confident and I firmly believe in our vision and our strategy. And we will, as always, continue to focus on driving shareholder value. Thank you. Let me now introduce Mike Terzich, our fearless sales leader.

Mike Terzich – Senior Vice President, Global Sales and Marketing

Alright, thank you Anders. Good morning everyone. Good to be here with you today. I have a pretty straight forward and easy job. One is I want to revisit some of the key trends, market trends, business trends that Anders laid out for you this morning and illustrates you how Zebra can capitalize on the trends taking place in the marketplace today. And secondly, I'd like to paint a clear picture of how Zebra' is going to capitalize on those trends through some very specific discussion around some strategic initiatives. That will hope drive future top line revenue growth.

You' have seen our five strategic pillar slide, you will after get comfortable with that, you'll see that numerous time throughout the day. Today, I am going to focus on the 12 o'clock and 2 o'clock position, essentially spend my time talking about how we are going to further penetrate existing markets and also expand into new geographic markets. By definition, a new market for us can either be a geographic region or it could be a vertical segment.

So, let’s go back and revisit some of the business trends that we are seeing in the marketplace. First and foremost, we live in a global age today, where the rise of business across the globe is generating significant consumption of natural resources. So, if you look at the amount of electricity being consumed, the amount of water being consumed, you have a chart here that illustrates the price of a barrel of oil can also inject any other aspect of business cost into the slide. So, if you look at the amount of steel being consumed in China, the amount of concrete being poured in Latin America, the point is businesses around the globe are challenged like never before to get more from their day doing more with less resource within their business.

And this positions Zebra in an ideal way for the history of our business has been in the productivity space. We deliver technology solutions that enable businesses to reduce costs, improve customer service, improve the quality aspects of their business. We deliver a hard ROI to that end user customer. So, in a backdrop of rising business costs, where businesses are pressured to do more with less, Zebra is well-positioned to take advantage of this trend in the marketplace.

Obviously, over the last four, five years, you have seen some businesses offset this rising cost environment by outsourcing their manufacturing moving manufacturing offshore to lower label cost centers around the world. But in addition, we see businesses focusing more on improving and increasing their productivity. Now, in the United States, I think we are still regarded as the most productive workforce in the world, but even here in the domestic market, businesses are looking to do more with less. So, if you are in the business of making deliveries you deliver beverages, beer, coca-cola food products to restaurants. You are looking at ways to deliver more products in a single shift to offset some of those rising costs.

So, when gasoline prices are going to be pushing $5 a gallon, you have to squeeze more productivity out of your day. If you are in the business of serving patients in a hospital, you are asking yourself how do I see more patients in less time improving the care that they receive. If you are in the business of processing large volumes of customers at various aspects of an entry point, so the most obvious and noticeable one is boarding passes at an airport or hotel check-in, you are asking yourself how do I process more customers reduce my staffing costs and actually improve the customer experience all at the same time. And kiosk solutions are being deployed in great numbers today to address that opportunity.

So, in a backdrop of increasing productivity, because of that hard ROI benefit that Zebra deploys, we are well-positioned to capitalize on this business trend. Third trend Anders mentioned earlier in his presentation is this rise of the middle class, so clearly we see this in Asia-Pacific and China, you see it now in Brazil, you have lots of consumers that are coming into the market and it is creating opportunity for us in three dimensions. One is in retail. Second is in the area of healthcare. Third is in the area of financial services. So I want to share with you some examples of how Zebra capitalizes in this trend of a rising middle class.

Retailers more than ever before are fighting to retain their customers. So, they are looking at technology as a means by which they can enhance the customer experience and also improve their financial performance. So, we are now seeing enjoy participating in RFID has found its way into the retail store. We have some applications here on display that I encourage you to take a look at when you have an opportunity to do so, but today retailers are using RFID to tag what they consider to be a complex skill. So, a complex SKU, so a complex SKU by definition of retailer could be a sweater, because that sweater is offered in many sizes perhaps styles, perhaps color, a complex SKU could be a pair of high-end shoes and RFID can answer the call relative to ensuring that the retailer has all of that product in the right size, color combination on the shelf, which enhances the customer experience and improves the inventory accuracy of the retailer.

Retail has become Zebra’s second largest vertical market and has grown very rapidly over the last 10 years and with this rise of middle class, our expectation is that is going to continue. One of the benefits of the retail marketplace is that it leverages every aspect of Zebra’s solution portfolio. So, today we sell mobile devices in retail in the front of store, we sell our stationery devices in the distribution center, we sell RFID enabled products in the store, kiosks at the store level, active and passive RFID throughout the supply chain, ID cards being used as gift cards as well as club membership cards.

Retail is a very exciting opportunity. To that end, another example that I would like to highlight for you is in the area of grocery, which is still by our definition part of our retail focus. Grocers have the challenge of enhancing the customer experience and driving more sales per square foot in their stores. So, today you can go out to some high-end grocers, some of the gourmet grocery stores and you will see kiosks in use within the stores. Potential consumers can walk over to that device; they can flash through on a very simple user interface, very similar in style and approach to an iPhone and select a variety of many items that they can prepare for dinner that evening.

The application will leave and recommend in pair certain wine that would go best with the food selection that you just made. With the push of a button you will print a receipt that lays out what all those food items were that make up this meal and even to the extent of the ideal location, where you can find those products in the store. So, this is a great opportunity for the grocers to increase store sales and improve the customer experience. Zebra once again very well position in this market.

As part of this rise in middle class incomes, we have an expectation that healthcare will become a more prominent part of our business. Today, we enjoy a very nice healthcare business principally centered in North America and in Europe, but as income rise, consumers are going to expect improved and safer healthcare around the globe. Today in markets in Latin America and Asia-Pacific it’s less of a priority, but the day will come, where this takes on increased emphasis and Zebra is very well positioned today with a variety of wristband and RFID and identification card solutions.

Last, I would like to touch on a market that Zebra historically has never participated in and that’s financial services. When you look at this rise of the middle class, what is happening? Particularly in places in South America and Latin America is the consumer wants credit. Now, historically credit was delivered in those markets through what is called central issuance of credit cards, bank cards and debit cards.

The banks didn’t really like that in South America because there is a lot of mail crime, a lot of mail fraud in that region. So, oftentimes those cards didn’t reach the consumer. So, banks have started to deploy what is called instance issuance, which is the ability to take a card and print it instantly in a bank location. So, the scenario plays out that the consumer can literally go online, fill up your credit application, walk-in to their local bank branch and have the card printed instantly in front of them.

Banks like it because they avoid the vest issue with mailing cards. They also like it because they hand the card to that consumer, who literally walks out of that bank and puts it to instant use and the consumer likes it because they can personalize it. You can put a picture of your favorite sports team or your family dog on your credit card as a daily remainder, when you use it. This is another growing trend that Zebra is going to be well positioned with capitalize on through a broad portfolio of direct-to-card and retransfer card products.

Last trend that I want to touch on is the mobile worker and the consumer. Clearly, the world has gone mobile. So, when you look at the field technician to the hospital worker to the retail sales for mobility is here and it's here to stay.

Gartner estimates that by 2013, one-third of our workers globally will be mobile-enabled and what this is creating is a proliferation of applications with smartphones and tablets and it's increasing an opportunity and this is an important point. It is creating opportunity for Zebra to print where print did not exist previously. And I'd like to illustrate two examples of that trend that we see in our business. One is in the area of e-citation. We have been selling eCitation solutions for a number of years. This is in the area of local law enforcement that are using an electronic version of a moving violation or a parking ticket.

Right now, historically the way this was done was by printing at multi platforms. This was especially troublesome for law enforcement officials particularly in the area of moving violations because literally they went back to the police cruiser at their head down or not watching the car in front of them, passing through a multi-platform. Today, the technology allows them to wear a mobile device on their belt through the use of a terminal device passes their transaction, never leave the side of the vehicle, increases the officer safety, but as importantly, because it's no longer a multi-platform. The ability for the local community to gather the fines is much, much greater. So, it's an ROI return to the local police department. It's a safety benefit to the local law enforcement community and we look at that market as a market that previously there was no printing in an electronic form.

Second is an application I'd like to introduce you to that goes on today in some of your higher end retail stores. And in this at the make-up counter of these retail establishments. So, you probably all visited one of your higher end retail establishments, you see these ladies wearing the nice white lab codes, there to help their customer basically fix their phase, right, pick the right makeup, pick the right eye shadow with the right ambient light environment. And they do that today in some applications using an iPad, why do they use an iPad, an iPad is sexy, it's sleek, it fits the image of the make-up counter, it fits the image of the retail.

So, when they are done making you up with a push of a button same thing, they printout a listing of this is the make-up that we use to do this today, here is what you need to buy. This is another example of mobility where it introduces print where print did not exist previously, great opportunities for Zebra, we're well-positioned.

So, when you look at the trends that I discussed I want to take you back a little bit, right so we have this environment of an outsourced world for manufacturing. We have a trend of this expansion of retail in the middle-class complicating supply chains. We have the advent of mobility, ubiquitous mobility around the world. All of this adds complexity to the management of information and the management of that supply chain and really Zebra is in no better shape than today to capitalize on this market.

So, I'm going to go back on the Zebra historian. So, I can speak to what life was like 15, 20 years – 15, 20 years ago, consumer or customer – Zebra customers basically wanted to know what was in the box, right that was the question that was being asked. So, if you were selling your product, you were selling sweat socks to Wal-Mart or lug nuts to General Motors, every box that payment to one of their facilities, excuse me, added a barcode on it and that barcode basically answer the question of what's in the box.

Zebra did that better than anybody by developing world's broadest most reliable line of barcode products. Today in the complex world of global supply chain management that answering the question of what's in the box, while great is insufficient. Now the question is not only what's in the box, but where is the box and what is the condition of the box and the answers to these questions allow from more intelligent business decision so, the ability for Zebra to provide the answers, provides insight to those businesses to help them manage that supply chain and the box that I'm using here is really just an illustration. In many respects the asset in question could be people, could be transactions. So, lot of this need technology is advancing, right. So, the Zebra portfolio which was traditionally this line of barcode solutions has expanded to capitalize on the complexity of the global supply chain. So, when you look at barcode technology, active and passive RFID technology help to determine where the boxes, real time location, technologies help to determine location sensing technology, help to determine how the box is doing or the condition of the product. All of this information needs to be accessed in real time through a network of mobile and stationary devices. Right and this is Zebra's opportunity in the Internet of things, it gives a voice to data.

So with that in mind, this is what we're focusing on to drive growth. Pretty simple and straight forward, some of what you see here on the slide we have been doing over a number of years. Our growth strategy encompasses essentially expansion along three tenants. One is within key strategic accounts, another in new vertical markets and a third in new geography. But I'm also going to introduce to you today, the opportunity that we have in driving more attach rate in our annuity business, because a complements what we're doing strategically from an account focus. And it complements what we're doing from a geographic perspective.

Back in 2000, Zebra acquired contact information systems, which was in the mobile printer product business. At that time contact had a retail customer base. This was essentially Zebra's entry into retail. So what I have highlighted here for you, it’s a relationship that contact held with a large retailer and at the time, we had two applications with the retailer. We had a shelf label application, which is the little label that goes on front of the shelf and a price markdown application.

Over the course of the next decade, we've dedicated a full time sales team dedicated to that relationship. Now that relationship happens to be a very strategic innovator and deploys technology to improve the efficiency of their business. So, that certainly has helped, but we have grown that application suite from two applications to over 40 and we have grown our revenue by 400% in that relationship. Now I'm not going to stand here in front of you and profess to tell you that every relationship can be like this relationship. That’s not necessarily true, but we see a lots of opportunity to extent not only another retail accounts, but also across a whole set of manufacturing customers, transportation customers, those that have their own complex supply chain.

So initially our focus in 2012 is going to be centered on North America. We're going to model this strategic account focus, we think we can dive deeper into both of those accounts, standardize Zebra’s the platform of choice take some market share. But we expect that will be rolling this out geographically to Europe, Asia-Pacific and Latin America over the next two years. Great opportunity for Zebra, we demonstrated an ability to win in the space.

Second, growth tenant is one year very familiar with, which is geographic expansion. Now our emphasis is going to be in the BRIC nations, Brazil, Russia, India, China, right. Essentially where, wealth and expansion is happening today. Consumers are being created. Retailers are moving in to support consumption in the consumer demand. Manufactures are moving in to support the retailers. This is all good for Zebra. We thrive in this environment.

Third is vertical market expansion. The benefit of our technology is, we are in efficiency and productivity technology. So, our core markets of manufacturing, warehousing, T&L, we've been able to extend into other verticals. Obviously retailers become our second largest vertical market, but healthcare government, transportation logistics offer exciting opportunity for us to expand and grow.

In the healthcare space, we see lots of opportunity not only domestically for improvement in patient safety, but also the use of ID cards for access control also the use of RFID to mark other critical assets that are deployed in hospital. Healthcare initiatives well obviously grow from an international perspective.

In the government space, a space that Zebra principally has not centered on, there is large opportunity as complex as some of the global supply chains are with some of the large multinational organizations around the world, there is no bigger supply chain than the United States Department of Defense, right? Even in an environment where there is the possibility of a reduction in defense spending, the government is seeking ways to improve the efficiency in the productivity of their supply chain.

In the state and local government aspect, we have touched on a couple of areas, where Zebra plays the eCitation at the local level. At the state level, we have lots of opportunity for drivers' licenses. Now, you take government outside the United States and you look at government from an international perspective and you see lot of opportunity, particularly in very populous areas, where this rise in the middle class is generating demand for health cards, voter cards, drivers licenses in areas that are heavily populated, Zebra's card products will be well-positioned to capitalize on that market.

So, here is what I would like to introduce its couple of new concepts for you. Today, we enjoy a label and ribbon attach business, that's principally centered in North America and EMEA. Now, this is by no coincidence, because today in North America, we have four label converting plants located throughout the United States, and in Europe, we have two, outside of those regions, we have none. So, as you think about the macroeconomic environment and you think about the movement, particularly a specialty manufacturing to Asia, where there is the opportunity to drive attach on high value labels and that's a key phrase here, high value labels. These are synthetic labels, specialty labels, used in a variety of manufacturing applications. This tends to be higher margin business. Zebra doesn’t want to play in the commodity paper label business, but in the international markets, we have an opportunity to drive more attach. It's a great annuity business. When you look at what happened to the economic environment in 2008 and 2009, our label business remained a very steady business.

Hardware business suffered as people pulled back on budgets and operating investment, but the label business, great annuity business, good margin complements what we do strategically from a sales perspective keeps us close to those end user customers. Similarly, we have an opportunity to do the same thing in the repair services side of our business.

I want to take you back to the trend in mobility. Mobile and the rise of this middle class and the proliferation of retail creates huge opportunity for us to sell very large installed base of mobile devices. These devices tend to get very beat up in the field. They get used and abused and we have an opportunity to expand our services footprint be in the locations and the geographies, where mobility will be sold in large volume and attach contracts for break/fix services. This again is a very good business, very nice margin business for Zebra, and it's there and it complements again the strategic sales focus. It's an easy add-on to a sales effort that will drive some of the annuity business for Zebra.

Okay. So, in closing, often times, when you've been here as long as I have been here people ask you what is the attraction to Zebra right? And I go back to some very basic principles, which is what I started this conversation with, which is where a hard ROI technology. We deliver good benefits to the users. They clearly see the return on those investments and under a business environment today, where businesses are challenged like never before to reduce costs, improve the efficiency of the business, we are very well positioned. The beauty of our business is customers tend to deploy in both good times and in bad, right.

So, what happens is when money is tight and people are looking for efficiency, they tend to deploy our solutions. When capital is freely flowing and they are expanding their operation, they tend to deploy our solutions. So, this is an important attribute in the attraction and retention of what we consider to be the industry's best set of channel partners. They are attracted to Zebra principally for two reasons. One is the technology enables a steady state of opportunity for them at a project level, and two, we have the broadest, most reliable, most comprehensive minor solutions in the marketplace. So, at the end of the day, we drive tremendous loyalty from our customers and tremendous loyalty from our channel partners.

With that, thank you for your time and attention. I'd like to introduce, Debbie Murphy, our Vice President of Global Marketing and Debbie is going to lead moderate a panel discussion. Thank you very much.

Debbie Murphy – Vice President, Global Marketing

Good morning. As Mike mentioned, we're going to take a little bit of a different venue now. I'm going to moderate a panel and hope we our technology is all playing out this morning until to be moderating a panel, but I think you'll get a lot out off. I think it will prove to be very dynamic and in content. We have one my panelist with us here this morning. We've got two that are joining us remotely via an audio connection. We've tied them in already, one is in China, one just a little bit west of here in Colorado. So for the next 30 minutes, you're going to hear them talk about what I think are some pretty compelling and innovative uses of Zebra's Technologies.

Our focus will be on the retail market and you might say why just retail. Why we picked that vertical is because as we all know retail is a great indicator of broad economic health around the globe. In addition, it affects Zebra's business across many sectors in that retail spurs innovation and adoption across a number of other sector; manufacturing, supply chain, all impacted by the innovation that's driven by retailers.

And finally probably most importantly we see tremendous growth opportunity in retail on a global scale, not just by the leaders here in North America and Western Europe, but in some of the emerging markets that Mike talked too. Since the economic crisis in 2009, global retailers have been significantly challenged with a number of – a number of challenges. Number one, how do we continue to drive traffic to our store? Number two, how do we keep them engaged and how do we create a seamless environment between our in-store and our online sales experience. And third, how do we create a compelling experience in-store that drives customer loyalty again and again and again.

Technology is an increasingly important part of meeting those challenges of ensuring you have the right product, of ensuring that you have the right product in the right place driven by both online sales and in-store sales and again in creating customer loyalty through compelling experiences.

Zebra stands to benefit tremendously from these trends that are being driven by retailers. So, I want to now move to our panelist. I'm going to introduce a panel now that has implemented what really is game changing technology advances in their sectors. To our retail experts and one comes to us from the resort industry, they're going to talk about the challenges that they have faced that they continue to face. They are going to talk about their technology deployments and how they have built more meaningful experiences both in the store and on the ski slopes. They all believe that these investments will be material to their ongoing growth and their businesses. So, let me introduce them now.

First on the phone, we've got Mattias Douhan. Mattias is VP and Chief Technology Officer of a retail chain by the name of C. Wonder. C. Wonder is a high fashion women's retail operation. It launched its first four stores in the Metropolitan New York area this fall and surprisingly their plans – their aggressive plans – are to launch 30 to 50 additional stores this year growing to 100 nationally and then they are going to simultaneously tackle international expansion. In October, I spoke at our Global Partner Conference about the retail store of the future C. Wonder is delivering that today. And I think you are going to be very interested in what Mattias has to talk about.

When C. Wonder customers enter a store, they experience a retail environment like no other. I am going to let Mattias tell you all about it, but Zebra is very pleased to be integral part of C. Wonder success. Also on the phone from Broomfield, Colorado, we have Robert Urwiler. Robert is the Executive Vice President and CIO of Vail Resorts. Vail Resorts is the premier mountain resort in the world. Last year, they launched EpicMix, Vail Resorts' award-winning online and mobile application. It allows guests at six of their ski resorts to use RF technology to digitally capture their skiing experience, share it via social media including Facebook, and a number of other social media sites. It's really a very compelling application. I am going to let Robert tell you all about it more in a moment and about how they have been able to virtually eliminate paper tickets from their ski resort.

Now, I'd like to ask our live panelist, Todd Berner, CEO of StepOne Solutions to join me up here on stage. StepOne builds solutions using mobile technology. They work with midsize and large national retailers like Toys r Us and Ross Stores. They allow customers to check prices, locate product and store, create online wish lists for shopping for friends and family. StepOne Solutions also deliver increased staff productivity and manage inventory levels. So, I hope I piqued your interest. I am going to now join Todd over at our table and I am going to begin with my first question.

So, I am going to ask panelists something that I think we are all interested in, something that I touched on in my opening remarks and that is what were the most compelling challenges that you faced and how did you apply technology to meet those challenges. So, let's start with Mattias. Mattias?

Mattias Douhan – Vice President and Chief Technology Officer, C. Wonder

Yeah. I think for us as a retailer, the most compelling challenge is always how we link our store experience to our social communities and online communities. And in the past days and in the past years, we talked about things like just-in-time inventory. We tried to expose that. We are moving towards just-in-time service organization, where this becomes way more important than we use technology in order to achieve that. So, we are a 100% mobile shop. We are a 100% RFID-enabled, but we approach that more from a customer service experience as opposed to that supply chain. And I think the challenge around how to link that and how to make that happen in a seamless environment for our customers in order to tie that all together is where the challenge lies and is really what the revolution of retail is going to be about for like the next couple of years.

Debbie Murphy – Vice President, Global Marketing

So, Mattias, can you expand a little bit for maybe a minute or so just about how those technologies have directly impacted the experience of somebody entering your store?

Mattias Douhan – Vice President and Chief Technology Officer, C. Wonder

Yes, of course. So, I think one of the major benefits is really how we know the customer and how we understand the math, the behavior and what they buy and what they want to buy and by using it – and being a 100% RFID enabled, the supply chain we get for free, but is really the customer experience that grounds this. So, we will capture metric that are pretty unique. So, for a customer for example we will know if things goes to fitting room then it wasn’t sold or other metrics like that and that enabled us to know things that we have not been able to understand previously.

So, for a example hundred units goes into fitting room everyday, but it never sold. That because the fit is bad or whatever. We can address that directly with customers on a more closer customer related information. We also do things like we use the RFID technology so we know what the customer has in the fitting room they can use our technology in order to call for help and get different sizes as opposed to having to walk out of the fitting room and you are in new size fit themselves that is all automated within the fitting room experience.

We do a lot of data mining and we know exactly when to refill our front of house from the back of and by doing so that the inventory moves seamlessly and automatic from back of house to front of house. There is no manual intervention due to the RFID technology that will happen seamlessly behind the scene. So, for a replan of two or three units they simply carry up to stairs or from back room to front room and by definition and automatically it actually goes to the correct inventory location automatically, if nothing we have to deal with. And this allows the staff to spend more times with the customer as opposed to work with our back-end systems to move inventory around. We really want to put them in front of the customer at a given time.

Debbie Murphy – Vice President, Global Marketing

Okay, excellent. I would like to ask the same question on now of Robert.

Robert Urwiler – Executive Vice President and Chief Information Officer, Vail Resorts

Thanks Debbie. Vail Resorts is a company that operates six ski resorts in North America including Keystone, Breckenridge, Vail Mountain, and Beaver Creek in Colorado and in the Lake Tahoe region Northstar and Heavenly. Just this morning, in fact about 90 minutes ago, we announced signing of a deal to acquire Kirkwood as well. So, soon to be seven world class resorts in the United States.

Our mission is to create the experience of a lifetime for each and every guest that we interact with across those resorts and there are millions of them. And so CRM to us is very, very important. We look at the customer lifecycle from what we call contemplation through reminiscing. So, that is from the time that you first start thinking about going on a ski vacation, through the ski vacation, until you are home, sharing photos, bragging about what a great time that you had with your friends and family.

In the 2008-2009 season we had a situation where we had barcodes on our lift passes and we had a handheld scanner fleet that was obsolete and it was time to replace them. So, we started looking at new technology and, after doing some research and testing, decided to put RF tags inside of each one of our passes. We decided to go down the UHF route because we could get a read from about 10 meters or just over 30-feet away. The whole idea in doing this initially was to create a better guest experience. Prior to this initiative, each time a guest came to a base location to get on a lift, she had to physically take her pass out of her jacket and have it scanned by a barcode scanner, which was quite a hassle for our customers. The new system allows us to scan passes right through guest’s jackets.

In addition to creating a better guest experience, we were also able to reduce pass sharing through this program too. Although the old passes had a picture on them, it was really hard to tell one person from another when the guest has goggles, a helmet and ski gear on. So, through this program, we went from plain white passes with the picture and a barcode, to highly graphical media produced by Zebra printers that we could scan through your jacket. With the scanners that we use, the picture and all of the guest’s stats popup with each scan. The scanning personnel at the base of the mountain can now focus on customer service while helping to control the fraudulent use of passes in a much less intrusive manner. That was a big success for us, but it was just the beginning.

When we chose UHF as the technology for the RFID chips, we always knew that we were going to do something bigger. So, going into the 2010-11 season, which was just last season, we created a new program called EpicMix. Through this initiative, we were able to put gantries, or antenna arrays and readers, at the entry point of every lift across the six mountains. So, over 100 lifts in all kinds of challenging outdoor conditions. With EpicMix, when a skier or rider gets on a lift, he or she passes underneath the gantry without interacting with a human at all and the RFID tag is automatically read and stored in our database. With that information we can determine vertical feet skied. We also created a gaming scenario, where the guest is awarded digital pins for their on-mountain accomplishments.

Last year, we saw over 100,000 people activate on EpicMix and they shared their pins, their check-ins and their vertical feet on Facebook and on Twitter. With that, we saw over 35 million positive social impressions on Facebook alone. This year we took it up to the next level with what we call EpicMix Photo. With the latest program, we have over a 100 photographers across the six resorts who are able to scan your RF media, tag everyone in the picture, take action pictures or still pictures at iconic locations and have them delivered to your EpicMix account.

Those pictures can be shared for free on Facebook and on Twitter. EpicMix includes a website, an iPhone app, an Android app, and a smartphone site. As you are earning digital pins and getting pictures taken, they are appearing in these accounts almost real-time. So far this year, we are up to almost a quarter of a million active customers on EpicMix and they have shared quite a bit on Facebook. In fact, we have seen over 125 million social impressions as a result of this program so far this year. If you think about what we are doing now is creating this guest amenity. No one has to pay anything for this, it just happens automatically as a pass holder. And now we've included this year the expansion of EpicMix to all of our paper ticket holders as well.

We've created this great sense of brand advocacy with EpicMix. Now our guests are not only having a great time on mountain, but they are able to share their experiences with the friends and family on Facebook and on Twitter. So, as they post about their great experiences, we're getting more exposure than we could ever get through traditional means and it's directly from the source. It's not Vail Resorts talking about what a great time you'll have, it's our guests themselves who are talking about what a great time you'll have.

I could talk about EpicMix all afternoon, but in spirit of the limited time we've got here I'll just leave it that.

Debbie Murphy – Vice President, Global Marketing

I think it was interesting about Robert's application is started clearly in area of efficiency and security and they leveraged now on RF technology to create and experience for their customers that really becomes the playoff of what we all here in social media and that you are engaging your customer base and brand equity and you are continuing to build the asset of your brand through the experiences of your customer. So, that's a pretty tremendous on application that has evolved. I was going to jump to you now so good timing.

Todd Berner – Chief Executive Officer, StepOne Systems

Here both of the stories, we are a little bit different where StepOne Systems is a software vendor that focuses in mobility and particular in-store retail and the story that you just heard – these are two very innovative retailers. Mattias has got a great opportunity in the fact that he is 100% global as we've engaged different customers, you can see the trend going in that direction, but the history and they are still value in this, but the history of this technology has always been ramped around labor effectiveness, a productivity in the supply chain, but there has been a very dramatic shift to how do we impact the customer experience.

How do we impact our brand and up sell in all types of ways so that we can have a completely different experience to be productive and efficient at it. But also to just make it completely different, the other element that's come into this that's quite interesting is that as the technology is really at the point of the customer meeting the product and perhaps meeting the in-store associates. There is also invaluable business intelligence data, timing and location, and so you heard Mattias also talked about and even Robert too agree the ability to tie where you are, when you are there and then derive meaningful data from that to impact that experience that much further. And we're very excited from a software perspective to be in that space and see this evolution going on and what it's like to be in retail.

Debbie Murphy – Vice President, Global Marketing

Okay, let me move on to my second question. And Mattias maybe I can have you start, what are your next plans and how do you plan to expand your technology and the data now that you captured in-store to continue to improve that customer experience.

Mattias Douhan – Vice President and Chief Technology Officer, C. Wonder

Yeah. So, I think for us the next step is going to be to launch a loyalty program, we are looking into the Zebra solutions to print cards and that sort of technology, which even it was mentioned just before here, before was a white card with a bar code we are looking to do a branded card with ability in RFID chip And we are looking to build that through a network, so while C. Wonder is our penetrating brand, we actually own and operate a number of different plans. So, we are looking to create cross-brand functionality and a customer experience, so that where you are customer of one brand, you also get benefits through the network of brands that we operate and own.

And I think by combining the data that we have with the loyalty program allows us to create a cross-brand experience both in-store and online and on the social networks, where we are looking at things that if you have your card it may not only have an RFID chip, it may also be combined with various barcode technologies. And you can utilize that to bridge the virtual world and the real world and that's where it becomes really interesting going forward when we can manage to bring that together in ways that has never been done before.

And I think that technology is really maturing and that's again what is going to revolutionize the retail going forwards that the old style of brick and mortar type retailers will have a really hard time. We have to move into an era of technology, but its technology that is not visible. We don't want customer to come in and say hey, C. Wonder is a really cool technology store. We would be out of work the next day, but creating a seamless experience utilizing their technology or the customer and I think the loyalty program and combining that data will go a long way towards that.

Debbie Murphy – Vice President, Global Marketing

So, Mattias talk a little bit, you've talked about identifying that customer through RF card technology as they enter the store or a number of your other store brands. What does that, I know there is lots of data that you capture for ongoing improvement to your business model as that customer enters your store, what does – can you give us just a few quick examples of what the benefit for the customer is as they enter that store and are identified?

Mattias Douhan – Vice President and Chief Technology Officer, C. Wonder

Yes, of course. I think one of the major benefits there is going to be that the customer can choose the level of service that they want either from within our rooms, we have the technology that you as a customer can choose a very low service level, because maybe you don't want to be approached or you can choose a very high customer level, so that the second that you move in the stores, our mobile customer service agents, because they are also using mobile POS solution, they will know you are in the store. They know you have turned as the service knob, so to say high, they will very quickly approach you, they will know your buying patterns and they can quickly tell you what is of interest to you as you look for new products in the store and not only in a single brand, but if your favorite color is red and you enter one of our different stores we can tailor that to you.

And I think also very quickly is that what is going to happen is the directed marketing in stores is something that is coming very, very quickly, where the store would transform around you as you walk through the store, so that you will have digital signage, but it wouldn't be a static digital signage.

If you like blue bags and blue sweaters, that's what we display on those TV screens as you move across the store and that's why it becomes very – becomes a very, very customer oriented and very directed style marketing which online is very easy to do, but in a store experience not so easy, but we see this technology coming more and more. And I think that's going forward is going to be very interesting.

Debbie Murphy – Vice President, Global Marketing

Excellent, excellent. So, I'd like to now move to Robert and then maybe we can get some comments from you, Todd. We have all read about and talked about in fact this morning about the importance of mobility and both in terms of worker productivity, but also by the use of all of our customers. And so Robert can you talk about how mobility is changing the landscape of your environment and maybe talk to how you continue to leverage mobility both for productivity at your resorts and also through use by your customers?

Robert Urwiler – Executive Vice President and Chief Information Officer, Vail Resorts

Yes, I would say that one of the things that we have certainly realized over the last couple of years is that the proliferation of mobile devices has affected our guests directly; guests don’t show up anymore without some kind of connection, some kind of sophisticated phone that they are connected to. You see the guest connected in our transportation systems, in our restaurants, in our hotels, on mountain, all over the place. And so there really has become, for our experience-based company, a digital experience overlay that has to be put in place for that whole thing to come together in a compelling way and to give us real competitive differentiation.

EpicMix is a very big part of that. Not only can you get your statistics and photos and that sort of thing on EpicMix, but we also give you everything from trail maps to grooming conditions to traffic conditions. We are tied into the Colorado Department of Transportation's traffic cam system and before you pull out at the end of the day, you can look at traffic on I-70 to decide whether you actually want to get out there or stay and maybe have something to eat before you get on the road. We are going to continue to pour more energy into the mobile platform to further make it a natural extension of the guest experience.

I would say that CRM drives a lot of that also. Knowing more and more about our customers through some level of segmentation is important so we can personalize our messages to them. We do have advertising pods that we've put within EpicMix that are focused on our own internal advertising. For example, because with RFID I know approximately where you are at any given time, at least I know the last lift that you've ridden, I can push relevant messages to you at certain times of day depending on where you are at. As we approach lunch time, for example, I can push, messages for lunch and discounts to you at a restaurant that's very close to where you are.

And so, we'll continue to evolve the mobile platform to make it better and better for our guests. And again, we see it as a pure competitive differentiation. We are not charging anything for this. And we believe that EpicMix is the first RFID enabled social platform on the planet and we have not had anyone be able to dispute that claim, but the unique thing about this platform is you don't have to do anything, you just ski and ride with your pass and the data is accumulated. So, unlike a GPS that you have to turn on to track yourself, this is entirely different and very unique in the ski industry and I'd say hospitality in general.

I would also say that this tie into the social platforms is very important as well. If you peak over people's shoulders when they are on their mobile device, you'll find an awful lot of the time they are on Facebook. So, that means we have to be on Facebook as well and we have to be helping the guest express their experience through this information that we gather.

The second part of your question was about productivity with mobile devices. On a completely different track, we have everything from hotel maintenance people with portable devices to be able to manage work tickets, to handheld tablet devices in restaurants allowing waiters to walk out outside of the building and take a drink order while you are sitting on a bench by the snow. So, we do see these as very distinct tracks, but we are absolutely committed to both of them to create a more efficient organization and a more compelling customer experience.

Debbie Murphy – Vice President, Global Marketing

Okay, great. Todd, can you take a minute and talk about mobility?

Todd Berner – Chief Executive Officer, StepOne Systems

Sure. In a couple of tying in what we have seen as well what Mattias and Robert talked about one of the key elements to that was how the technology is an integral part of what's actually going on in their environment, but it’s also not intrusive, it's somewhat hidden and invisible. So, it becomes part of even though they are in different environments, when they talk about what it's like to be a customer in their environment, it's engaging and it's developing brand, but it’s not something that's impacting the experience, it's just enhancing it, it's somewhat invisible. We are seeing similar trends.

The interesting thing is that we’re trying to transform all these different channels kind of the omni-channel experience if you will of retail, we are trying to bring the digital experience into a classic brick and mortar environment and not everyone is making that transition as smoothly as perhaps Mattias' company is doing, but if they don't do that, it's going to be a challenge. So, one of the things they are facing is that they maybe doing some traditional enterprise mobility solutions for productivity, but they are also trying to manage the fact that, they do have customers with smartphones. They're walking into their stores and they have to be careful they’re fearful with show rooming, where someone's coming into the store because when actually touch and feel the product, but in fact even right there in the stores actually using their smartphone to shop online competitively after the investments made in the brick-and-mortar.

They countered that is to change the customer experience, so that when someone's engaged as Mattias talked about they can have assisted experience and someone confirm and really be a part of that. One of the things that ties into that is something that Mike talked about, was talking about the evolution of the box we just wanted to what was inside. The items inside are going through a similar evolution. They have all kinds of relationships. So, if you do going into a retailer or going retailer, so there is a lot of intelligence around an item that someone is looking at.

There is accessories that go with it. There is alternatives that go with it. There is stock status at this store. There is stock status at sister’s stores. There is stock status within the dotcom distribution environment. So, the idea is that when you are having that experience that the mobile technology can in fact give you a lot of intelligence about the item in the complex SKU. It will encourage you to go through and actually have a buying experience, which is part of the ultimate exercise, when we come into the store. So, we see that mobility as part of being highly productivity, but we are also our efforts to try to help retailers to actually change the customer side of that equation make that the two work together.

Debbie Murphy – Vice President, Global Marketing

Okay, excellent. I am going ask just one final question and we really at the end of our times. So, I'd ask you all to be brief, but it’s an important one. So, still I want ask it. Are the changes that we're seeing in mobile today transformational and if you could give us just a little color as to what retail or hospitality will look like five years from now? So, Mattias, can you start with that one.

Mattias Douhan – Vice President and Chief Technology Officer, C. Wonder

Yes, sure. I mean since we are 100% mobile store today and we're looking to do that across all the brands that we do. This is the future. You enter our stores and there is nothing fixed and no fixed printers and no fixed PUs, no (trash), there is nothing. And going forward I think this is going to be an ever more integrated solution. If you look at mobility its not -- lets look five years from now its not going to be so much that our employee is only our mobile, the customer is going to be mobile should I allow the customer to use their mobile devices to shop in our stores.

The transition is going to engage the customer even more, whether is RFID or MSP or whatever the technologies are going forward. The future is going to be mobile that’s a very, very clear. I think everything else it just going to stay the way slowly and slowly. I meal all the risk, staying well what if WiFi is not good enough, that thing is also going away. These are enterprise grade today and this is the transformation here to stay and it’s going to evolve to move the customer and their devices even more.

Debbie Murphy – Vice President, Global Marketing

Okay great Robert.

Robert Urwiler – Executive Vice President and Chief Information Officer, Vail Resorts

Yes, I totally agree with that. I think that I mentioned in my last answer about the digital overlay, but I think you’re going to see that in hospitality across the board. Things are going to evolve from being just very simple applications and simple transactions to something much more interactive at many different levels within the full customer experience.

I also think we're seeing just the beginning of applications on NFC-enabled phones. My personal opinion is that we are also going to see HF and UHF in phones in the future. When that happens, it really can open it up to lot of innovative developers to put together all kinds of crazy things. If you think about what the development community did on the iOS platform with something is simple as an accelerometer, imagine what they can do with RFID. So, I think you’re going to see all kinds of new applications applied to hospitality. Everything from auto check-ins to remotely programmable room keys to media devices inside of the room that you are interacting with via the mobile device I do think things are going to change entirely and it’s going to be mobile-driven.

Debbie Murphy – Vice President, Global Marketing

Okay, excellent and Todd just few thoughts.

Todd Berner – Chief Executive Officer, StepOne Systems

Just a few thoughts and to follow both of these progressive retailers is kind of a challenge, but I think Mattias is right that I've been around this environment for a while. And mobile was always about taking kind of point solutions that you might have on the enterprise and figuring how to mobilize them. And what's really happening today little over five years from now is that the mobile computing is the computing. So, whether it's the consumer in their device or what's going on from the enterprise applications, those that are on the floor and in the store, the mobile computing technologies it will all be mobile.

So, I think the other part that's interesting, very, very exciting is that we go back five years ago. And if you'd ask that question, we weren't necessarily talking about iOS at that point and yet here we are today talking about the impact that it's had. So, one of the other exciting elements is that as much as I truly believe all the things are true, I do think there is even more innovation. So, the investment that folks like Zebra make in terms of not only innovation, but phase of innovation is very exciting because I think what we're going to be dealing with five years from now, it will be mobile in all at the point of activity, some of it is yet to be invented and that's kind of exciting too.

Debbie Murphy – Vice President, Global Marketing

Okay, excellent. So, I think we've heard some truly innovative applications of Zebra's technology encompassing certainly our mobile line and our card product line or kiosk line certainly our investments in RFID will be key enablers to visibility into brand advocacy using social media to continue to extend the customer experience beyond the in-store or on slope experience. I hope the summary has provided a glimpse into the compelling opportunity that Zebra has within the retail environment. And I'd like to just ramp up by first of all thanking all of our panelist for their business and in secondly for their time this morning and helping communicate directly the opportunities that exist on any excitement of new applications in retail that exist today, so thank you.

Robert Urwiler – Executive Vice President and Chief Information Officer, Vail Resorts

Thank you.

Debbie Murphy – Vice President, Global Marketing

So, we are going to move to a break now and we'd ask that all of you will be in a back in a room and ready to start at 25 after the hour. Thank you.

(Break)

Huge Gagnier – Senior Vice President, Global Operations

Okay, we are going to go ahead and get started, if we could ask everyone to take their seats. Alright. My name is Hugh Gagnier. I am Senior Vice President of Global Operations, which includes the product development side of the business as well as the delivery of product to our customers. I'm going to cover some product activity and then we are going to go into a presentation from Mike Millman who go a little deeper in the product side. And we are going to wrap up with Mike Smiley. So, we are bringing the latter half of this presentation back. I don’t know if you guys got a chance to notice when we are all walking around, but you guys are all carrying these UWB badge tags, which are blinking at a rate of about five, six times a second.

So, as these are blinking we were displaying where people are when you walk in the door, we show who you are when you walk in, but they're very accurate, you'll notice they were showing you what table you were sitting out where you are in the room. So, as you walk around the show at the end of this discussion and we have the lunch break, I urge you guys to go over to the location booth over here and spend sometime looking at this technology. It's pretty cool stuff and we'll be talking about it more.

Okay. I'm going to cover a few different topics. The first one I am going to talk about is how our product development team as well as our operations team integrate together to bring some competitive advantages to Zebra. And for starters we are going go ahead and talk about how we maximize operational effect of this. So, I'd like to dive into a slide here, if I could advance, here we go. Well, we'd like to start off with this kind of rewinding the clock.

We talked several years ago when we are in New York about moving product offshore throughout some slides explaining, how we were going to do this. I think a lot of people were probably concerned as to whether we were really going to be able to pull off what we were saying we were going to pull off, but basically we moved all manufacturing lines over 30 production lines over to China. We moved the complete supply chain from locations across the United States and other countries over to Southern China. We got all that in place. We created three uniform configuration distribution centers, one in Singapore, one in the Chicago area as well as one in the Netherlands for Europe. We got all those up in online and we not only did it in the timeframe that we expected to do it, but we beat the cost goals as Anders had mentioned earlier and the quality levels we were shooting for. So, we are really pleased that we got that complete.

The other thing we finished or we got started on pretty far and finished partially here so far is the rollout of our ERP system. Anders had mentioned the ERP system basically this has been a huge project it's been going on for years, a lot of planning. We went live with our European rollout last year. We’ve taken many of those learnings that we had in the European rollout. We've created the North America rollout, which is actually now it's going on this month literally as we speak. And then next year we’ll do Asia-Pacific.

And the real key to this is it’s going to give us integration into the suppliers as well as the customers' business processes. This is really important for us, especially with the China activity and our global customer base. And at the end of the day what we expect out of this is more efficiency, it’s a scalable system that allows us to take it from many more years to come and it's very flexible and we would hope that what the customers are going to see out of this is Zebra is much easier to do business with, that's the net result of this thing.

Okay, talk a little bit about the supply chain strategy and discipline and we’ve got some uniqueness here that I just want to cover briefly. One thing I'd like to talk about is first you know Zebra has got a very large volume of printers and other products that we manufacture. When you take that coupled with our design strategies of common use and reuse of components, you coupled those together. We’ve got a huge volume that no competitor could match. So, this is pretty exiting to us and we take advantage of that.

When we need certain things, we can get the supply chain to do those things. We have also tightly coupled our engineering organization and product development group with the supply chain in China we've got new product introduction teams that link the R&D centers together with manufacturing. And what that lets us do – lets us develop product and why those products are being developed tooling, manufacturing processes, all these things are happening at the same time cross-functionally. So, when we release a product from engineering its in introduction, it's ready to go. Pilot runs, beta units, all those are made on production tooling while we are in development. This is a pretty exciting process. We’ve streamlined it. We’ve released as Anders said 13 products last year using this method. Every single one of those products was released in China. It didn't start in the U.S. and moved to China, it was released in China. So, we are pretty excited about that.

The other thing it gets you, the other benefit it gets you is the supply chain, because it's so closely working with engineering and the development guys while you are developing product that supply chain steers the engineering guys as to different components they could use, what we could standardize around. So, we are very tightly knitted with those supply chain guys at the front end as well.

The other thing I want to mention here is the global configuration centers. I mentioned them briefly where they are, but what’s important to understand is these aren’t just distribution centers, they are not just taking in product warehousing it and reshipping product, we’ve got some really unique capabilities we’ve put in these centers. So, when we bring in that Vanilla product that goes out to channel, we also have the capability of configuring those products into unique SKUs that might be required, for example, for the strategic accounts that we have, that Mike was showing. So, it’s really important that we could be highly customer responsive even though our supply chain is located in China, it might be time zones away we can configure product and ship same day. This is pretty powerful. So, we have the configuration centers all up and running that way.

So, let’s talk a little bit about my favorite subject, which is product and intensifying the innovation. I probably don’t have to even give a product talk after having that panel that we just added, I am going to go on Facebook and click like, next time I am on the Vail application. And when I do my market research in Vail next week actually I am going to Vail next week and so I am pretty excited to see their application really playing out. But intensifying innovation is really where my mind is and what I want to spend time on are few different topics here.

And what we are going to do is talk about these strategic priorities. What I'd like to do is walk through some of the competitive advantages we have and how we are going to extend those. We’re going to talk about the alignment of the roadmap with the growth strategy. We talked about a couple of different growth strategies, one was penetrating deeper into our existing accounts and the other one was expanding, okay. We are going show you with our real products that we are shipping today how we are going to be doing that over the next few years as well as what we are going to do is talk about some of the new technologies that we are working on and some of these technologies how they link to the product roadmap.

Okay. And we are going to spend sometime on that, now you might say why are you working on these new technologies is it just a cool stuff and it's not just cool stuff. What we do is we look for that convergence of customer needs? We are always looking at customer needs, the convergence of customer needs with the product roadmaps in these technologies and you need them to occur at a certain point in time hopefully a couple of years out. So, you have some good product cadence coming and you can see what those customers are going to need and well you have the products ready at that time. So, we track these technologies and we look at where we could use them in our products. So, what Mike Millman is going go through is he is going to spend sometime showing you how we've linked those new technologies with the future product roadmaps. It's pretty unique.

We're also going to talk about where we are broadening these capabilities in the roadmaps and then he will go through the product cadence how did we develop so many products last year. How we are going to develop so many products this year? What we do different, what's new, he will show you that.

Okay. So, let's talk a bit about the common architecture and design language. These are two main areas that we really feel we've got some competitive advantage, one is around the common architectures we put in place, not just in the printer, in the firmware, and where we're going with real-time operating systems and all these new technologies where we've also layered in other things into our common architecture so, for example when you look at the booth over here where we have the location systems, we've created a Zebra appliance is literally a plug-in-play passive, active, RFID system that lets people integrate that into another system.

So, you'll be able to see that when you see the demo that Santiago is doing over here. But basically this architecture whether it's in the printer world, whether it's in location system, the whole idea behind having a common architecture like that, it decreases your engineering costs, okay, you've got one system, one core system you rollout and the R&D centers all used that core to develop different products with. So, it's a – that you scale very nicely.

The other thing it does is if you got independent software vendor such as in manufacturing or in healthcare or transportation logistics. If they want to roll out a mobile printer, a tabletop printer, desktop printer, we're not learning multiple languages there. They understand the Zebra command language, the architecture that could integrate these products easy. So for ISVs, they love having this commonality. There is a lot of benefit to it and it gets us ready for the next generation of IT infrastructures that are coming, you guys probably are seeing all these new changes to the IT world. We're integrating into those new IT infrastructures with some of the technologies that Mike will show you.

The second one I'd like to talk about is this product line. You've heard about the broad product line we've got. Zebra not only has the broadest product line, but the most robust product line in each product category. So, when you look at our tabletop printers to our example and what we're showing over here, this is just one section of our midrange printers, okay, we've got printers that fall into this good, better, best category and by doing that with each printer family, you squeeze out competitive holes where people could sneak in and it really creates some nice barriers to entry. So, we're pretty excited about each product category how we've tightened that up and created what I feel are pretty robust products within each product category and we've got quite a number of product categories, which you will see.

The other thing we've done is because of these products are in many cases that with the same software or in multiple ISVs. We've got alliance partnerships that look at the whole product family and take us into multiple deals. So, these alliance partnerships are very critical and we have a broad product line like Zebra does. You can link yourselves at the companies like IBM or Honeywell that there are more to roll that are great for taking the whole product line into places.

And then finally we talked a lot about the tax rate might covered ribbons, labels, wristbands, service software. There is a quite a number of tax that we could get to the printer. The broader that portfolio is the more attach you get and some of these printers and some of these products we sell location even, you get a tax rate in different areas whether it be in software, professional services, these attaches are nice. They are nice annuities that follow along with the product.

Okay, let me step down a level now. This isn't a sushi menu, looks like a sushi menu, but it's actually all the Zebra products just thrown on a flash screen and what we do here is we just want to show you how many we're talking about is a huge product family so, instead of focusing on anyone product in the screen, what I think would be a really good idea, if you guys could wonder around during lunch break and really look at what we've got here.

We've got demos over here of augmented realities and really neat stuff we're doing over here on the software side. We've got some great mobile printer. We're showing you stuff here that isn't even released in many categories. So, I would take advantage of this and take a look at and we have got this ZXP7 direct-to-card printer, which isn't going to be released for months. You got to take a look at that product, it's a great product. We have the ZXP8, the new retransfer printer over there. We have the whole center of the midrange here what we call the good category over here on the next generation midrange. We've got a whole bunch of cool stuff with wristband printing and what we're doing in hospitality, the location stuff, and RFID.

We've got some great demos and neat stuff to see here. So, I would definitely take advantage at the lunch break and walk around and ask questions. We brought the product guys over. There are (indiscernible) I am standing up here wearing a tie, but though it seems like they very often do. So, basically I would take advantage of the situation there.

Okay. What we're going to talk about now are some live examples of how us in the world product are taking advantage of this growth opportunity we've got and executing on the growth plan that Anders talked about. So the first one I want to talk about is one of my favorite product and it's basically a product that we released several years ago, we guide into a healthcare initiative specifically centered around patient safety and out of some research we came up with this concept of a wristband printer. And it wasn't just a printer of Zebra's that you put wristbands and this was basically a unique printer that would take a very special cartridge and you will see it over here very easy to load, you drop the cartridge in, the printer authenticates the cartridge. It knows what the media is, it sets up all the parameters, all automatic.

The nurse just drops in the cartridge and anybody could load this thing. And basically the beauty of this product is for everyone you sell today, you sell three times its value in wristbands for every year it's out in the field. This is pretty cool. And this is in typical hospital environment. It would be like two to three something along that line. That's really nice. And basically what we have done with these products, we've rolled it out North America, Europe, different regions, we continue to penetrate deeper. We see wristband sales taking off nicely and we say what else can we do with this product right. It's a great product where else can we take it? So we did some research and we found that the best place to go next is into the hospitality market. And so we went ahead and develop wristbands for event control, cloud control, water parts, and we've got samples of the mobile here. We can show you the printer, show it in action, and this is real live expansion into new market. This isn't what we want to do. This is what we're doing. We're landing deals now with Atlantis, Disney cruises, all kinds of areas where we're going after with this product and with the wristband. So, this is pretty exciting stuff.

Yeah, we are pretty fired up plus brings at annuity stream of wristbands and they are pretty decent margin and that makes Mike Smiley smile, which makes me smile. So, I am happy when I say our products take off like this.

The next one I'm going to cover is card. We've been in the card market a longtime. We entered this market in 96, 97 and that was really the core market for card is access control, security, drivers licensees, country cards, and we've been focusing on that market for quite some time and with some of the new products that when we got factor this ZXP7, the ZXP8, these are great new products that get us even deeper into these markets. So, this is a great area of how we penetrate further with some new products, not only penetrating further there. We're also taking these products into the financial area, which Mike talked about.

There has been some new regulation changes, you no longer need to have the embossed letters on your credit card, debt cards, they are flat cards now, which just makes us happy as heck as now we could take these products into the financial area with some small tweaks to feature sets and derivatives. We could take these products into RFID applications, mag stripe applications, which we're showing here. So, you will be able to see these products real-time instant issuance at the bank. And when those banks issue the cards, there is a much higher probability that the cards get used versus just mailing them out from centralized printing. So, this is the trend we are starting to see quite a bit now.

So, this is exciting for us. The third example I've got here, which is an interesting one, this is a mobile example. This product we developed and put into the market a year ago designed specifically with China in mind. We are feature sets and specifications designed specifically around the China market and then we started doing more research on the rest of the world and realized that the feature sets and specifications in this product that make it successful in China are also required in other emerging markets around the world. So what we've done now is we're rolling this product out into other emerging markets where Zebra already has regional presence. So, this is really exciting for us. There is markets we could reach with this product that we couldn't reach with our existing mobile lineup. So, this is pretty exciting for us and again real-time, this is as we speak we're seeing deals are merge in other regions of the world.

My last example here is another core market of Zebras and this is one that I've been involving with a very longtime and that transportation and logistics. We sell multiple products into the T&L space, the transportation and logistics space. We've been selling tabletop, mobile, desktop printers for years. It continues to get better for us. It's a great market and as this continues we will go ahead and find that there is some great opportunity for us with location solutions in this T&L market. So, now we're starting to rollout different pilots into these transportation and logistics basis, which is just further deepens us into that area. But not only are we finding these places in transportation logistics, but now we are starting to enter and expand it to new markets such as government location solutions. So, this is a fairly new product line. You’re probably wondering, who the heck really need to know, you know, once six time to second, where you are, but some of these security issues that we get into and some of the spaces that the government has and where this type of technology, this location technology could be used, its pretty exciting. So, we see this just another area we could expand into with products that we’re shipping today, okay.

So just a few examples here, this is pretty exciting and this is something we spent a lot of time and I talked about technologies and how we just don’t do technologies because they are cool, which they are, but we also do these technologies because there is a need out there. We see people have a need for the types of technologies that are out there these mega trends that everyone likes to talk about. So when we look at this chart. This is how Gartner likes to view it and we really like looking at it this way for many reasons. So when you look at this top section, this is the human experience. You’ll notice number three contextual and social user experience. I mean that’s got Whale written all over it right?

So you look at these the human experience Mike talked about the makeup stand and the retailers with some of their doing with iPad again mobile experience falls into the human experience side. The mobile centric applications we are seeing that in the Home Depot. You see that in Lowe's. So this is an important segment. At the bottom we have the IT infrastructure trends, okay. You’ve got big data, connectivity, servers, right, cloud computing, everyone wants to talk about cloud.

The important thing to understand is the business experience overlaps both of those and picks up those three in the middle okay. This is important because you heard Mike talk about Zebra’s and efficiency play, where a productivity house. We improved businesses. See more do more. We’ve seen all that right. But what’s important to understand is, those six in the center, Zebra is involved in six out of six of those technologies and we are going to show you prove points of that. We are going to show you some products, where we are doing that.

As far as the rest of them we’re involved in eight out of ten of them. That pretty powerful and so when you look at these, you start to saying okay, where in the product line up will those things fit? You know I’m sure you’re curious to that. What we are going to do is, I’m going to have Mike Milman come up. He’s going to show you prove points of where we’ve taken these technologies and rolled them into product families, individual products and why they are important technologies for us going forward.

So, with that I’ll turn it over to Mike Millman, he’ll walk you through that. Thank you.

Mike Millman – Vice President, SPG Engineering

Well, thank you Hugh. Yeah these technology trends I’m sure people have been seeing these in the media all the time. I know I think just recently in some publications I saw a big VC talked just about this maybe in three points. He talked about mobility, cloud and social in that article and so it’s sub-mining the press in every website, blog that I’ve seen in the last few years and I think these trends. Gartner talks about for the trends at 2012, I think these are hot topics for 2012, but I see them playing out over several years and I’ve been in this printing sort of business and technology business for about twenty years and I can tell you we have two or three big major transistor playing out. It’s exciting for business. When you have ten and you’re playing in eight of ten, that’s just amazing. I’ve never seen that in my entire career.

So let’s jump in and as she said, I’m going to go through so examples here. Three examples over the next three slides to dive deeper and show real examples of how we’re participating in these mega trends now. So, the first one what I’m go through is retail markdown example. We’ve talked about this a little bit today and our new mobile printer the QL item that's shown over here and several places around the room. So again take a look at those today.

And price markdown is a fairly simple application it’s got a mobile device, a printer and software and for those of you who check up this exhibit over there. You will actually see that we're working to remove even the mobile device from that equation and just go basically printing device, cloud and software. So that's really exciting new change for us.

And I'll talk about three key stakeholders in this example, the user, the business, our partner and Zebra. So for the user, we are very conscious about a simple UI. You can see in this picture here you have storm plays coming in. There is various storm plays and they come in and out all the time. So having a simple UI that is quick to learn basically no manuals required is critical. Also we have -- we were very mindful at having commonality in this user interface. So that if you learn to use one Zebra product, multiple Zebra products. It makes very faster transition to these multiple products.

And then lastly on that, we put in custom keys, so that your application or your workflow can be customized to your need, so making very efficient in the work that you are doing. For the business and partners, we provide starting with the hardware a robust, small, and flexible hardware product. We also provide software tools. These software tools are very critical for these partners. One, for better solution integration into their system, into their ERP systems and their business flow, and secondly, we provide software tools to help them with better fleet management you can imagine in these large retailers they have literally thousands of these devices that go out. And they want to be able to look at these devices, access them, check status, and manage them all the time.

We even provide proactive technology. And this proactive technology is very interesting and we have this in the QLn like what we call the smart battery. And this smart battery has a couple of interesting elements to. One is it obviously notifies the user that's using the device when it's lower, when it's going to be low, so they can make sure that they understand when the device is going to be operable or go out of service. But furthermore it can also notify the IT department of when that battery is going to need to be replaced ahead of time. So that, that user doesn't go down maybe I can replace that a week ahead of time before it goes interoperable or with the Ethernet Cradle and we've got a few of those over there. We have a single and a quad-bay charger. These are connected to the Internet. So, at night time what you can do is you can drop these devices into their cradles while they are charging and they can automatically do downloads and updates overnight. So, this device can be managed from a central location and constantly beyond the latest sort of application that the business wants to run.

Lastly, for Zebra and shareowners what does this mean? Smart supplies, Hugh just talked about that and I talked about this earlier in the day as this gives us attach. We have nearly 100% attach of these supplies as they go through and it also improves the customer experience that I talked about for users.

Smart UIs, the smart UIs lowers call rates for us. Making products intuitive to use is just good for customers, good for your business. And then cloud-based applications, these can drive future revenue and service models and that's what we are attempting to show over here and one of the demos. And I think even the panel alluded to that they are just scratching the surface of what this new architecture of cloud devices and services is bringing. We are just at like chapter one of the story.

Let's go to the next example. What is the Internet of Things? Anders mentioned that his things and I believe it is the internet of important things, valuable things, things that matter, things that need a voice. And in this example we are talking about the used case of tagging and tracking a valuable asset in this case trucks, trucks on an assembly line. And trucks that then once they leave the assembly line, they go into a sea of trucks. These are acres of trucks that look alike handle about you, but I’ve got out in the parking lot before and last my own truck and I can't imagine going out to whether it's like a thousand of them that look just like my truck.

By adding one of those WhereNet tags, which is an active RFID tag to an automobile, you give this automobile a voice, a digital voice that can now speak. And then furthermore, if you tie in this tag into a web-connected infrastructure, then you can connect it to systems, tracking system, inventory management systems, and now the truck becomes part of that big data. What happens then? Once the company has this part of their big data and they've got all their assets connected to the tracking systems, they can begin to do some amazing things. They can begin to analyze the dynamics of their business, Anders mentioned that. Where is that asset? How many of them do I have? Is it moving? Moving throughout the acres of that lot, if so how fast is it going to be at the gate, can we look at other sort of inventory actions there. Analytics takes the business to a whole new level of business performance. And our WhereNet tags and solutions can be an instrumental role by providing this digital voice to those assets.

Let's go to the third example. This is that great example. And I don't think I could explain this one any better than Robert, I thought he was a great panel guest on this. This is an example that brings technology and customers together, mountain skiing. And this is the one, Robert, I think when he was talking through you could just hear kind of the joy of customers in his voice. And as I was talking through some of the breaks, I think there are some epic customers in the room that just experience (indiscernible), that was great.

So, let’s talk about the business here as Robert talked about. You have the ski slope operator, queue management, you talked about that tracking skiers on the mountain maybe even for safety reasons. Service offerings like the photos that you talked about. What about the consumer? He is talking about that. They get a live in the moment, they get a ski, who get to do that this weekend.

Behind the scenes, the Internet of Things come to life, is the Internet of Things that we love stats about the day, the number of runs you could do, vertical feet of descent, time of rents all that cool stuff. And while you are on the mountain this data could be tied into their social network of Facebook like they describe and so that your friends can track your every moment. In my case, probably my kids tracking it and realizing that for some reason I am stuck between two of those tower weekends and they are wondering why I am still stuck there, I'll get to that in a second.

I can ski maybe my friends can participate and so we can ski, it’s epitome of social. All and through different business models through the architecture they’re employing, you can derive other applications and services can be deployed from that. The possibilities are truly endless in this example, and the services are many, the fund is limitless, I mean think about these services for some of you like me to get stuck between those towers, I probably need a service like lessons, a better helmet maybe a couple drink coupons as soon as I get down, which might be couple of hours later.

So, this example really embodies, you see here 8 of the 10 megatrends that I was talking about. And maybe that’s why so rich in the experience. There are so much to offer from that was really pleased and delighted here Robert talking about and you talked to him. So, another thing that we're doing here is we're looking broaden our portfolio capabilities. And Zebra were expanding our technology and our portfolio capabilities at a very rapid pace.

If you look back here 1991, it was all about printing, direct thermal, thermal transfer, getting great print quality, moving into speeds and feeds. It was all about printers and printing. You moved into 2000 and 2001, it was all about connecting these printers to ever growing suite of connectivity options moving from parallel to USB, Bluetooth device-to-device connectivity, better integration was the name of the game. You move out to today circuit 2011/2012 and we are moving into a new era, this era of analytics. And you heard this from the panel members just across everyone of their examples, where sophisticated analytics come into play. These sophisticated analytics help drive business optimization through technology and solutions like rules engines.

You can increase the customer experience and satisfaction through what I'd like to call auto magic technologies like Near Field Communications or NFC and we have an example of that over there we haven’t seen it and you can increase your opportunities and adjacencies through machine-to-machine interactions like never before. I think it was mentioned a trillion devices connected on the Internet, I think about there are trillion devices is staggering. So, never before in our time of so many objects have been connected and have been given a digital voice. Technologies expanding at a faster pace and today we have to research more on these technologies we have to employ them faster than never before especially in the areas of software and applications and embedded systems.

Again looking back at 1991, Zebra was overwhelmingly Hardware Company and we had a lot of hardware engineers, working on those speeds and feeds. You move to today and just as a reference point, we have approximately 50% of the engineers in our organizations are working on software and embedded systems 50%.

As Anders stated earlier, we all spend a competition by margin of nearly 4 to 1 and that’s a true fact and that’s great that we have that kind of spend in that kind of way. But we're working hard to ensure that spend is being utilized as efficiently as possible. We don’t want to just put out more products. We want to put out better products, products that are more relevant to our user base. And products that hit the mark, so one of the things we've been doing over the last few years and Hugh talked about this as we've been looking at our product development process and how we can go after that process so that you can drive capacity and you can drive relevant.

So, the first thing we did as we look at kind of our planning process and how we’re doing there. So we’re looking at how we can have more strategic focus using primary research to get at key value propositions in our products and our categories. And this gives us to strategic insight and our products can be designed better and need – a better need for our customers. Then we lay that out in five-year product roadmaps and we have this for every one of our categories, we have that today, and we use sophisticated portfolio management tools to do this and we also as Hugh talked about we lay out five-year technology roadmaps. And actually in these technology roadmaps, we have 16 different technology roadmaps that we track continuously. And we use those technology roadmaps to do several things. One to innovate those technologies and make sure that they are ready to integrate into products, but we also look at them to make sure that we are not blindsided by technologies that are coming in out on the fringes. So, we are always looking at on the leading edge to make sure that we incorporate those into the things that we're doing.

Moving into leveraging, we used platform strategy is now in the work that we do. We used to design a product, design one product and then move to the next product and that was fairly inefficient and so now what we do is we think about everything in the context of platforms. We want to design it once with the intent that we can do is suite the products off of that and derivatives has been those off quickly to meet vary in customer needs. We do that for products and we also do that for technologies.

The example I am showing down here at the bottom is we recently did that for 2011 end module where we designed it one-time with the intent of going into everything from our mobile device, all the way into our tabletop devices. We went through compliance testing for all of them at the same time. So, I'd save this on time to market as well as development cost, because we did that compliance one-time as opposed to could have been dozens of times for every one of those products. So, it's highly efficient in a way that we are doing that.

Lastly on this slide, we're looking at how we balance our resources to do this. Anders benching in all people are the key asset of us. So, we want to make sure that we're using our people as sufficiently and effectively as possible. We had global development centers. We have five around the world now. We have four in the U.S. and one that we open in China. Several of the North American sites like one here in the Chicago land area, these focus on hardware and software development. We have one in the bay area that is developing our active RFID and location solutions and it's right in the hard of Silicon Valley right in a lot of that action is going on.

And then lastly year, we opened development center in China to work closely with our regional partners on development so that we can understand the China market on several of the products that we introduced earlier today as well as toward closely with our contract manufactures, Hugh described so that we can have that smooth concurrent transition into manufacturing so that we go from development to launch as quickly and smoothly as possible and as Hugh said what really good quality in that process.

And all of this effort over the last couple of years has led us to some very strong results out of this process. Let's take a look at this on the next slide. Our efficiency is up over 30% across the board. We kind to measure that is kind of output for engineer spend if you want to think about it at that way. We actually have several variables that we look at and we do. Our quality is improved across the board. We lowered our call rates on all of our products. We've lowered our warranty failure rates and our repair rates.

As we mentioned several times, the number of products that we put out has been a record, it was about 2X, what we are able to do previous to these process improvements. So, we've increased that substantially. And here is a point that I think is really interesting is the acceleration of our patent applications. In our innovation, we are very mindful about we want to delight our customers with innovations that serve their needs, but we also want to protect those investments. And I can tell you in the last year, our patents that were issued and patents that we had submitted for that year are up about 200%.

And so far in the first quarter of this year, we're breaking our internal records on a number of patents that we are submitting. So, we are cranking up the innovation engine like never before. The last point here is about record number of customized products and what I really mean by that is we're increasing the intimacy with our customers through the customized solutions, and they're demanding that from us. So, with that platform strategy, we designed this platform that has flexibility to do lots of things and then we do minor customizations largely through software and far more changes that connects with the customer systems and that gives us strong types with the strategic partners and essentially increases to gives us a greater share of wall with those customers.

So let's look into 2012 for us. And I'm very excited about our future and what we've got going on in our product development, amazing things. We will continue to see our design factory innovate. You're going to see more products released Anders mentioned that we are on track to release at least as many products this year as we did last year. You're going to see better more differentiated products that sets us apart from the competition, which drives better margins and allows us to all of those margins.

You're going to see rapid response to customer needs. We have projects that are underway today to even improve our responsiveness. We’ve got a major project underway to do that. So, we can deliver those customized projects even better. And we've got exciting new offerings. We're going to be looking at adding more value to our hardware through software and services and this model has been played out in industry many, many times. I think people have seen this from being able to design a gaming system and get a slew of software services that built off of that or obviously all mobile phones and all the software and applications that go after that. Device-enabled services, is a very strong and sticky business model that we want to drive.

We are expanding our networking and connectivity suite to tie-in with all the latest advances in the marketplace. In this last point here about security is one that we are extremely mindful of. And what you've seen this in the press of recent months is that when these trillions of devices get on the internet you want to make sure that you protect firewalls and security of businesses, so that you are not one of the trillions of devices that pokes a hole into their business. And so we think about that intently and we make sure that our technologies protect our customers and live into their business security systems. It's a very important point.

We are enhancing our integration platform with ISPs, because having rapidly adopted software applications and integration is absolutely critical for expanding into these long-tail applications as well as meeting some really cool things like Robert talked about in the Epic platform. He said basically where the scratching the surface of all the cool services and features there. And last but not least, we are doing advances in sensing and analytics. I mentioned that we are moving into an analytics age, where once you get these devices connected into the big data and into the cloud and you have accessed all that data, now you can perform higher level algorithms on that and start optimizing your business at a level we have never even seen before.

So, it's really exciting what we are able to do there. Thank you for your time. I hope you enjoyed in the fair here today. I really look forward to interacting with the teams. And now here is our informist, Mike Smiley, our CFO and he is going to go through some numbers.

Mike Smiley – Chief Financial Officer

So, to start, I just have a question, does anybody here in the room have daughters, if you do raise your hand? Because what I want to do is after just want to compare notes, I just had this vision. Last thing, I want to let my daughters, I've three daughters, right. And so what we will do is we'll go to New York every once in a while museum and a play and then there is the obligatory time shopping. And so what I do is with my iPad I find a (indiscernible) share and we are there for about an hour. And I know in an hours' time, my daughters got a pile through all these stores and check things and try them on and there is only so much that they can buy within an hour.

Now, I go to the C. Wonder thing and you're saying oh, my goodness, the velocity of this whole thing has just changed dramatically. And so it's like given these kids, these card it's going to be like cocaine, it's going to – as a father last thing I want to do is have them have that those cards. Anyway, see if you took the same notes and said keep your daughters out of that store, but actually it sounds pretty unique. First of all, I want to thank you guys for and everyone here for showing up.

Doug and I and Anders go around and we tried to share our excitement of the business. And we do that as best we can, but we know we can't do it as well as the rest of the team that we have here to show some of these things. I am hoping that as you see and spend sometime with the products and listening that as you will see and understand a little bit better why we are so excited about the business and the opportunities that we have going forward here.

And I also know that at this point a lot of you have already seen numbers and stuff like that and spend a great deal of time, but I want to reinforce something, because we did say in the middle of the five pillars that our job is to delight customers and it definitely is, but we definitely feel that if we can delight our customers wisely, we will also delight our investors. And we are not keeping – we are not taking our eye off that ball. We think that, that's important thing that we need to accomplish as we work on our five pillars and delighting our customers that we also end up delighting our investors.

Starting off I just want to talk a little bit about our top line growth. It's been very attractive. This year we had record revenues of just short of $1 billion at toes right there. So, next year, we get excited when we cross that $1 billion mark, but we grew 10% and 21% the year after, but some of the things that contributed to that is number one is that we have strong channel partners. We didn’t spend a lot of time talking about that, but earlier in the fourth quarter Mike Terzich and his team had a global partner conference where we had hundreds of partners come together and meet and we could share this strategy in the vision of where we were going.

Those partners by the way I was there and they were excited. And I did able to chat with him one-on-one, they were excited about the vision that we had and where we're going. By virtue of having all of these partners, they’re able to take our products and our solutions to a lot by end customers where you can't do it directly for a lot of things and so what that does is gives us the ability to participate in a lot of different applications. Those channel partners are important to us and that’s one of the reasons that are our top-line is growing attractively. The other thing we talk about is the broad product offering. Because of the breadth, there are offerings we are able to participate in a lot of different solutions.

So, you think of it this way if you only have a nail that you’re selling you can only be used for those types of problems that require now. But if you have nail on a screw and all search of things, you can be in a lot more solutions. And so well us, we do have a lot of products that put us in a lot of solutions. And going back Anders point about brand, we have a strong reputation so, when you use one of our products and have had a good experience and you have a new solution you're working on. You want to make sure that you use something that you know about and having had that experience with Zebra in one area, one application you’re comfortable moving you in to another area. And again that something is important to us.

The other thing is our benefits to scale we talked about that and I mentioned the brand reputation, but with our scale – our customers know that we're going to be around – we've been around for 40 years, we've been public 20 years ago. We have sufficient financial resources, our financial – our customers are like our investors want to make sure that we're going be successful financially because they know that means that we’ll support the products long-term. And our products go into solutions that run for quite a long time.

The other thing is – we, our top-line is grown because we made investments in the areas that we think it make a difference. I think in 2010, 2011, a meaningful part of our growth came from geographic expansion that we began in 2009 when a lot of our competitors were sort of forced with just trying to survive. We had the resources to make the investments in 2009, it benefited as in 2010 and 2011 with the geographic expansion, which we’ll spend a little bit more time on.

So, basically we feel good about our top-line performance and we expect that to continue. I think the other thing is investor is we are not -- we’re not a one wonder. We’re not one of those things where if it goes well will be very successful, but if we don’t we may not exist. We are very diversified. I think you can see in the middle chart that we have roughly 40% of our sales is in North America roughly 60% is outside North America, five to seven years ago that was reversed. So, when you look at our company of our sized to have that level of diversification geographically that’s amazing. Now the other thing I’ll tell you is that within those geographies, our brand is recognized globally even if we go into China people know about Zebra and they're going to pay a premium for our products relative to our competitors because they know our reputation.

We are also diversified by industry, we talked about the fact that we’re in – our years and years ago, the company was started more on a manufacturing base now a distribution, transportation, logistics, retail, healthcare, a lot of different industry. So, again is one industries struggles, we have other industries that do well even within those industries, we have strengths within vertical. So, sometime as we may say one quarter that we had some large retailers that drove our top-line. The next quarter we’ll tell you we had some second tier retailers that drove our top-line.

So, we are very diversified by industry and by end customer and then on right hand side, you can see by product. We have very diversified group of products and these are just sort of major subsections in here of different product groups. But even within those lines is Hugh was pointing out we have good, better, best, and it's very diversified. So, we're not relaying on any one product to be able to drive our business. So, the other thing I tell you is with our scale, our distribution partners want to work with us. They realized to be successful in their business. They need to carry our product that allows us to pick the best distribution partners and create relationships that have scale in our efficient and helps serve our end customer better.

And the other thing is we are able to invest in high growth solutions and markets. Again our financial strength allows us to go into new areas to continue to build our business and to continue to have diversified opportunities. We talked about the geographic growth that we've successfully invested starting in the 2009. These are the growth rates that we experienced in 2011. You can see Brazil was up 16%, Russia is 24%, and Russia actually is something we were still getting going even more so, India is 42%, and the country of China is 44% growth year-over-year.

What's nice about this is that in these countries as we sell these products, we basically get the same selling price across the globe. We have very good pricing discipline, which is good and again it bears out that we have a good brand that customers are willing to pay for across the globe. We believe and we know that this geographic growth is going to continue.

There is two major phenomenas are driving the growth in these markets. Number one is a middle-class, is growing like crazy, and that just driving the need for identification type solutions. The other thing is that in these countries that the level of adoption of AIDC is lower. So, you have the phenomena of increase in the AIDC technology and the growing middle-class, which is driving the economy. Both those factors are supported the higher growth in these regions that we have.

The other thing I think you are aware of is that we have strong margins. I was looking at a analyst report from when we went public about 20 years ago, and it was interesting that the gross margins that were coded back then and that the company was achieving the same gross margins we have today in a very attractive, we're very proud of those and we look to maintain those strong gross margins.

Part of that is the benefit of the manufacturing outsourcing that Hugh mentioned that we did recently that helped us continue to maintain strong gross margins. And I mentioned we also have a consistent and discipline pricing strategy. We manage that globally so that we don't end up affecting one area by doing something silly in another area and that helps us to maintain our business and also maintain stability, I think within the industry itself so, we don't have typically a lot of price pressures. You don't see in our pricing major decoration from price pressures in our business.

The economies of scale also help us. We'll talk a little bit more. We're able to grow the bottom-line, a lot faster than the top-line because of the economies of our scale. We also – in my four years here, I've learned as Zebra has an excellent execution culture and we manifested that by doing the ERP implementation that we're working on the outsourcing and even last year when the tsunami went through Japan that affected us in some critical components. But as a company, we were relative rally the resources to continue to satisfy our customers and meet their needs even though that catastrophe had some impact in our supply chain.

We just want is a bottom point like you know that we do – we are affected in our margins by foreign exchange. We have roughly €200 million that we sell in Europe. It's roughly it's affected by foreign exchange so, there is some periods I will go up and then I'll go down because of that. But it's something that we remained competitive within those markets.

Another area we're very proud of is our growing earnings you can see that we've had strong earnings growth. Our top-line again in 2011 grew 10%. Our earnings in 2011 which hit a record grew 31%. We feel we have the ability again from operating leverage to grow the bottom-line faster than we do the top-line and again that operating leverage we believe we built a continuous. So, as you look forward, I will get that in a second. The other thing we focus on is solid financial, wise capital deployment. We have a solid financial foundation. We talked about the strong margins that we have. We also have available cash and investments that allow us to make those investments, where we feel prudent. Over the last several years, we have used a great deal of our capital buying back stock. We bought just short of 24 million shares, which represents roughly one-third of our stock that was outstanding, when we started doing that. We believed and we still believe those were attractive investments for us.

We look at our investments and evaluate from risk-adjusted standpoint. What we believe to be the most attractive alternatives for us. We would think as we go forward that we will use some of the capital for M&A type of things. We probably spend a little bit more capital in investments that relate to the core, maybe invest a little bit less on technology type tuck-ins. But ultimately it is critical that those investments support our structure, our strategy. We are not letting the M&A determine our strategy. We have our strategy and we look for activity investments and make sense according to that. So, again we look at that from a risk-adjusted basis. When we think that we have been fairly disciplined and how we have done that.

As we go forward, our financial model, we believe and hope after you have sat through that you have seen that we believe that we can grow our top-line at high single digit organic growth. We believe the market is growing 6% to 7%, but because of our scale, innovation, the work we do with our partners that we have the ability to drill that faster than that market. We have been gaining nice market share over the last couple of years and we think we are going to be able to continue that. So, you have a market that’s about $3 billion or $4 billion and we are running it about a $1 billion. That means we are still about $3 billion of opportunity that we haven’t captured ability to grow our top-line in excess of the market seems we believe is very achievable.

Our gross margins, we historically maintained in the high 40s and we believe we will be able to continue to do that. I guess we don’t have a great deal of pricing pressure and where we do though, we have is Mike Millman hope he gave you a little bit of confidence and we have the ability to engineer our products in a way it helps us offset the pressure we might have from pricing or cost those types of things.

And the last thing, operating expenses we believe we are able to grow that at a rate that’s lower than, slightly lower than our top line growth. Things that will give us confidence to do that, number one, is the fact that we do have this new ERP system that we are implementing. We believe that will allow us to not only serve our customers better, but also able to run our business more efficiently. So, we won’t have to add as many resources this is our company grows to manage our business.

So, those are things and the other thing I will tell you is that as far as geographically we have most of the infrastructure in place to expand so it doesn’t require typically a lot of the foundational spending that required as we expand our business. So, again this financial model though I want to highlight is something that we expect target over a business cycle, not a year-over-year or quarter-over-quarter, but over a number of years we expect that something will maintain. Certainly over the last two years, we have been very successful in achieving that.

So, in summary, I think that as you walk away, I think you will see that our brand recognition is an important differentiator for us. We do have a broad range of products it allows to participate in a lot of different solutions. We are investing in what would believe to be profitable opportunities that will continue to grow our top line such as we talked about the ISVs, enterprise focusing on sales to the enterprise direct. We also have investments in various technologies that I think you heard are very exciting and you want to keep your daughter out of that C. Wonder store.

We also think that we have high margins and cash flow, which is again the meaningful scale advantages, diversified markets and industries and lastly discipline capital deployment. So, I think those are some of the themes we would want you to walk away with if you haven’t already done so already. So with that I think we’re now ready to turn -- I’ll turn the time back to Anders for just a moment.

Anders Gustafsson – Chief Executive Officer

So now you’ve seen all our presentations. I hope that you -- can we see how we really equipped to deal with the challenges of today and super rep prepared to seize the new opportunity as we go forward. We have laid out our strategies. Our five core pillar strategy, which I think is a very comprehensive and very compelling strategy. And we also set up I think to be able to capture new growth opportunities that’s going to continue to drive growth for the longer term and we will be able to expand our markets beyond our traditional AIDC markets.

And obviously all of this is going to be in partner to be able to be executed by our short management team. I think we have excellent management team. I’m very proud of the team that we put together and I think we will be able to continue to execute very strongly. So our goal obviously is to continue to make sure that we can drive continued attractive revenue growth and make sure we generate attractive return also for you, our shareholders.

And with that we’re going to start our Q&A session. Get to chance to talk about us a little bit more. If we can have the executive team up on the stage here we’re going to get some seats out and we’re going to take some -- we have some time to take some questions from the audience and I think if the technology works, we’ll also be able to take some questions from people, who are viewing over the web as well. So, lets take one minute here to come on up, but we have the seats coming out. Here we go.

So also just as a reminder, we’re going to be serving a lunch immediately after the Q&A and also the innovation fair will be open again that again. We do hope that you take advantage of that. I think we’re trying to show some of our more forward looking products and for us we’re very, very excited about that.

Okay when we take a seat and if just raise your hand and we’re going to have a microphone brought over to you, that’s (inaudible). And then also for our panelist here or for our executives you could please repeat the question that would be great. So any questions? Don’t be shy. Yes, wait for the microphone to come over here. Well, well okay Ajit.

Question-and-Answer Session

Unidentified Analyst

Yeah, two questions. I think the first one is, looking at the major product categories you have. Could you give us some indication or what level of penetration for those products and the core markets, which is the developed world as well as in emerging market, what those levels of penetration are? And the second question is that Zebra has been for 15 years was a very acquisitive company and over the past couple of years you have been in divest mode. So could you give us some color as to how Zebra is looking at its business development outside of organic growth opportunities on a go-forward basis?

Anders Gustafsson

So maybe I’ll start with the acquisition and then maybe Mike you can talk about the penetration. So when we think about acquisitions, we want to make sure we start with our strategy. Acquisition is a way for us to accelerate our strategy to enable our strategy it is not a -- we are not looking to do acquisitions just as way of growing the business for the sake of growing the business.

And we have been very careful in thinking about what is our strategy, what do we want to become when we grow up. When we divested the two businesses in 2011 there was because we didn’t feel that they had a strong correlation to our future’s strategy as we would have liked. Therefore we got there are going to be distracting to us even though we have a good businesses in anyways. And we rather go and find other ways of creating value for our shareholders. And then look at going forward, we’d very much like to find good acquisitions that they hands our strategy we have – we said we'd like to – it would be more comfortable to put said more money to work, more capital to work if its closer to our core business and with more smaller investments if it is little bit further out in the edge (indiscernible) corp.

So, we can use that more to learn and a couple of things we've done over the last year or so has been the set of acquisitions, we've actually acquired perpetual licenses of some software backlogs. So instead of acquiring the company, we acquired the software and when we developed our own competency is to be able to take that software into new areas and we use that as a very rate cost effective way for us to build competency and get us a foot holder, we could start to build off. So, that's a good example for how we think by the investments that are may be little bit more in the peripheral quota that was around experience management to – how to design cards on one area and the other one was around how we can create the more integrated solution to get the digital voice to come across both passive and active in barcode technologies. I hope that answers your question a bit.

Unidentified Analyst

And on the penetration?

Mike Smiley

The penetration question it's a different question to answer, but and it's going to depend on the vertical market, the application in the geography, but I would prefers this when you look at manufacturing. There is a higher level of penetration in North America and Western Europe with multinational organizations. But as you extend the supply chain in manufacturing particularly in the international markets you have a very low level of penetration of AIDC technology. You'd actually be surprised that how low it is. Principally because in those regions they have compensated and replace technology with the use of low cost labor, but that is changing right, so when you look at what's happen in wage inflation that you're reading about now in China as that increases that's putting more pressure on businesses to deploy more automation.

So from a manufacturing vertical, I think they are still plenty of opportunity in the international markets. When you look at the other vertical markets, when you look at the retail market we talked about global expansion what retail – your tier one retailers are certainly have adopted a lot of technology. But it's really becomes a factor of store expansion. It becomes a factor of the own geographic expansion initiatives.

As you get into healthcare, it becomes far less penetrated, Anders had mentioned in his opening remarks, even in the farm to fork space, when you think about food manufacturing through food distribution, a grossly under-penetrated market from an AIDC perspective. So you got a really paint the canvases very different vertically and geographically, but by and large we see lots of applied in the market.

Unidentified Analyst

You had to provide a number for a blended average of that penetration rate would currently address the application.

Mike Smiley

It would just be a – it would be just a swag and it's probably not.

Anders Gustafsson

I think it's hard to pick the denominator if you take a cell phone or flat screen TV. You can look at number of people in the country or the number of households. For us, it's much more how far can we develop it, how many new applications can we find for. So, it's much less of a defined numbers of what they potential can be then as to the example Mike had about the retail store, it's gone from two applications to 40 applications if you ask that what the penetration was 10 years ago for that. We would be said well, we can get to 40 or so. We probably would said much less.

Unidentified Analyst

Got it. Thank you.

Anders Gustafsson

Mary, you had a question.

Unidentified Analyst

Yes, could you…

Anders Gustafsson

I think they turnaround back there.

Unidentified Analyst

Is it on?

Anders Gustafsson

There you go.

Unidentified Analyst

Could you talk a little bit about the competitive environment that you see, it seems like the technology is getting much more interesting and the applications are growing is other changes in the competitive landscape that are important for us to know about.

Unidentified Company Speaker

I could make a few comments, the competitive landscape, the interesting thing about Zebra and Mike made a few points about this is well. When you look at Zebra and you look at the competitor to Zebra who that be right so, you really have to in order to really look at Zebra's competition. You got a break it a part. So, if you look the card we have certain competitors we see in card both in direct-to-card as well as retransfer for example. If you look at desktop, mobile, it sort of the same thing location solution. So, it's a different question to answer, not that I'm trying to give the same answer that Mike did, but it is a difficult question to answer and I would say that we would have to break that down, people like to compares to Intermec because are publicly traded barcode kind of company. But we're well beyond barcode now. So, it's very difficult to put up competitor against Zebra say, who plays in that space, is a very broad product line.

Anders Gustafsson

I would say that we feel very good about our competitive position. We think we have a good strategy. We have been executing well. We have been gaining share. We have further consolidated our leadership position in the industry. So, I think that from a competitive perspective if we are gaining and I think we feel confident that we can continue to do that, but this clearly a competitive market. So we take our competition very seriously, but we also very careful about how we now go develop new products. You heard Mike Millman mentioned about filling out, I think it was Mike maybe assume filling out the portfolio at our -- in each of our category. We have the full range of products, which eliminates the chance for many of our competitors are kicking a little sweet spot here or there. So, I think that our scale is also working to advantage in order to make it very difficult for people to attack us.

Unidentified Company Speaker

One thing I can say in terms of the competition as well as if you look at each product category I think when we look at this data last just about every product category we have proven that we have gained share. So, the good news is there are competitors in each product category, but we know we are doing very well against everyone of the most competitive environments that we play in.

Douglas Fox

Okay. Elliott you had a question?

Unidentified Analyst

Given the momentum that you so carefully articulated, how do you reconcile that with your first quarter guidance of being basically flat or a little up or little down? What are short-term headwinds that are facing you?

Unidentified Company Speaker

I will start and Anders can fill in. I think they were for the first quarter, we are seeing just general, just a little bit of economic headwinds primarily you got the little thing we hear about in Europe. You also have the usual first quarter let say Chinese New Year, which has an impact on us. We don’t see, we are not economists by trade, so we are not the best person to sit there and say, where we think things are going, but our judgment is that what we are we feel in the first quarter is not a long run trend, but just some current economic dips that we are sort of feeling from Europe and Chinese New Year sort of type feel.

I think hopefully we didn’t communicate that we felt that was a trend in our business, but just seasonality in the first quarter and a little economics right now. But we really feel strongly about our ability to continue to compete and do well in the market and we see the technologies continuing to expand in the long run.

Anders Gustafsson

What is the context? We had nine consecutive quarters of revenue growth up through Q3. I’m not sure if we have ever had that before at least not as far as and any of us can remember. So, we have had a very nice progression of revenues and what we saw in Q4 and what we see now I think is a some reflection of the overall uncertainty in the economy, particularly when you look in Asia that many of our manufacturing customers are very advanced company. The largest contact manufacturers and when they start seeing a little bit of uncertainty say or supply constraints from the flooding in Thailand that tend to be pretty quick to pull back to make sure they don’t get called out.

They have learned from the last fueled recessions. But I think that’s more of a temporary believe and Q1 is and also had our geographic changes now just split, changes a little bit of the seasonality we tended to see. So, historically if Q4 was always the most robust quarter and I think we probably would expect in the future too, but Q3 has, this two new drivers for a strong Q3. One is the Asia tends to have Q3 as a strongest quarter. The other one is that retail particularly North America tend to have Q3 as the strongest quarter and if Q4 they are going to be in a mode of just selling. So, we believe there is some natural things like that and for Q1 we believe that to be more going back to a more traditional seasonal pattern of slightly down. And I think that’s seems to be fairly consistent with most of the companies that guided in around our space.

Unidentified Company Speaker

(inaudible)

Unidentified Analyst

You have talked a lot about market share just in generalities, but can you give us any specifics in terms of where your market share is today in terms of numbers versus where you were four, five years ago in you major product categories?

Unidentified Company Speaker

So we’re very careful about using -- talking about market share more specifically because we want to make sure we base that off published industry analyst numbers and we tend to use BGC data. I’m not sure if you have the latest and greatest from BGC.

Anders Gustafsson

I don’t have it in my fingertips here.

Debbie Murphy

In terms of share?

Anders Gustafsson

Share, yeah.

Debbie Murphy

In terms of the share numbers now.

Unidentified Company Speaker

I would say mid 30% it’s inched up a few percent, probably 3%, 4% over the last several years.

Anders Gustafsson

Okay Chris.

Unidentified Analyst

Yes I’ve got two. First it is just a little bit with the slide that had the new growth opportunities, could you put a little more need on that perhaps and maybe size that new potential growth markets compared to the core IDC market. And secondly could you comment a little bit about how big the annuity businesses today and where it might be say five years from now? Where do you want to get that to?

Anders Gustafsson

So I’ll start little bit on the new emerging markets and you guys can help out here also. You listened to the panel today. They were all talking about the kinds of things that we had on the slide how to increase visibility into supply chains or into their stores into their operations, how to provide the digital voice to different connected devices they were leading hedge type of users of those technologies.

So my belief is this a tremendous opportunity for Zebra to grow over the longer term. I’d also don’t want to set the expectation that this is how – it just happening tomorrow. This is something were not like 2004, where RFID was expect out. This is not a steady progression as much wider adoption, wider with RFID and other type of sensor technologies that’s position us in a much broader way I think then we did back then.

And we see ourselves as being able to enable this visibility. We’re not necessarily the visibility ourselves, but by focusing on that physical layer of devices that can have that digital voice and in how they connect to the digital world. We think that’s a tremendous opportunity for us something we have a lot of other companies with this step and say this is our space. And we think it place really to our heritage in barcodes, which is really the most fundamental digital voice you can have.

Unidentified Company Speaker

I think we have -- did you want to.

Mike Smiley

Well, I was going to respond to the annuity question that you asked. When you look at our business today by definition annuity for us is there is roughly three or four categories that apply. One is the specialty label business also the ribbon from a thermal transfer perspective, the wristband cartridges that Hugh was referencing earlier in his presentation and the fourth piece is the ribbon that is used in the identification card business. Now each of those has a little bit different dynamic to it. I would profess the following, when you look at wristbanding our expectation is that we are going to have 100% annuity attached, all wristband application, all products we sell that, we support in those applications so whether that be at the patient safety level at the hospitality entertainment level.

When you look at the card printer business the way we’ve designed our card ribbons. Our expectation is we have 100% annuity attach to all the ribbons that go into those devices and in a similar way the long-term revenue stream from the card ribbon is an annuity that phase out many times over the value of the card printing device that’s initially sold. So as our business changes, I expect that annuity attach as a percentage of our overall revenue will increase.

When you look at the core barcode business today I would state that we have less than a 10% share of the ribbons that run through our thermal printing devices and less than 5% share of even the label product that runs through our devices. As we extent this strategically with our selling effort, we think there is an opportunity to attach more prominently particularly in the international markets, where Zebra doesn’t have on the ground converting presence. We need to put that in place so also our investments we need to make. The long and the short of it is today it represents a piece of the business I really don’t want to disclose what it is in totality, but our expectation and our aspiration is that become much larger as a percentage of the total. And it's fair to say, aspirationally over a longer window a five-year window, we could double the contribution that we get from those aspects of the business.

Unidentified Company Speaker

Okay. We're going to have one on this side first. I can't see who that is.

Unidentified Analyst

Just a quick question about the business model, as you focus more on software-embedded systems, the annuity products and also once you get the ERP system embedded rolled out to all the different geographies, you think that the leveragability of the business, that the target margin profile is just higher over time?

Unidentified Company Speaker

Could you repeat that, I’m sorry, the last part of that?

Unidentified Analyst

Just a margin profile of the company shifted to higher level once lot of these initiatives sort of kick-in in terms of all the different sort of more higher value once the business kicking?

Unidentified Company Speaker

I think, number one depends upon the growth rates of some of those solutions and I think that when we talked when I put in the financial model its more, it's recognizing the fact that we've got roughly a $1 billion business as sort of off the core. And so I wouldn’t expect that the software is going to have a major impact on our margins for the next three years, but I think after that it could become more meaningful.

Unidentified Company Speaker

Yeah, I think for us software is going to have higher margins as products, but also it is in the total portfolio of solutions. And we have also come up with many more now lower end type products, which have slightly lower gross margin profile than our, say our high end products, not as much as most people think, but a little lower. So, we expect that the blend of introducing new or higher gross margin software products and some newer maybe lower gross margin entry level products is going to keep the blended margins, where we said.

Chris Quilty

Okay, (Chris Quilty). I got a question on the repair services you indicate that you wanted to increase the amount of repair services. Is that move towards bringing all the repair in internally or is it still part of what your partners do I know that this happened five plus years ago on the mobile computing side, where a lot of vendors got it 100% in-house caused a lot of dislocation in the channel, lot of partners out there that make money on repair. So, first the question is how much do you want to bring in? And second question how would that differ from what your competitors do whether it might create some dislocation or shifting of alliances?

Unidentified Company Speaker

Alright, Chris, it’s a good question. Let me put the couple of clarifying points on the table. Today, the way our service repair business works is you have several options if you are a customer of Zebra. One option is you can send any of your products back to a Zebra repair center. And we have those strategically located principally in the United States and in Europe, little less so in Latin America and in Asia-Pacific. Also as an option for that customer, you can go and have your device repaired by third-party service providers and our channel partners today. At their discretion provide a certain level of their own return to depot or onsite repair. All of this is available for all of our products, exclusive of the mobile product line.

Today, we are the only authorized repairer of mobile devices and principally that’s due to the fact that most often, because of the wear and tear on those devices, they get highly abused. You have to do a very specific board level triage and repair and the capital investment that you have to make to do that effectively in large scale typically outweighs ways what our channel can do. So, the strategy going forward is we are not changing any of those options. So, resellers are going to continue to participate in doing repairs for all products outside a mobile. So, we don’t have the effect that perhaps symbol had when they recanted on some of this service business many years ago, because we've never really had that in play.

I think the other piece that’s happening here is there are two ships in our channel that are significant. One is many of the traditional channel partners today are actually exiting the repair business and are turning to Zebra. And there are other manufactures to pick up more of the repair. They are more interested in carrying the contract on the repair taking a margin on the repair, but having somebody else execute it. And when we talk about the channel of the future, which Mike Smiley mentioned, which is a higher concentration of ISPs and alliance partners. They have no interest and actually getting involved in hardware repair. So in a way, the seize are kind of parting and its mobility gets proliferated, it gives us the opportunity to be the residential repair operation and the plan is to open-up more sites in more geographies because it’s not a product that people are interested in moving across borders to get repaired.

Unidentified Analyst

Okay and if I can follow-up on Chris’s question on consumables. I think in the ID card printer business, you introduced I forgot the terminology for now, but RFID chip enabled on cartridges, see you can really lock in the consumables. Does that – first of all, how successful as that model been and you’re getting a 100% attach or something close to it. And can type of strategy be reported over on to the more typical label printing business or the commodities the consumables simply to commodity like to demand the attachment.

Unidentified Company Speaker

That’s a great question and it’s one that where we – when Zebra first card involved years ago with card printing with Eltron and Zebra merger came together, one of the things we did at that time was we put the chip inside the ribbon in order to do more than just came that attach, but we tied the printer to the ribbon so, we had more user information, we could pass back to user, how many panels of the ribbon are left, what kind of ribbon is in the printer, we would set the printer up that way. We basically have seen that very successful and we do have 100% attach on those ribbons and we’ve used that same approach in the wristband printer, we use it for the same reason. We know that wristband printer into the case of a hospital, it’s even more important because is a liability issue there, where you have to make sure that you’re printing properly on that wristband so that the image stays in the barcodes stays and that could be scanned on the patient.

When you look at other products, the first question you have to ask is how much, how important is that convenience right if its – if it’s really important for user just to drop a ribbon in and not even think about what he is doing then there is a room for, I think in some places and we debate this, but in some other places in the barcode printing space, there is room for that type of convenience. We’ve seen it with some of the very low end things that you get it staples or office people, there is a lot of attach type to those printers that’s how they sell at the lower gross margin for the hardware. We see that in other places even in our business to business auto ID area and we’re looking at where else it’s definitely part of our strategic approach when we look at products where else can we get more attach and how could we role attach into that. So definitely it's in the roadmaps.

Unidentified Company Speaker

One other point I'd add to using in regard to the label business as a whole and I think it’s important to understand that the reason, we have 5% share of the label product that goes for our own printer. There is a large segment of that market that is a plain paper commodity label. This is what you would traditionally see on a box delivered by UPS or FedEx. That’s a low margin business high volume makes up a significant piece of the label market in general that is not a business that is a primary focus for us. We compete when we have to but it’s not where we see the real value. Where the value is in the specialty label business and by definition, this is where people are using that label and it’s an interco part or either the manufacturing process or the final bill of material, so a great example of that is high heat resistant labels that are used on circuit boards that would stand 1000 degree wave solder baths.

That is a special material, high value, high cost, it identifies that board at a plant level so if there is ever a quality of vendor or recall event, they could basically limited and scan certain applications understand the rev levels of the board. Other cases those labels are serial plates. So as manufacturing has migrated outside the United States, it’s picking up residency in Asia, the fact is that we can attach a lot more of a specialty media, media that we enjoy in the United States in those applications, but don’t necessarily participate in Asia and Latin America and elsewhere. And that’s really the focus on the label side.

Douglas Fox

Okay. One more question here from Keith and then I think what we’ll do is break for lunch. Is there any other I don’t see any so Keith?

Unidentified Analyst

Can you spend a moment talking by the go-to-market strategy I mean historically in the United States, you guys have had a great relationship with the channel how is that changed in the past few months year with the partner conference guys had in October and then your expansion into the emerging markets. What’s your go-to-market strategy there is a more direct, more related to the channel and how do you see that evolving over the next few years?

Unidentified Company Speaker

We are multidimensional and our go-to-market strategy, principally we are still very much aligned with and supportive of going through a variety of channel partners. We don’t envision that’s going to change. Even though we are introducing a strategic sales concept, our intent is to work with our channel partners on the fulfillment of a lot of that activity. So, Zebra’s perspective is we wanted to take more control of demand in some large accounts. We think we can proliferate more effectively than maybe a small reseller can, but our intent to continue to use resellers to fulfill that business and we will adopt that strategic sales model outside the United States in the next couple of years. I expect that by 2013 we will have roll that out in each of our geographies.

Today it’s still very much a reseller community, a system integrator base community. Even the ISV aspects to what we have been recruiting and brining in to the business, there are less inclined to sell hardware. They generate revenue on software and professional services. So, we partnered those ISVs with other Zebra channel partners and so they get the benefit of being drawn into opportunities. We like the scale and the efficiency in the reach of this multi-channel model. We are not suggesting its going to change in any material way.

Douglas Fox

Okay. One more question from Elliott and I think that’s it and of course we will all be around for the next hour or so if you have any questions we would be very happy to answer more than at that time. So, Elliott why don’t you.

Unidentified Analyst

Sorry to delay lunch, but just two quick questions if I may. One would you comment on the composition of your funds, the liquidity and so on where the investor and also how much of that is abroad and secondly would you comment on your capital expenditure program over the next several years. When do you see capital expenditures exceeding depreciation and amortization if you do and other words any major capital programs coming up in the foreseeable futures?

Anders Gustafsson

Yeah so the first question.

Mike Smiley

Let me answer the last one, I will give my best. I don’t see our CapEx exceeding our depreciation for a while. We have the ERP implementation that’s coming up at by virtue of outsourcing. We shouldn’t have as much as CapEx as we historically had. We haven’t had for a little while and then we have also been spending a fair amount on the ERP system, which I don’t see us continuing at the same pace that we have in the past. So, I wish to see our CapEx certainly not growing from where it is. And what was the other question?

Unidentified Analyst

It has to do with the composition of the portfolio.

Mike Terzich

Oh composition, our investments are all in U.S. dollar securities. There are primarily there are in high rated double layer better type of securities. We probably have maybe 25% of that cash investments, 30% is roughly oversees, right now. I think that’s the answer.

Anders Gustafsson

It’s all short duration I think the average duration of our portfolio is about one year, maybe a touch over one year and as Mike mentioned its all treasury’s agencies, high grade corporates and very, very liquid portfolio.

Unidentified Analyst

That’s how said U.S. is also dollar denominated secured so.

Anders Gustafsson

Absolutely.

Mike Smiley

Right.

Douglas Fox – Vice President, Investor Relations and Treasurer

Okay. With that first let’s thank our executives for the Q&A session and more important, I want to thank you our audience and our investors because you are very, very important to us as you know a lot of friends in the audience here. I hope we meet a few new ones today and please stick around for lunch and by all means please avail yourself of the products and solutions that we have here so can give deep greater appreciation for what Zebra does and how we are creating value for our shareholders. Thank you very much.

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