During this QuickCast, VDC’s Director of Barcode and Symbologies, Tom Wimmer, discusses some of the key factors that drove swift growth and continue to positively impact the barcode hardware market today.
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Each year, VDC reaches out to barcode technology suppliers, their channel partners, and end-users deploying the technology to understand how demand for barcode solutions is changing. We’ve spoken with the leading manufacturers of barcode hardware about 2010, and how they see their markets evolving in 2011 and beyond. These conversations are on-going. They enable us to segment and size those niche technology markets we cover very narrowly. More importantly, they shed some light on the probable evolution of these markets. We’re already in the process of complementing this research we’ve conducted with the supplier community with their channel partners and end-users and we think we’ve learned enough to update our annual forecasts. Today, we’ll be sharing some of these forecasts with you, and we’ll be highlighting some key factors suppliers have shared with us—factors that we think are responsible for the swift recovery we saw in 2010 and are continuing to witness in the first half of 2011.Specifically, we’ll be providing an overview of the Global Barcode Hardware market. Here, we will be reviewing some common trends that suppliers in each of the hardware markets we cover attribute to the recovery we’ve witnessed to date, along with some broader trends that we think bode well for the less immediate future.And while global trends are really important, anyone who is familiar with VDC knows that we think some of the best insights can be had when you provide a little more context, and it’s segmentation that that often provides this context, enabling us to compare and contrast segment-specific requirements with one another and the market at large. So, we’ll be providing some of this perspective along three lines:We’ll be talking about some of the differences we’re seeing when we speak with suppliers operating in different geographic regions. We’ll also be sharing some perspective we’ve gained talking to some of the larger global barcode hardware manufacturers who have the capability to compare and contrast market conditions and use requirements across established and merging country markets.Next, we’ll be delving at least one tier down into our product segmentation. We won’t be getting into all the gory detail that we provide in our estimates and forecasts, but we will be talking about some trends specific to printing and scanning that we think have real implications for barcode hardware suppliers and channel intermediaries alike.Last, we will spend a little bit of time on vertical markets and applications. For many of us, this is where the rubber meets the road, because ultimately our clients are really concerned with the end-user, the problems they are trying to solve with AutoID, and those advancements in technology that are enabling them to solve those problems faster and more cost effectively. So, that’s our agenda, and although this quickcast is pre-recorded, we’re always available via e-mail or telephone to talk about what we are working on, answer questions and trade ideas. Let’s get started.
Okay, let’s talk about the global barcode hardware market, which includes barcode printers, handheld scanners and stationary scanners in all their flavors, price points, and use scenarios. When we total up the 2010 hardware revenues reported by those barcode suppliers we’ve interviewed, we arrive at a global market valued at just under $3.4B in supplier dollars. We’ll be breaking that number down for you in the next couple of slides. In the meantime, let’s talk about that global number for a couple of minutes, particularly about the past few years and our forecasted future growth.I remember participating in a webcast in November of 2008. There was a lot of uncertainly about the pending recession, and all us folks who follow technology markets were making predictions about what impact a possible recession might have on our markets. During our webcast, we noted that credit market conditions were negatively impacting near-term growth prospects for a number of AIDC market segments, that consumer spending ‘fell off a cliff’ in September and October of 2008, and that IT capital investment trimming became pronounced in September. We said at that time, that these effects were likely to materially impact 2009 and 2010 growth and margin opportunities for suppliers of AIDC solutions. We got thatright. We also said that some vertical markets were likely to contract for 1-2 years. We got that right too. We were on a role, but we concluded that presentation with a final prediction. We said that while overall AIDC growth would slow, it wouldnot contract. Obviously, that prediction rang hollow, and the depth of the contraction took us all by surprise. Supplier revenues derived from the sale of AIDC hardware market contracted by nearly 25% in 2009. What was gratifying for us was the speed at which (and the rate at which) the AIDC hardware markets recovered. Looking back, those factors we considered when developing our predictions have held true, and contributed to a pretty remarkable recovery. Those factors we thought would provide insulation or protection from a dramatic decline in demand are the same factors which have played a important role in the swift recovery:Key trend #1: in late 2008 we observed that existing customers were adopting AIDC for business improvement, now we are seeing this trend play out accelerated by extended life cycles and technology upgrades.Key Trend #2: we said, core AIDC technologies have become commoditized, becoming tangible investments for tier 2/3 companies with access to capital. We’re seeing this in an even bigger way today with the availability off the shelf barcode solutions and some emerging channels and sales models that are making what were CapEx intensive investments more affordable.Key trend #3: We said emerging AIDC technologies have proven their viability in pilots, paving the way for increased investment among tier 1 users. This too is happening in a big way, and even faster than we anticipated. My boss Drew Nathanson and I have hosted several webcasts on the topic of convergence, and there is a whitepaper we wrote with the folks at GS1 that is available for download on our website for those who are interested.So, those are the trends we’ve identified that are driving the unprecedented recovery we are so thrilled to be witnessing. When you couple these growth drivers with some of the macro-economic trends we’re witnessing:Globalization and the creation of a world economyA relentless focus on improving efficiency while reducing costs within supporting supply chainsIncreased concerns regarding safety and securityGreater demand for information regarding the location and status of assets You become more comfortable forecasting steady, measured growth for the coming 3-4 years, and that’s what we are forecasting. Will we ever contraction again? Probably, and certainly with some of the segments and sub-segments we follow. Won’t these markets eventually plateau? Certainly, and we’re already seeing some segments and sub-segments begin to plateau, but we do not see this playing out within the next few years for the reasons we’ve shared so far with you. So that’s our growth thesis. Earlier I said that we’d be spending some time talking about how this growth is playing out in specific geographic, technology and vertical market segments. Let’s teak a look first at geographies.
So this regional view is one that has always intrigued me. When I was a corporate guy and a VDC client, I spent a lot of time thinking about when demand in EMEA would outpace demand in North America, and when demand in APAC would surpass EMEA. This shift have been more evolutionary than revolutionary. Since I have been following the shift since the mid-to-late nineties, it feels almost tectonic. It is happening, and some of our clients, barcode suppliers with a truly global footprint headquartered in North America are predicting that 75% of their revenues will come from outside of North America by the end of this decade. It’s possible, but there may be a more important discussion to have here. And that discussion, we think, is this:How does demand vary between established and emerging country markets, and what can we and can’t we apply from our experience watching established country markets unfold to emerging country markets?Put another way, we witnessed a migration from compliance driven investments to business improvement driven investments, from supply chain-centric sectors to supporting sectors, from generalized sales channels to more specialized channels, from customized point solutions to enterprise solutions supported by increasingly by those technical and commercial standards that make widespread adoption possible. What can we apply from this experience to those emerging country markets we are helping to develop with our technology? We think plenty, and we think we should be mindful of these differences because they can and should inform our country market selection, staging and development strategies. We’ve highlighted some of the differences we’re seeing when we look at trends driving demand in established country markets in the US, Western Europe and Asia, and contrast these trends with what we are seeing in the emerging country markets we follow like Brazil, Russia, India and China. These are the kinds of discussions we share leaders are having with us, and we think these discussions are the right way to think about and frame discussions about regional differences in technology adoption. So, now let’s move this discussion to talk about some of the trends we are seeing on the technology front that are driving demand for barcode solutions.
We segment the product categories we follow really narrowly, whether by technology (laser vs. imager / ink-jet vs. thermal) by connectivity, by product features, by capabilities, by price point, etc. So developing one slide to address factors driving product category growth was pretty daunting. No doubt there are lot of stories we want to tell here and need to be told, but there is not enough time in a brief webcast to address all of them. Still, there are some trends we want to call out here because we think they’re especially noteworthy.One of the coolest stories we’ve seen unfold these past few years is the imaging story. 2D imagers have experienced really strong growth, and we expect this growth to continue for the foreseeable future. Part of the story is mobile tagging, with 2D barcodes like QR codes and Microsoft tags changing the way consumers interact with brand owners and their trading partners. The bigger story is the story about imaging as a platform technology. There is so much incremental capability that can be tapped once an investment in a 2D imager is made in the way of application extensions, that we’re really, really bullish on the technology (and especially those suppliers who are cultivating relationships with ISV’s and the app developer community to support these extensions). Two supporting trends (that are also impacting the barcode printer markets) are increased adoption of self service and customer facing solutions and the growing importance of mobility, not only in field based applications, but within the four walls. Before we move in to printers, it’s important to note one more trend on the scanner side, because there is a corollary to the geographic demand discussion we just had. For years folks have been asking when laser and linear imagers will be done in by the 2D imager. What we are finding is that each of these technologies has their unique benefits, and it’s the application requirements that drive adoption of one or more data capture technologies.And what about barcode printers? The quest for internal business improvement is driving demand for barcode production closer to the core. Put another way, we’re seeing barcode printing moving from the front-end and back-end of a process – the hand-off’s if you will, inward to support myriad applications ranging from shelf marking to work in process to reverse logistics. And more tier 2, tier 3 companies are printing on demand than ever before either using low cost dedicated printers or even multi-function printers when barcode production and image durability requirements are relatively low. Last, we’re seeing strong growth in two product segments that tie to mobility and increased adoption of self-service solutions. Suppliers are reporting strong growth in the mobile transaction printer and the print mechanism segments, and anticipate growth in these segments to continue to scale.
And what about vertical markets and applications? Getting back to the comments I made at the beginning of this quick cast, suppliers are keenly interested in understanding the end-user, the problem they are trying to solve and their use requirements, and these factors are all dependent upon the application and often influenced by the vertical market where that application is deployed. We wanted to conclude today’s presentation by highlighting some key trends that are influencing the growth in some of the leading segments we follow.When we look at demand for most of the technologies we follow, we can typically associate 65-75 percent or more of supplier revenues with those supply-chain centric sectors: Manufacturing, Transportation/Logistics and Retail. That’s not surprising when you think about the fundamental job that barcode does: providing trading partners access to information regarding materials as they migrate from the point of production to the point of consumption. What is somewhat surprising is that we have not seen supporting sectors embracing barcode technologies to the degree that we had once anticipated. Healthcare is a relevant example. Patient safety initiatives have driven adoption of barcode hardware, but the pace of adoption has been far slower than pundits predicted. Adherence to established processes and best practices have in many cases presented barriers to adoption, and suppliers of barcode technology have encountered longer sales cycles than originally anticipated. Those who invested in market development are uniquely positioned, not to ride the wave that was once predicted, but to grow with the market, often through the cultivation of specialized channels and deep domain expertise.And while applications withinthose aforementioned supply chain segments continue to mature, it is within these segments that we are seeing the most convergence with complementary technologies. We’re seeing imaging applications proliferate at the point of sale, addressing application requirements ranging from age verification to auto-forms population, to mobile coupon redemption. In the transportation/logistics and manufacturing segments we’re seeing similar trends play out: increased utilization of 2D barcode symbologies, smart phones and the convergence of barcodes with complementary technologies including voice recognition, passive RFID, active RFID and GPS.We’re anxious to see how these trends are reflected in the data we are in the process of gathering from channel organizations and those end-users deploying barcode technologies, and we look forward to providing an update when during our Q3 quick-cast. In the meantime, I’d like to thank you listening to today’s presentation, and leave you our contact information, should you have any questions.
What’s Driving Growth in the Barcode Hardware Market?