Executive Summary / Key Takeaways

• Zebra Technologies stands as a leader in enterprise asset intelligence, driving digital transformation and automation across critical industries with its specialized hardware, software, and services.
• The company's strategic acquisitions of Photoneo and Elo Touch Solutions significantly expand its addressable market and enhance its "Connected Frontline" vision, integrating self-service and interactive display solutions.
• Zebra's robust financial performance in 2025, marked by strong revenue growth and improved profitability, underscores its operational resilience and effective mitigation of global trade policy impacts.
• Technological leadership in RFID, mobile computing, and emerging AI solutions provides a sustainable competitive advantage, positioning Zebra for long-term growth by empowering frontline workers and optimizing supply chains.
• Despite ongoing macroeconomic and geopolitical uncertainties, Zebra's disciplined capital allocation, strong free cash flow, and commitment to shareholder returns reinforce its investment appeal.

The Digital Backbone of Enterprise Operations

Zebra Technologies Corporation, founded in 1969, has evolved into a global powerhouse in the Automatic Identification and Data Capture (AIDC) industry. The company's core mission is to provide Enterprise Asset Intelligence (EAI) solutions that make "every asset and front-line worker visible, connected, and fully optimized." This vision is brought to life through a comprehensive portfolio of barcode and RFID printers, mobile computing devices, data capture solutions, and cloud-based software subscriptions. Zebra's solutions are fundamental to digitizing and automating workflows across diverse sectors, including retail and e-commerce, manufacturing, transportation and logistics, healthcare, and the public sector. The company operates in a served addressable market exceeding $35 billion, driven by megatrends such as artificial intelligence, mobile and cloud computing, and the on-demand economy.

Zebra's strategic journey has been marked by continuous innovation and market expansion. The company has consistently reinvested approximately 10% of its sales into research and development, fostering a culture of innovation that underpins its industry leadership. This commitment to R&D is crucial for developing proprietary technologies that offer tangible benefits over alternatives, strengthening Zebra's competitive moat and driving financial performance.

Technological Edge: Powering the Intelligent Frontline

Zebra's competitive advantage is deeply rooted in its differentiated technology, which delivers quantifiable benefits across its product lines. Its core offerings in RFID and mobile computing provide significantly higher efficiency in real-time tracking and data capture. For instance, Zebra's RFID solutions have consistently delivered double-digit growth over the past several years, driven by their ability to improve supply chain visibility, inventory accuracy, increase productivity, enhance profitability, and reduce waste across various end markets. These solutions enable customers to achieve critical business outcomes by providing precise, real-time data on asset location, status, and condition.

The company's mobile computing devices, often rugged and purpose-built for enterprise environments, are designed for durability and seamless integration into complex workflows. These devices, coupled with Zebra's software, offer superior performance in demanding conditions, outperforming generic consumer-grade alternatives in longevity and operational reliability. This translates into lower total cost of ownership for customers and higher operational uptime.

Zebra is also at the forefront of integrating emerging technologies, particularly Artificial Intelligence (AI), into its solutions. At the National Retail Federation (NRF) trade show in January 2025, Zebra showcased its generative AI capabilities, including an AI suite for mobile computing and the "Zebra Companion" digital assistant. The AI suite enables independent software vendors and Zebra itself to build AI applications directly on its mobile computing platforms, offering enhanced edge intelligence. The Zebra Companion, a generative AI digital assistant, is designed with multiple agents to assist frontline workers with tasks such as product recommendations, operating procedures, sales information, merchandising guidance, and device operation. These AI agents aim to make new employees as effective as experienced ones, significantly improving productivity and reducing training times.

While these AI solutions are not expected to materially impact near-term results, they are integral to Zebra's "connected frontline worker strategy." Management anticipates first revenues from these AI offerings in 2026, with scaling expected in 2027 and beyond. This technological roadmap is poised to drive premium hardware sales, as AI-powered applications will necessitate higher-end devices with faster processing speeds and more memory, and generate recurring software revenues from AI agents and Work Cloud software. This innovation further solidifies Zebra's market positioning and long-term growth trajectory.

Strategic Expansion and Competitive Positioning

Zebra's strategic initiatives are focused on expanding its market reach and enhancing its solution portfolio through both organic innovation and targeted acquisitions. The company's recent acquisition of Photoneo, a 3D machine vision company, in February 2025 for $62 million, expanded its machine vision offerings, particularly in manufacturing and logistics. This acquisition, allocated to the Enterprise Visibility Mobility (EVM) segment, strengthens Zebra's capabilities in quality inspection and automation.

A more significant strategic move was the acquisition of Elo Touch Solutions, Inc. for approximately $1.3 billion, which closed on October 1, 2025. Elo, a pioneer in touchscreen technology and a leading provider of point-of-sale solutions, self-serve kiosks, and interactive displays, operates in an $8 billion market with approximately $400 million in annual revenues. This acquisition is expected to be immediately accretive to earnings and generate an incremental $25 million of annual EBITDA synergies by year three. Elo's offerings are highly complementary to Zebra's, expanding its addressable market in the "Connected Frontline" segment to over $20 billion. This combination allows Zebra to offer a common platform across mobile and fixed digital touchpoints, enhancing its strategic positioning across retail, hospitality, quick-serve restaurants, healthcare, and manufacturing.

In the competitive landscape, Zebra maintains a strong position against rivals like Honeywell International Inc. (HON), Cognex Corporation (CGNX), and Avery Dennison Corporation (AVY). Zebra's specialized expertise in AIDC, particularly in RFID and mobile computing, often provides more tailored and integrated solutions for real-time asset intelligence compared to Honeywell's broader industrial automation portfolio. While Honeywell benefits from its diversified operations and scale, Zebra's focused innovation allows for potentially faster development cycles in its core AIDC segments.

Against Cognex, a specialist in machine vision, Zebra's strength lies in its comprehensive enterprise mobility solutions that integrate hardware, software, and services for end-to-end visibility. While Cognex excels in vision-specific precision, Zebra's broader asset tracking and workflow optimization capabilities offer greater versatility. Compared to Avery Dennison, which focuses on labeling materials and RFID tags, Zebra provides more integrated hardware-software systems, offering superior interoperability and operational efficiency in complex environments. Zebra's strong brand recognition and extensive distribution channels further bolster its competitive moat, fostering customer loyalty and driving recurring revenue.

Financial Performance and Outlook

Zebra Technologies demonstrated robust financial performance throughout 2025, reflecting a recovery in demand and effective operational management. For the second quarter of 2025, total Net sales increased by 6.20% year-over-year to $1.293 billion, with Consolidated Organic Net sales growing by 6.30%. This growth was broad-based across North America, Asia-Pacific, and Latin America, driven by improved demand trends. The Asset Intelligence Tracking (AIT) segment saw Net sales increase by 5.30% to $418 million, primarily from higher sales of printing and RFID products. The Enterprise Visibility Mobility (EVM) segment's Net sales grew by 6.70% to $875 million, mainly due to higher mobile computing product sales.

Profitability showed mixed trends but overall improvement. Gross margin in Q2 2025 decreased to 47.60% from 48.40% in the prior year, primarily due to the unfavorable impacts of U.S. import tariffs, net of mitigating actions. However, year-to-date Q2 2025, Gross margin improved to 48.50% from 48.20% in the prior year, benefiting from favorable business mix and volume leverage, partially offset by tariffs. Operating expenses increased due to higher employee-related costs and unfavorable foreign currency exchange rates. Despite this, operating income rose, leading to a diluted earnings per share of $2.19 in Q2 2025, up from $2.17 in the prior year, aided by the company's share repurchase program.

The third quarter of 2025 continued this positive momentum, with sales reaching $1.3 billion, a 5% increase year-over-year. Adjusted EBITDA margin improved by 20 basis points to 21.6%, and non-GAAP diluted earnings per share grew 11% to $3.88, exceeding the company's outlook. This performance was attributed to solid demand, lower-than-expected tariffs, and strong operating expense leverage. The EVM segment grew 2%, led by mobile computing, while AIT grew 11%, driven by RFID and printing. Retail and e-commerce remained a bright spot, though manufacturing remained soft and healthcare cycled a strong comparable period.

For the full year 2025, Zebra anticipates sales growth of approximately 8%. The adjusted EBITDA margin is expected to be around 21.5%, and non-GAAP diluted earnings per share is projected to be approximately $15.80, representing a 17% year-on-year increase. This outlook incorporates approximately 850 basis points of contribution from the Elo and Photoneo acquisitions and favorable foreign exchange rates in Q4. The company has significantly reduced its expected gross profit impact from tariffs for the full year 2025 to approximately $24 million after mitigation, with a $6 million net impact expected in Q4. Zebra expects to substantially mitigate U.S. import tariffs entering 2026 through pricing adjustments, reducing U.S. imports from China to less than 20%, and optimizing its product portfolio and supply chain.

Zebra's liquidity and capital resources remain robust. Year-to-date Q3 2025, the company generated $504 million of free cash flow, holding over $1 billion in cash with a modest debt leverage ratio of 1 and $1.5 billion in credit capacity. The company's capital allocation strategy prioritizes organic growth, strategic M&A, and returning capital to shareholders. Zebra has committed to $500 million in share repurchases over the next 12 months, signaling confidence in its future performance and commitment to shareholder value. The recently enacted One Big Beautiful Bill (OBBB) is also expected to provide a $50 million to $60 million reduction in cash taxes in 2025, and over $200 million over the next two years, further bolstering free cash flow.

Risks and Challenges

Despite a strong operational and financial trajectory, Zebra faces several pertinent risks. Global trade policies, particularly U.S. import tariffs, remain a complex and evolving challenge. While the company has made significant strides in diversifying its supply chain and implementing price adjustments, these policies continue to impact gross margins and introduce uncertainty. The potential for new tariffs, such as those on semiconductors, or changes to existing exemptions, could further affect profitability.

The macroeconomic environment and geopolitical instability also contribute to uneven demand across geographies and vertical markets, as customers remain cautious in their capital spending. While Zebra's solutions are critical for operational efficiency in any economic climate, prolonged uncertainty could lead to customers staging deployments over longer periods, impacting revenue growth. Furthermore, successful integration of recent acquisitions, particularly Elo, is crucial for realizing anticipated synergies and expanding market reach.

Conclusion

Zebra Technologies is a compelling investment story, characterized by its foundational leadership in enterprise asset intelligence and its relentless pursuit of innovation. The company's strategic acquisitions of Photoneo and Elo Touch Solutions are transformative, significantly expanding its addressable market and solidifying its position at the forefront of the "Connected Frontline" and "Asset Visibility & Automation" segments. Zebra's technological prowess, particularly in RFID, mobile computing, and emerging AI solutions, provides a powerful competitive advantage, enabling customers to achieve substantial gains in productivity and operational efficiency.

The company's strong financial performance in 2025, marked by consistent revenue growth, improved profitability, and robust free cash flow generation, underscores its operational resilience in a dynamic global environment. While macroeconomic and geopolitical uncertainties, particularly concerning trade policies, present ongoing challenges, Zebra's proactive mitigation strategies, disciplined capital allocation, and commitment to shareholder returns position it for enduring profitable growth. Investors looking for a leader in the digitization and automation of enterprise workflows, backed by a strong technological roadmap and strategic expansion, will find Zebra Technologies a compelling proposition.