EXHIBIT 99.3
TELECONFERENCE TRANSCRIPT
MARCH 4, 2004
MARK GREENQUIST
Symbol Technologies - SVP & CFO
BILL NUTI
Symbol Technologies - President & CEO
TODD ABBOTT
Symbol Technologies - SVP of Worldwide Sales & Marketing
PETER LIEB
Symbol Technologies - General Counsel
CONFERENCE CALL PARTICIPANTS
PAUL COSTER
JP Morgan - Analyst
REIK READ
Robert W. Baird - Analyst
AJIT PAI
Thomas Weisel Partners - Analyst
PETER BARRY
Bear Stearns - Analyst
MARK ROBERTS
Wachovia Capital - Analyst
DAVID FEINBERG
Morgan Stanley - Analyst
JACK LIEBERMAN
Reliance Management - Analyst
RICHARD DAVIS
Richard W. Davis & Co. - Analyst
MIKE WHITFIELD
Wachovia - Analyst
EXHIBIT 99.3
TELECONFERENCE TRANSCRIPT
MARCH 4, 2004
- --------------------------------------------------------------------------------
OPERATOR
Good day, everyone, and welcome to the Symbol Technologies fourth quarter
earnings conference call. Today's call is being recorded. At this time I would
like to turn the call over to Mr. Mark Greenquist, Senior Vice President and
Chief Financial Officer. Please go ahead, sir.
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
Thank you everyone for joining us on our 2003 fourth quarter and year-end
conference call.
Please note that the conference is supported online with presentation content
available to you at www.symbol.com/investor. If that's not available immediately
on the website, it should be very shortly, and you will be able to download the
PDF files.
With me today is Bill Nuti, Symbol President and CEO, as well as our General
Counsel, Peter Lieb, and Todd Abbott, our SVP of Worldwide Sales and Marketing.
Before I review our fourth quarter and year-end results, a brief disclaimer
reflecting the Safe Harbor Provision of the Private Securities Litigation Act of
1995.
Displayed on the screen is the customary Safe Harbor provision. Beyond that, let
me caution the numbers we're providing on today's call and in today's news
release are unaudited. We believe, however, that these reported results
accurately reflect in all material respects results that will be reported in our
Annual Report on Form 10-K for 2003. As you know, we're now up-to-date on our
regulatory filings with the filing last week of the Company's 10-Qs for the
first three quarters of 2003.
During the course of this conference call we may make projections or other
forward-looking statements regarding future events or the future financial
performance of the Company. Such statements are solely projections and actual
events or results may differ materially. Any forward-looking statements are
further qualified by risks and uncertainties identified in filings Symbol makes
periodically with the SEC. Copies of our SEC filings are available from the
Company upon request or by accessing our company Web site, www.symbol.com, where
you also will find details regarding the replay of today's call.
Lastly, let add that the earlier reported government investigations are
continuing, and we will not be able to address those issues in today's Q&A.
Going forward, we will continue to provide updates on the course of these
investigations as events warrants.
After reviewing our fourth quarter and fiscal 2003 financial results we will
provide our customary commentary on geographic and product mix. We will also
give you a snapshot of some of our new product introductions, and provide color
around recent customer wins in our core business, and update you on progress
we're making in our focus on enterprise-wide operational excellence. Also, we
will provide the bookings and backlog metric we introduce last fall, and close
with commentary on the outlook for the year and general guidance for fiscal
2004. Then we will take your questions.
As you've heard in our recent calls, we have made healthy progress relative to
the financial state of the Company. Year-over-year total revenue was up, growing
to 1.53 billion in 2003 from 1.4 billion in 2002 with the year-over-year revenue
growth coming in at just over 9 percent. With total revenue of 393 million, the
fourth quarter was up 4.2 percent sequentially from 377 million in Q3 '03, and
up 5.4 percent from Q4 '02.
This quarterly revenue performance is somewhat below what we preannounced just
last week. Specifically we believe Q4 revenue would come in at approximately
$400 million. Based upon how we recognize revenue to two tier distributors, i.e.
on a sales our basis, our final deferral sales into our distributors was
increased by 5 million from what we originally estimated in last week's press
release, primarily due to a 5 million deferral of sales to our largest European
distributor. This additional revenue deferral negatively impacted earnings per
share by one cent per diluted share.
As mentioned on our call last October, we have certain European two tier
distributors not reporting on a sales out basis. We're working with them to
provide more precise and timely data to record revenue to these distributors on
a sales out basis and expect to have that in place in the first quarter of 2004.
The impact of that is not expected to be material, with a potential deferral of
revenue of 3 to 4 million in the first quarter.
Full-year '03 product revenue rose about 11 percent year-over-year to 1.22
billion from 2002's 1.1 billion, with about a 2 percent uplift sequentially to a
fourth quarter total of $314 million.
We continue to experience volatility in our service revenue, up $10.6 million
sequentially in Q4 at $78.9 million from 68.3 million in Q3. This was due in
large part to increased cash collections as our US service revenue is recognize
on a bill and collected basis. Full year '03 service revenue rose by 2.7 percent
to 306.4 million. As we have stated previously, we believe our service business
run rate to be on average about $75 million per quarter.
Turning now to gross margin, the higher total revenue drove a full-year increase
of 187.5 million in gross margin to $675 million or 44.1 percent of sales. Gross
margins also saw a 2.5 percentage point improvement sequentially to 46.8
percent, generating a 10.3 percent improvement to 184.1 million from $166.9
million in Q3.
During all of 2003 we saw good performance from our operations team, driving
improvements in gross margins, and that was again the case in the fourth
quarter. However, we should note that the improvement in gross margins was
helped by roughly $10 million due to a reduction of inventory that had
previously been reserved against. While the operations team will continue to
focus on improving our inventory management, the benefit of these activities in
Q4 was higher than we would expect to see in future quarters.
Operating expense in the fourth quarter at $161.7 million was approximately 12.8
million higher relative to Q3's 148.9 million. I will take you through a deeper
dive on what caused that increase in just a moment.
Fourth quarter net earnings improved to $16.2 million from the third quarter's
11.5 million with a corresponding improvement in Q4 to 7 cents per diluted share
compared to diluted EPS of 5 cents in Q3. As stated in our news release last
month, in Q1 '03 we recorded an additional provision of 72 million pre-tax
related to our class-action lawsuits and government investigations. That
represents an after-tax charge of 46 million if tax affected at the applicable
statutory rates or 20 cents per diluted share. Although we determined earlier
this year that this additional provision was necessary, we recognized this
charge in Q1 '03 as we had not yet filed our three quarterly reports with the
SEC. Primarily as a result of this charge, diluted EPS for the first nine months
of 2003 was reduced from a previously disclosed 17 cents to a loss of 6 cents.
With the 7 cents generated in the fourth quarter, full-year diluted EPS is 1
cent, representing an increase of 21 cents compared to the prior year.
This slide summarizes year-over-year revenue comparisons, as well as quarterly
comparisons. We're providing this additional detail on revenue to again make the
point that sequential and year-over-year comparisons are difficult because we've
reported some revenue on a bill and collected basis, along with other necessary
adjustments affecting our revenue. As you can see, the impact of cash basis
accounting on product revenue was a -12 million in Q4. This was the result of
deferring revenue recognition on a large scanner deal that was fulfilled through
one of our smaller VARs. However, service revenue was positively impacted in the
fourth quarter as a result of recognizing North American service revenue on a
bill and collected basis.
As mentioned previously, operating expenses increased sequentially by 12.8
million in Q4 '03 to 161.7 million. This chart provides some further detail on
what drove that increase. As you'll note, engineering expense was down
sequentially more than $3 million to about $39 million in the fourth quarter.
This reduction was primarily the result of reduced severance expense in Q4
versus Q3. Many of you will recall that we restructured our engineering
organization in the third quarter of '03, leading to some reduction in force and
severance expense in that quarter. The major increase in operating expense in
the fourth quarter occurred in SG&A which rose 16.2 million in Q4 to $122.8
million. Costs related the restatement -- namely the expenses for professional
services -- as well as equity compensation related charges from our ESPT (ph)
and stock option programs, which were triggered by the late filing of our 2003
10-Qs, were reduced by just over 4 million quarter-over-quarter.
However, these reductions were offset by increased spending in a number of
areas; in finance with our Sarbanes-Oxley activity starting to gain pace, the
professional service fees related to our year-end audit, as well as just
catching up with the backlog of work by using a number of consultants, spending
increased by 3.5 million quarter-over-quarter. In marketing we incurred higher
expenses in Q4, primarily related to the annual worldwide sales conference that
was held in the first week of January. In IT project spending increased by over
3 million quarter-over-quarter as we kicked off a number of key initiatives to
significantly improve our systems infrastructure and to build a robust IT
platform off of which we can scale our business going forward. Finally, the
remainder of the increase was driven primarily in the sales area. As we
mentioned on our last earnings call, we're in the process of retooling our high
touch sales force in order to significantly improve our coverage model. In Q4,
these activities led to over 4 million of severance costs in the EMEA theater.
However, even as we exited some associates, we've continued to bring new people
into the sales force, leading to higher sales expense in Q4.
Bill will talk more in a moment about some of these initiatives to improve the
way we do business and to achieve operational excellence, as well as give you
some indications of what we expect in operating expense trends as we enter 2004.
Here you can see our continued progress in managing cash, receivables, inventory
and debt. These balance sheet metrics show we've achieved better execution on
business fundamentals, even as we dealt with the extensive issues and activities
surrounding the restatement and investigations.
Cash balances at December 31, 2003 were $150 million, a 74 million improvement
from 76 million at the end of '02. During 2003 we paid down 87 million of debt,
closing out the year with no debt other than the 99 million of share
depreciation income linked securities, or otherwise known as Cisco sales. We
ended 2003 with 152 million in receivables, translating to DSOs of 35 days, a
two-day improvement from the end of 2002, but a three-day deterioration from the
third quarter of 2003. This deterioration was driven by some late payments
received in the first week of January, as well as the impact of the weak dollar
on the year-end value of our European receivables.
Turning to inventory, we continue the trend begun a year ago to significantly
improve our inventory management. Year-over-year you can see that we have made
substantial progress with 261 million of inventory at year-end '02, down to 213
million at the end of '03. Fourth quarter inventory turns at 3.9 represented an
improvement of about 0.5 points over Q4 '02. However, net inventory was up by
about 15.7 million and turns were down 0.4 versus the third quarter. Our
accounts payable and accrued expenses at December 31st '03 were $491 million, up
approximately 63 million from December '02, largely due to the $72 million
accrual related to litigation, as I outlined earlier.
Turning now to cash flow, we're pleased with the continued strong cash flow from
operations of approximately $234 million during fiscal year '03. This
represented an increase of $57 million versus the strong '02 cash flow from
operations of 177 million. This positive cash flow performance in '03 allowed us
to pay down net debt in '03 of $87 million, to invest $79 million in our
business and to increase our cash by $74 million.
I will now turn things over to Bill for a drill down on our geographic market
and product splits, new products, customer wins, operational progress, the
bookings and backlog metric we introduced last fall and the outlook for the year
and general guidance for fiscal '04.
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
Thank you, Mark, and good afternoon to everyone on the call.
I'm on slide nine, for those of you following the presentation. So just a couple
of things.
First, this chart illustrates our quarterly revenue breakdown by geographic
theater. We feel we're seeing the early signs of progress in our efforts to
improve balance among the geographies with the four point sequential gain in our
international theaters of operation. That said, we're still striving to achieve
our long-term goal of driving US domestic to international revenue balance of
approximately 50-50.
In the Americas, total product revenues decreased four percent sequentially, but
were up seven percent year-over-year. At 62 percent of total revenue the
Americas share declined 4 percent sequentially and remains largely flat
year-over-year. In the Americas, we experienced steady quarter to quarter growth
in our core vertical markets comprising the retail supply chain. Our total
solution approach, centered around our enterprise mobility strategy, continues
to be key in this geography. As the US economy improves and IT investment picks
up, we are expecting our Americas team to feature prominently in our growth plan
for 2004.
EMEA had a solid quarter, growing 6 percent sequentially and up 15 percent
year-over-year, yet down 8 present Q4 '02 versus Q4 '03 related to the
additional $5 million revenue deferral of that Mark spoke about earlier. In EMEA
we continued to build out the management team, focus on optimizing our theater
organization structure, hire new salespeople to grow our sales coverage and
increase market share and grow our channel to reach new markets.
Asia-Pacific had an outstanding quarter, experiencing a 35 percent jump in
revenue sequentially and an impressive 47 percent year-on-year growth.
Comparatively, Asia-Pacific gained 3 percentage points sequentially and
year-on-year to reach 11 percent of total product revenue. We continue to see
significant opportunity in most major markets throughout Asia, specifically
China with its various government-led campaigns
focused on how IT investment can spur its goal of greater industrialization and
Chinese end-users realizing that IT is key to their survival in an increasingly
global business environment.
We're now going to slide 10. As mentioned, we experienced year-over-year product
revenue growth of 11 percent to 1.22 million in 2003 from 1.1 billion in 2002.
That reflects a sequential increase of approximately 2 percent in the fourth
quarter to 314 million from a little over 308 million in Q3.
This chart shows the split by product group with the mobile computing division
continuing its predominance in the fourth quarter at 59 percent of total product
revenue. While the mobile computing percentage split has been fairly consistent
throughout the year, it's important to note that this division experienced
growth of just shy of 11 percent in 2003 versus 2002.
In Q4 our flagship PDT 8100 ruggedized handheld mobile computer continued to the
our best-selling mobile computing embodiment. We ascribe its success to its
rugged elegance, form factor, its universal appeal across a number of vertical
markets, strong support from the channel, price performance advantage and
easy-to-use application development tools. Let me quote here Earl Congdon, CEO
of Old Dominion Freight Line, the multi-regional modal carrier that began to
roll out our PDT 1700 mobile computers to its more than 1,700 drivers just one
year ago. He made these comments in January in announcing Old Dominion's
impressive 2003 financial results. "Our improved profitability continues to
reflect technology driven enhancements and operating efficiency. We completed
the implementation of handheld computers for our pick up and delivery drivers in
the fourth quarter. Through this ongoing investment in technology we have
improved our ability to provide superior customer service and improved customer
retention. Technology induced productivity gains have certainly contributed to
our improved operating ratio and increased net profit margin for the fourth
quarter and the full year."
As we have mentioned previously, enterprise mobility solutions provide business
with a very real and measurable ROI. Symbol's enterprise mobility products and
solutions have proven to increase work force productivity, improve our
customers' competitive position in their markets, drive enterprise-wide
operational efficiencies and increase top-line growth. Net-net the investment in
enterprise mobility provides a rapid payback period and productivity gains.
In Q4 we began a number of new MC 9000 roll outs. The MC 9000 mobile computing
family is generating strong bookings from a range of vertical markets -- food
retailers for in-store receiving, inventory management and shelf price
verification; parcel and post companies for track and trace solutions; and
airlines for homeland security and people and baggage security applications.
This quarter we will be introducing new form factors of the MC 9000 geared to
address additional applications in a range of verticals beyond retail.
In the our advanced data capture product division the growth in revenue from
discrete scanning products remains strong, representing 24 percent of Q4
revenue, up 4 points sequentially and 1 point year-over-year, while scan engines
generated 6 percent of our revenue in Q4. For 2003 year-over-year growth in our
combined advanced data capture division was impressive at slightly under 11
percent.
Throughout 2003 we saw a steady ramp of revenue from new products in advanced
data capture, in particular the LS 2208 handheld laser scanner, which garnered
some sizable wins at several national retail chains, and the LS 9208 countertop
scanner. With the apparent thaw in retailer spending for front-end point of sale
updates, we feel our automatic data capture division is well positioned as we
move into 2004.
Although revenue was down 16.4 percent sequentially in our wireless
infrastructure business, for the full year 2003 we did experience a solid 23
percent year-over-year growth in this category. This has been a strong year for
Symbol in the wireless business and we're excited by our revenue growth, market
acceptance of our wireless switch the WS 5000 and overall market share gains.
The revenue declined in Q4 can be ascribed to one particular customer that took
shipment of a very sizable order in Q4, but is not deploying until Q1. This
particular customer stages the WS 5000 wireless switching system in a remote
facility, and based on our strict focus on revenue recognition rules we do not
recognize the revenue until it is installed and operational on their site. With
that said, we should experience a corresponding pick up in Q1 in our wireless
infrastructure division.
The WS 5000 wireless switch, which began shipping a year ago, gained momentum
throughout its first year. To give you some perspective, in 2003 we shipped
52,000 access ports -- not points, access ports -- and 8,500 WS 5000 wireless
switches.
The next slide, slide 11. The WiFi or wireless LAN market continues as an
exciting market for Symbol. It's clearly a high-growth market and central to our
growth strategy to reach new market opportunities beyond our traditional base of
customers. According to Synergy Research Group, the wireless LAN equipment
market grew by 55 percent last year. In 2003 the enterprise wireless LAN
infrastructure segment that our products serve grew by 20 percent. While it was
previously mentioned, Symbol's wireless LAN infrastructure revenue grew by over
20 percent
2003 over -- I am sorry -- 36 percent 2003 over 2002, as referenced by Synergy's
most recent report, I want to just note that it was not revenue, it was unit
growth that was 36 percent year-over-year.
Last year Symbol introduced the industry's first wireless switch and thin access
port solution. This solution targets enterprise customers that need to deploy a
significantly more scalable wireless LAN architecture which is enabled by a
centralized switch. These wireless LAN products are uniquely designed to
interoperate with our mobile computers and optimize mission-critical
applications to create true end to end mobility in the wireless domain.
On the screen you will see market share commentary from industry analysts firms
that cover the wireless space. In 2003 from Q3 to Q4 Symbol gained a total of
3.5 share points. In Q4 Synergy, Infonetics and InStat/MDR recognized the
wireless switch and thin access port as separate categories in the enterprise
market, and are starting to track the categories. So as you see, Symbol leads
these markets with 61 percent and 93 percent share respectively.
Last month we added a new member of the Symbol wireless switch product family
with the introduction of the WS 2000 (technical difficulty) to dramatically
lower cost of deploying, managing and maintaining WiFi mobile networks in
smaller enterprise environments. As you can see from Network Computing's
comments shown on the slide, the WS 2000 is being strongly received in the
wireless community. Lots of companies in the market may introduce future
mobility features in a wireless switch, but it is Symbol's unique end-to-end
systems architecture that brings to the small site the business mobility
benefits our customers are looking for. The WS 2000, like the WS 5000, is
designed essentially for the branch or remote office, powering mobile wireless
applications for all enterprise verticals among at an attractive cost, yet
equivalent to the benefits that have only been available to larger enterprise
customers.
We are moving on to slide 13. At retailing's big trade show, National Retail
Federation, last month Symbol introduced several new products. Here you see the
MK 1100 MicroKiosk and the Symbol Clientele one-to-one in-store associate
selling system.
The MK 1100 is a Web-enabled interactive self-service kiosk that can be cost
effectively deployed to handle both customer and employee applications such as
price check, order automation, product locating and much more. It's a solid
addition to our kiosk line, which is beginning to have noticeable impact on the
our advanced data capture revenue stream.
Symbol Clientele one-to-one is a suite of customer relationship management
applications that support in-store mobile selling tools for specialty and
general merchandise retailers. Clientele one-to-one lets sales associates
leverage critical customer and product information residing in their data center
that is usually only available while sitting at your desk area. This powerful
software suite combined with any Symbol mobile computer provides anytime
anywhere access to import customer and product information in real-time,
increasing associate productivity while improving the customer experience. These
modules are optimized for Symbol mobile computers, our wireless infrastructure
products, mobility management products and foretell how retailers will be using
mobility to create strategic advantage within their enterprise. Retailers are
searching for ways to bring greater value and service to their customers, and
the Clientele one-to-one suite of customer relationship management applications
is addressing that requirement.
During the holiday shopping season, we worked with long time Symbol customers
Federated Department Stores in testing a new mobile point-of-sale concept. Here
you see a clerk at a Lazarus Department Store, part of the Federated family, out
in the aisles during the busy holiday crunch in an application known as queue
busting -- essentially streamlining the time-consuming purchasing process. In
surveying many of the shoppers who participated in the test, we found that
almost all of those surveyed found the transaction speed very convenient and
said they would be pleased to use the system again on future shopping trips.
We are continuing to refine and add applications to the mobile point-of-sale
concept, as well as other solutions for our value focused retailing customers.
Over the next several years the paradigm shift in your shopping experience will
be driven by the use of retail enterprise mobility solutions such as mobile
point-of-sale technology.
As we did on our last conference call, I want to give you a brief update on
RFID, radio frequency identification, slide 15.
There is no company more excited about the prospects of RFID than Symbol. As you
know, Symbol has been working in the RFID technology space for about a decade,
and we have ample intellectual property in this arena. This week we announced
our signing of the EPC Global intellectual property policy, cementing our
commitment to open standards for the use of RFID technology in emerging supply
chain applications. In addition, Symbol will participate at the action group
level of the EPC IP forum (ph).
The San Jose Business Journal recently quoted IDC Analyst Chris Boone (ph) as
saying, "2004 is going to be a learning curve year." As we have mentioned
previously, we concur with Chris's perspective in that this year our focus is on
executing a limited number of intensive RFID pilots with key customers in the
retail and government verticals, while making further investments in R&D and
ramping toward commercial deployments in 2005. That also foots with the timeline
Wal-Marts CIO Linda Dillman outlined recently in an interview with business
week. Linda said, and I quote her, "Wal-Mart will pilot test RFID through 2004
in the Dallas market area, starting with a small group of suppliers. Our goal is
to be live with the top 129 suppliers by January 2005 in the Dallas market. All
other suppliers are being asked to comply by the end of 2006." And Ed Coyle of
the Department of Defense recently clarified the agency's plans. The goal is to
have RFID integrated into two distribution centers in 2005 before rolling out to
its other 20 DCs. It will be a phased implementation, and next month the DOD
will detail its plans to its suppliers.
We're also in agreement with Linda at Wal-Mart that by 2006 most of the
technology challenges will be behind us, and that prices per RFID will become
more palatable, leading to an increase in the technology's adoption. IDC
forecasts it this way -- RFID spending for enterprise supply chain applications
will grow to nearly 1.3 billion in 2008 from 91.5 million in 2003. To that end,
in January we brought on board Phil Lazo as Vice President and General Manager
of the RFID division of our global products group. Phil joins us from
Tyco/Sensormatic and has more than a decade of experience in the development,
deployment and management of RFID and related automatic data capture
technologies.
I will reiterate that Symbol is focused on RFID as part of a total enterprise
mobility solutions set where our focal point is as much on RFID product
excellence as it is on making RFID scalable, manageable and reliable. Unlike
some other companies in our market, Symbol is dedicated to developing products
to industry standards and working with our partners on large-scale
architectural, application and deployment strategies. In the enterprise there
can be no RFID islands, only complete enterprise-wide systems integration.
Lastly, I want to assure you that our goal is to be the number one market share
leader in this important category, and it is our intention to execute to this
goal. Please do not confuse our not getting into the hype and fray of RFID as
less ambition. We simply do not want to fall into the trap of over-hyping a
technology with great promise. We will let our actions speak louder than our
words.
Next slide, 16. Now turning to our global services business. Our quality and
restructuring initiatives introduced throughout 2003 began to pay initial
dividends in Q4, and look to be trending consistently better in Q1 of 2004. I
will show you some management metrics in a moment.
We also began to measure our attach range (ph) which is described as the selling
of service at the point of hardware order weekly as a metric in our management
system to drive a global focus on improving customer satisfaction. In addition,
we continue to build out a professional services ecosystem while transitioning
our approved PartnerSelect partners over to Symbol enterprise mobility services
products.
As we migrated professional services opportunities and revenue over to our
partners in Q4, membership in our certified professional services program
increased 150 percent. Conversely, by 2003 year-end we had transitioned the
break fixed work (ph) to Symbol from all those US partners now in compliance
with PartnerSelect. And we introduced a new offering -- Service From the Start
(ph), which is designed to drive attach rates throughout per channel. It is a
SKUable (ph) offering that provides incentive for attaching services in parallel
at the time of hardware sale. Early response has been strong, and we will keep
you updated on its progress. Although today our services value proposition
remains primarily breaks fix (ph) oriented, we will continue to add new service
products in 2004 and beyond that will be delivered by both Symbol and our
partners.
Next slide, 17, services update. Here is an example of a few global service
business metrics and we track weekly. As you can see here, we continue to make
across the board improvements, particularly in the areas of depo (ph) operations
in our call center.
I'm going to go off script here for a moment and give you an update on the
business from my point of view. If you look at this chart, you'll see turnaround
time. Turnaround time is the time it takes between the time we receive a
component from one of our customers or partners and we actually turn that around
and return the product to them. Our delivery performance improved to 97 percent
on a turnaround basis from just 63 percent over the last two quarters. That's
darn near close to world-class turnaround time and something Symbol has never
achieved I think in the history of the Company.
Average wait time -- the box below turnaround time -- is described as in the
call center the amount of time it takes for us to answer the phone on average
for any customer calling into the call center. By the end of Q4 the average wait
time per call was down to 30 seconds. I can tell you that that's a massive
improvement from just a few quarters before that.
Repeat repairs -- which has not only an impact on our cost structure, but an
impact on customer satisfaction -- dropped an astounding 27 percent. We used a
repeat repair rate in the Company that average anywhere between 12 percent and
15 percent, meaning we would repair the same
product -- out of 100 different units that would come into our repair center, we
would see the same products 12 to 15 percent of the time. That's now down to a
little under 8 percent, which shows that we've improved both from a quality
point of view in our lines, in our repair centers, as well as the fact that
we've implemented a new approach and a new set of methodologies and procedures
to repair that have helped us to achieve this rate.
Our longest wait time in our call center has been one of our biggest improvement
areas in the Company. Where just a few quarters back, the longest wait could
been as long as an hour -- you waiting on the phone for someone in the call
center to pick up -- we've reduced that significantly. Now the average weight
time it is about five minutes when you call in to the call center. And in terms
of the longest wait -- not average wait, but the longest time that you will wait
the call -- is about five minutes. Again, average wait is about 30 seconds.
The backlog in our service repair center has dropped 67 percent. If my memory
serves me correctly -- and I check these metrics daily -- our backlog in about
the July/August time frame of 2003 was approximately 17 to 18,000 units backlog
in El Paso/Juarez in the US. That backlog is now down to approximately 6 to
7,000 units.
And abandon rate -- another call center metric -- is running superbly. This is
defined as the number of callers who call into the call center and hang up
because they feel like they might be waiting too long. At Q4's end, our call
abandon rate was running less than 2 percent from a high of upwards of 42
percent.
So there have been some really terrific improvements to our global services
business. I want to take a moment to congratulate and thank Art O'Donnell, who
is our senior vice president for global services, and his entire team for what
has been an incredible turnaround in our service, in our customer satisfaction,
and also know of being felt by our partners and our customers in the market.
Clearly we have to continue this and we have to drive towards world-class
measurement, but again I want to thank the team. They've just done an
outstanding job.
Let's move on to the next slide, slide 18. Now an update on PartnerSelect.
First, we're pleased to announce that VAR Business, the "bible of the reseller
world", it is going to award Symbol and our PartnerSelect program its highest
rating, five stars. That puts us in good Company. Last year's five star programs
included those of HP, Sun, Cisco, NEC, IBM and Microsoft. It is also important
to note that this is a significant improvement from a two star designation just
last year prior to our implementation of PartnerSelect.
Their criteria are complete -- VAR Business polls 300 solution providers on
vendor programs, such as technical training and advice, post sales support,
online training, sales leads, price protection, MDF -- which stands for market
development funds -- and cooperative marketing fund programs.
PartnerSelect has now been completely rolled out in the Americas and EMEA, and
the roll out in Asia-Pacific is set to begin in Q2. Importantly, we exited 2003
with 55 percent of our business being fulfilled by our channel partners, up from
approximately 40 percent exiting 2002 and well on our way toward our goal of 75
percent channel fulfillment by the end of this year as we leverage our partner
ecosystem from a business model standpoint.
Over the last few months you've seen a number of announcements as we build out
that ecosystem. We discussed the importance of Westcon on our last call, and in
January we announced an alliance with Dimension Data, a $2 billion global
network systems integrator with core strengths in network services, application
development, systems integration and managed services. Dimension Data joined
PartnerSelect in parallel with the formation of its own enterprise mobility
practice. Although we're sure you'll find it interesting that partners of this
size and scope are building new enterprise mobility practices, please note that
over the next several years we will experience significant growth in the partner
channel as network oriented partners continue to identify their revenue and
profit potential in the enterprise mobility segment.
As we announced in December, we've formed a global strategic alliance with IBM
in the enterprise mobility space. Symbol and IBM announced that we will jointly
develop and market a new generation of advanced wireless, mobile computing and
data capture solutions to help customers scale enterprise mobility throughout
their business. Through the integration of technologies from Symbol and IBM
hardware, software and services we will provide rapid mobile access to critical
business information to a new generation of mobile workers into enterprise,
helping businesses lower costs and increase productivity, become more
competitive and improving top-line. Lastly, it's important to note that Symbol
is one of only a half-dozen hardware companies to be regarded by IBM as a
premier partner. This relationship is already yielding solid results, and we
anticipate that it will continue to gain momentum over this coming fiscal year
and beyond.
On the next chart you see some recent comments from channel partners -- SC
Logic, a Symbol Exclusive (ph) partner here in the US, and the European arm of
our long-term partner Peak Technologies. We're aware of reports pointing to some
isolated difficulties in the transition to
PartnerSelect. We feel strongly that the majority of those published comments
are essentially trailing indicators, and represent the minority opinion relative
to partners embracing PartnerSelect.
To that point, while we're still working through the implementation of
PartnerSelect and we're not where we ultimately want to be regarding partner
satisfaction, our recent partner satisfaction survey has shown us that 95
percent of our partners will continue to sell Symbol products versus only 68
percent for our competitors. And 92 percent of our partners will continue to
recommend our products versus only 33 percent for our competitors. This speaks
to partner loyalty and the great work done by Jan Burton and her team. Jan is
our vice president of worldwide channels.
Lastly, we're looking forward to our global partner conference in early May. We
will have the opportunity not only to communicate our new branch strategy, but
also to demonstrate our commitment to the PartnerSelect program and to welcome
feedback to help us further strengthen our relationships with these important
partners who represent a critical extension of our Company.
Now on to a few key wins in Q4. In South Korea Samsung Semiconductor made the
switch to the Symbol PDT 8800 at one of its semiconductor fabrication plants
when management realized that the competing mobile computers that they were
using threatened the plant's network security because those units didn't support
the dynamic web key security standard, the PPT 8800 was speced for its superior
wireless LAN security features, its overall ruggedness, attractive pricing,
processing power and compact size.
Within the next few months we will complete the technology refresh of 600
Welcome Convenience Stores (ph) that are part of the UK-based cooperative group.
The system refresh in concert with our strategic alliance partner IBM includes
Symbol wireless infrastructure, our PDT 8100 mobile computer, and the LS 9208
omni-directional scanner at point-of-sale, very much a classic example of an
end-to-end enterprise mobility solution. The LS 9208 is an ideal scanner for
convenience stores. Its aggressive scanning captures barcode data no matter how
barcode is presented to the scanner to speed associate productivity and increase
customer satisfaction.
Genuine Parts is the largest member of the National Automotive Parts
Association, or NAPA, the trade group that distributes part throughout the
United States. Through about 60 distribution centers they sell more than 300,000
parts to about 6,000 NAPA stores and 900 company-owned stores. Across the
country we're working with business partner Stratix in implementing for Genuine
Parts an enterprise mobility solution that incorporates Symbol wireless
infrastructure and a trio of Symbol mobile computers -- the forklift mounted
Symbol VRC 6940, the rugged PDT 68 mobile computer and the WSS 1060 wearable
computer, a total of about 75 mobile computing units per distribution center for
their warehouse control systems, receiving and inventory.
At its 38 distribution centers AmeriSource Bergen, the largest pharmaceutical
distributor in United States, relies on more than 3,000 Symbol WSS 1060s, our
combination wrist mounted computing terminal and ring scanner, to fill the
orders for its customers in the hospital market, physicians' offices,
alternative care and mail-order facilities, and independent and chain retail
pharmacies. Using Symbol wireless infrastructure as their backbone for
high-volume picking, receiving and inventory management, AmeriSource Bergen
credits the system with enhancing operators' productivity and increasing data
accuracy. This is a prime example of Symbol's enterprise mobility strategy --
the ability to capture, move and manage information at the point of business
activity and business decision.
Slide 24 -- moving now to our bookings and backlog performance in Q4 and as we
entered Q1 '04. Here is the chart that we introduced to you last fall. As you
can see, gross product bookings continue their strong upward trend, reaching
almost 350 million in the fourth quarter, representing a sequential increase of
6.7 percent and a year-over-year increase of about 24 percent. As we've already
discussed, product revenue was up sequentially about 2 percent and about 11
percent year-over-year.
Normally with such strong bookings performance outpacing the product revenue
growth we would have expected to see an increase in backlog. However, product
backlog remains flat in Q4 versus Q3 at just under 150 million. The reason for
this is that we had roughly a $15 million increase in deferred revenue. In other
words, the product has shipped out of backlog, but we haven't yet recognized the
revenue. You will recall that we touched on this earlier in the call when we
discussed a large scanner deal that was being fulfilled through one of our
smaller VARs, as well as a very sizable wireless infrastructure order that had
also shipped in Q4 that we had deferred revenue recognition on.
Slide 25 -- outlook and 2004 guidance. Although the economy has picked up and IT
spending is improving, I want to reiterate that 2004 does not appear to be a
proxy for a return to the late 1990s. We expect moderate to positive global
economic growth, inflation to stay in check, productivity causing there to be a
slow recovery in jobs and continued scrutiny on capital spending. That said, we
do expect the business climate in 2004 to be better than that of 2003, and feel
that enterprise mobility will increasingly mature and grow faster than most
other IT technology segments as a percentage of IT spending.
As I have mentioned before, Symbol is focused on controlling those things that
Symbol can control, and as outside factors trend positively we feel we will be
in a very solid position.
On to guidance. We expect revenue in the first quarter of 2004 to be three
percent to five percent higher than the 393 million that we reported in the
fourth quarter of 2003. This would represent a year-over-year increase of five
to seven percent. For the full-year 2004 we expect revenue to increase 10 to 15
percent from our fiscal year 2003 revenue of 1.53 billion.
With regard to gross margins, we expect gross margins in the first quarter of
2004 to come in at about 45 percent. As Mark mentioned earlier, fourth quarter
2003 gross margins were helped by our ability to move product that had minimal
or no book value. We don't expect this to be repeated in Q1 '04. For the
full-year 2004 we expect gross margins to come in slightly above 45 percent as
we continue to execute on our plans for operational excellence, value
engineering and go to market.
For the first quarter of 2004 we expect operating expenses to decrease roughly 7
million from the fourth quarter of 2003 to approximately 155 million. While some
items that hurt our operating expense performance in fourth quarter of 2003 will
go away, this favorable impact will be at least partially offset by increased
spending ending in key initiatives areas that I will discuss next. For the
full-year 2004 we expect operating expenses to come in at 620 million to 640
million.
On the tax line we expect an effective tax rate of 34 percent for the full-year
2004.
When you add it all up, this sort of revenue, gross margin and operating expense
performance would have Symbol generating 2004 diluted earnings per share of 40
to 50 cents per share.
Next slide. Of course, our goal is to drive towards the higher end of those
ranges in 2004 and believe managing OpEx is a key to our success. However, it is
also necessary to begin to think about 2005 and beyond. As we've said many
times, we are running a marathon race and not a short-term sprint. In order to
better position the Company for success longer-term, we have consciously decided
to make strategic investments in four key areas during 2004.
They are, number one, business transformation. Symbol is going to dramatically
uplift our infrastructure, systems, applications and knowledge management
capabilities, thus lowering our cost structure, improving productivity, and
organizational agility in the future. You have heard me before say that I
believe we have two to three percent of all OpEx tied up in a lack of systems.
Well, we're addressing that in 2004, and part of 2005 by investing over 100
million in process innovation and new IT systems.
Number two, worldwide sales. Our primary investments will be in adding new
salespeople, vertical marketing personnel, and channel resources, all under the
auspices of fueling our six point plan for growth. We still remain unable to
effectively cover all of the sales opportunities available to us, particularly
in the international theaters. Moreover, given the many new products we will be
bringing to market this year, we have an opportunity to gain market share while
improving customer satisfaction.
Number three, finance. Although we continue to make progress in our finance
function, we have an opportunity to take advantage of the work that we're doing
to achieve Sarbanes-Oxley certification. Much of the work required for
Sarbanes-Oxley touches most of our finance processes and systems. As part of
business transformation, we're going to bolt-on initiatives, focused on
improving our close processes, forecasts processes and overall business
controls.
Number four, global products. After considerable effort in 2003, our global
products team is poised to deliver several new products to the market in 2004.
In 2004 we will invest over $200 million in research and development, surpassing
any year in the history of Symbol Technologies. This investment assures us of
meeting the needs of our customers this year and beyond. Several investments in
areas like RFID, wireless infrastructure, mobile computing and mobility software
will feature prominently in this year's spending plan, but pay dividends in the
out years.
Before we go to questions, let me close by saying that although 2003 was a
challenging year, we nevertheless made definitive progress in returning Symbol
to financial health. With much of the extraordinary expense behind us, we
continue to prudently invest and to concentrate on our day-to-day operational
expenses to bring them into line. Symbol is uniquely positioned to lead in the
new era of information technology, enterprise mobility, and we have the team,
the plan, the resources, the determination and the know-how to achieve that
market leadership.
Thank you for joining us, and thank you for your continued interest in Symbol
Technologies. Now we will open up the lines to your questions.
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
OPERATOR
(OPERATOR INSTRUCTIONS) Paul Coster, JP Morgan.
- --------------------------------------------------------------------------------
PAUL COSTER - JP MORGAN - ANALYST
A couple of quick questions. If you look back on the guidance that you issued
for '03, I think you talked about 20 percent revenue growth and obviously it
came in a good deal less than that. In retrospect, Bill, would you be kind
enough to give us your rationale for why it fell short? And then I have a
follow-up question.
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
First of all, thanks for the question. If you remember, the guidance we
originally gave last year was for 15 to 20 percent revenue growth, in that
range, but that was off a base of 1.3 billion. That was previous to the restated
results of 1.4 billion in Q4 -- I'm sorry, in 2002.
So if you take a look at what we achieved when we discussed this last October,
we reissued guidance I believe last October and said that full-year revenue was
going to be up 10 percent year-on-year on a restated basis, and in essence we
came in about 9.2 percent. However, if you were to take the deferral, the $5
million deferral that we took out (technical difficulty) for the deferral that
we put in place with regard to going to sales out for one of our large
distributors in Europe, we would have come in at about the 10 percent level we
gave you guidance on. If you look at it versus the 1.3 billion versus where we
came in, we were just about where we said we were going to be in the range of
guidance originally at 15 to 20 percent.
- --------------------------------------------------------------------------------
PAUL COSTER - JP MORGAN - ANALYST
But nonetheless, at the bottom end I'm just wondering if you've got some sort of
sense on why it was near the bottom end rather than top end.
The second question is you talked about operating margins in the high teens at
the peaks of the cycle. When do you think that's going to be? And should we be
worried that when we get there -- maybe it's in '05 -- we are going to see
further investments and sort of the prize is just going to elude us?
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
Let me first answer the question why we were at the lower end of the range that
I gave as guidance last year.
First, there were two fundamental areas; one was services, and so services did
not really grow at the rate we expected and originally expected in 2003; and the
other area was @pos, which was a product family and a company reacquired in
September of 2002, where we had a plan for the product line of about 40 million
and we were off that plan by about 20 million in totality. So services and @pos
were the two reasons why we were at the lower end of guidance of the 15 to 20
percent off of the 1.3 that we gave.
With respect to the overall business plan, we're doing well on the margin side.
We're surpassing the expectations that we had of ourselves and that's certainly
I believe we set with respect to gross margins. Because of that we're feeling
that it's important now to make some of the investments that it (technical
difficulty) this year so we can quite frankly drive the kind of earnings growth
we expect out of this Company in 2005.
I can tell you that from an overall OpEx percentage you're likely to see OpEx at
about 155 million in Q1, and then at about 160 million in the subsequent three
quarters staying hopefully largely flat, but on a much less of a run rate than
the expectations we have going into 2005.
I can't tell you today whether or not we're going to make further investments in
2005 or what our execution against this investment plan is going to be in 2004.
The one thing I can say is we're fully expecting the investments we're making
now to yield significant earnings growth in 2005. The whole idea of this is to
get us to hopefully a very high earnings growth in 2005 and beyond.
Mark may want to make some comments as well.
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
As well, if you look at the guidance that we just gave you, depending on where
we end up in that revenue range, if we do a good job and if the environment
stays well, and let's say we're at the higher end of that revenue range, by the
time we're getting to the fourth quarter of '04, and if you believed on the
gross margin we can get that to be a bit better above 45 percent, and Bill's
point keep the OpEx at around 165 million by that time, we're well into the
teens on operating margins and making very good progress toward the goal of 15
percent operating margins. And I don't think that we believe that 2004 or even
the end of 2004 is going to be the top of the cycle, as you were talking about.
We would think that that would be a much better environment and should be able
to outperform the longer-term 15 percent operating margin for a quarter like
that.
I hope that helps you -- I hope that helps.
- --------------------------------------------------------------------------------
PAUL COSTER - JP MORGAN - ANALYST
Yes it does. Thank you.
- --------------------------------------------------------------------------------
OPERATOR
(OPERATOR INSTRUCTIONS) Reik Read, Robert W. Baird.
- --------------------------------------------------------------------------------
REIK READ - ROBERT W. BAIRD - ANALYST
Can you guys talk a little bit more about the service business? Bill, you gave
some metrics showing some of the significant improvements that you have had in
the services area. Can you talk a little bit about where you are with respect to
the margins and how much further you have to go in terms of getting to where you
think they can be?
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
I don't expect 2004 to be a significant growth year for us on the services side.
As I mentioned last year to everyone on the call, I expected 2003 and most of
2004 to be rebuilding years for us.
I have to tell you, I've been pleasantly surprised by the operational turnaround
with respect to customer satisfaction, and quite frankly the metrics we track to
that. But I don't expect the services business on an operational run rate basis,
as opposed to cash basis, to be any more than 75 to 80 million a quarter in
2004. But I can tell you in 2004 our focus is about how do we grow the services
business in '05. So you'll see us begin to introduce new products; you'll see us
continue to work on our cost structure to take up margins.
We're still very disappointed in the cost structure of our services business and
the margins in our service business. I think that we've got an additional 10 to
20 points of margin that we can drive out of this business, but it's just not
going to happen in '04. Some of that will happen in '04, which will yield to
better margin picture for us in '04, but we will see got in the second half. But
most of the margin gain will come over the '05/'06 time frame as, A, we drive
revenue because that's going to be a big factor; B, we become increasingly more
productive in the repair depot centers that we're just beginning to see some of
the efforts of 2003 pay some dividends.
- --------------------------------------------------------------------------------
REIK READ - ROBERT W. BAIRD - ANALYST
You had mentioned a moment ago that maybe you came in at the lower end of
guidance, one of the key factors being services. Anything with that from the
standpoint of push back that you're getting from bringing services in-house from
your partners? And I guess maybe more specifically, are there folks that are
still not complying with PartnerSelect rules? Or is there a gray market out
there for those guys? And how is that trending?
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
We still have some partners -- first of all, I should say on the positive side
we have many, many partners who were once competitors of ours in the services
business who have signed up to PartnerSelect and transitioned, just begun to
transition that services business over to Symbol. However, there have been some
who have declined to be a part of PartnerSelect who want to continue to offer
Symbol services in the market. And the only issue I think they have over time
is, number one, we will no longer be selling spares to those services partners
so I don't understand how they could be in that business for very long,
particularly given the fact that we're coming out with so many new products and
those new products do not have -- at least in the gray market -- lots of
components and parts with which you can buy off the gray market to do repair
work in. So I suspect over the next year to 18 months, slowly but surely those
partners will hopefully come back to the Symbol family and join PartnerSelect
and rebrand and resell Symbol services.
But yet again, I think we have a very healthy number of partners that
transition. I welcome partners coming back to Symbol. I have to tell you, I also
feel for those partners. We did not have the kind of discipline in the partner
channel required in previous years, and I can certainly understand how those
partners feel in terms of maybe us feeling as though we abandoned them. Quite
frankly, we have not. We are just trying to run the business the right way and
properly, so that we can achieve higher levels of customer satisfaction for our
customers and major the quality of service delivery is at the higher end. And
what happened was so many of these services partners went out and tanked the
pricing of services for Symbol product, making it very difficult to drive the
kind of quality that we would expect. And what they also did was not deliver the
kind of service quality to our customers. The brand on the product that they're
fixing is Symbol. We've got to take ownership for that and we've got to take
responsibility for that. And we're going to do that.
So I would say it's kind of -- I am more leaning from neutral to positive on
this, but we still have some work to do with some of those services partners.
- --------------------------------------------------------------------------------
REIK READ - ROBERT W. BAIRD - ANALYST
Thank you very much.
- --------------------------------------------------------------------------------
OPERATOR
Ajit Pai, Thomas Weisel Partners.
- --------------------------------------------------------------------------------
AJIT PAI - THOMAS WEISEL PARTNERS - ANALYST
A couple of quick questions. The first is about the gross margin and the pricing
environment. Could we have some commentary on the pricing environment right out
on the product side of things? And why do you think that with a 10 to 15 percent
growth rate, and given what current gross margins are, why your margins will not
be north of 45 percent, at least 2 points above that?
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
What I'm going to do is I am going to answer the first part of the question
vis-a-vis what's happening in the pricing environment out in the field. And
right in front of our salespeople I'm going to ask Todd Abbott to comment. Mark
may want to make a few comments on gross margin as well.
So first and foremost, on the pricing environment my very quick top-line would
be the pricing environment seems to be pretty good. But let me ask Todd to give
you further comment and maybe some geographic perspective of that.
Secondly, on the gross margin side, certainly there is an opportunity get to
above the 45 percent gross margin, if we can achieve the plan we have in place
for the services business. But I'm a little bit hesitant to give you any more
guidance right now because it has been a longer transition plan that we've
expected with regard to the reconstruction of our services business. And we've
not yet made the significant step forward in the introduction of new services
products to fundamentally make me comfortable enough to tell you that that's
going to be our gross margin opportunity for us in '04. '05 ? Absolutely. '04,
I'm just not there yet. Todd?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
I think the other two things that are going to help us is that as we move to
much more of an enterprise mobility architectural sell, where our products now
are much more integrated at the product element level, and when we bring them to
market and provide a value proposition to our customers from an access point,
wireless switch and infrastructure to our handhelds, it is going to provide a
value proposition that's going to enable us to get a premium in the market.
The other thing you're going to see us do is to get a more rationalized pricing
approach to the market that's going to be much more supportive of our
channel-centric approach. Those two in combination we think will give us a lot
of opportunity to continue to increase the street pricing relative to our
competition.
- --------------------------------------------------------------------------------
AJIT PAI - THOMAS WEISEL PARTNERS - ANALYST
One other follow-up questions is on the revenue side. How much of that sales
growth that you saw this year was linked to currency?
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
On the currency side, not at all. None of the sales growth was related to
currency because we price in local currency in foreign markets. So we don't have
the same situation as many other vendors in the market with regard to positive
impact on our revenue results vis-a-vis currency. I wish we did.
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
Basically we keep our local currency pricing in a band. If the dollar moves
outside the band, we adjust local currency pricing and essentially don't take
the benefits into revenue and margin from fixed local currency pricing over in
Europe, essentially keeping the dollar pricing as constant as we can, even
though we might be invoicing in local currency.
- --------------------------------------------------------------------------------
AJIT PAI - THOMAS WEISEL PARTNERS - ANALYST
Two follow-ups. One of them is how frequently do you reprice based on that link
between the foreign currency and the dollar and the manner in which the dollar
moves? The second is just with the sort of weaker dollar right now, your
commodity prices for your raw materials, are you see any pressure over there for
you in terms of pricing say in (ph) your vendors?
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
With regard to the frequency of repricing, it's basically once a month. I will
let Bill discuss the components.
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
On the supplier side, I got to hand it to my operations team, a gentleman by the
name of Ken Pastuca (ph) who does he does supplier management for us. We've
really done a nice job of driving purchase price variance or cost reduction
variance or cost reduction each
quarter. Our average cost reduction right now is running at five to six percent,
which is not bad, in light of a little bit of the up tick in the economy, which
drives a little bit more demand, which drives pricing up a bit, also turns lead
times out, which makes the supply chain a little more bit challenging to manage.
But we have been able to through a daily focus on cost, I think do a much better
job of managing that in the supply chain.
- --------------------------------------------------------------------------------
AJIT PAI - THOMAS WEISEL PARTNERS - ANALYST
Thank you so much.
- --------------------------------------------------------------------------------
OPERATOR
Peter Barry, Bear Stearns.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
I just wanted to focus on revenue mix for a minute. You mentioned the WS 5000
switch episode that cost you about $5 million of I assume America's revenues in
the quarter. Is that so?
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
No. The $5 million that we deferred out of Q4 revenue -- so Q4 revenue would
have been 398; we show it as 393, because we took a $5 million deferral out,
which is associated to moving, simply moving -- it's a onetime $5 million
deferral. We moved to a sales out methodology with one of our large distributors
in Europe. If you remember, last year, we moved to sales out in the US and in
Latin America, with one of our large distributors, as opposed to sales in. And
that deferred some revenue, as well. We decided in Q4 to do the same for Europe
with this very large distributor, as well, so we can get to the sales out model
more quickly, which is just good business for Symbol. We just get greater
visibility into the business. Sales out is a much better revenue recognition
model, and for us, we decided to do that in Q4.
Beyond that, what you were talking about with regard to wireless revenue, there
was a very sizable order that we shipped in Q4, out of backlog, that we did not
take revenue recognition for, for wireless switches to one of our largest
customers in the world. And the reason why we deferred the revenue is because
this particular customer takes shipment of the wireless switches, they move them
to a staging center down in their location, they stage the wireless switches
within that staging center, and then from there, ship to them out each of their
store locations. And from there, once they plug them in the wall, we take
revenue recognition. So it's a little bit of a strict guideline against revenue
recognition, but we think it's the right think to do, and that added to the
deferred revenue column. So if you look at our backlog, going into Q1, it shows
it close to about 150 million, about the same as coming into Q4. That actual
backlog, plus the deferred revenue, is more like about 163 million, 165 million,
because of this deferred revenue that's coming into Q1.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
But my point was, would that number show up in the Americas line?
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
Oh, in terms of the 5 million? No. On the EMEA line.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
Okay, so EMEA, as well as Asia-Pacific, was particularly strong in the fourth
quarter.
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
Correct. For that, let me ask Todd to comment --
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
But let me just add one final question to that. That would suggest that the
Americans -- at what, 243 or thereabouts -- was down sequentially, and had no
uptake as regards the IT spending environment, it seemed. That's the first half
of the question. The second half is, is this the type of pattern we should
expect in '04?
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
No, let me clarify. The Americas absolutely is down on an absolute basis
quarter-over-quarter revenue-wise. However, remember that very large order I
talked about that we shipped out for wireless? There was also a very large order
we shipped out for scanning in the quarter was Americas based business. Although
it was shipped, we didn't recognize the revenue; it went into the deferred
column. That would have reshaped your perspective of the run rate of actual
business that the Americas was doing in Q4.
I agree with you, however, that the international markets are picking up a
little steam for us. Obviously Asia-Pac had an outstanding quarter. And also
EMEA with the $5 million added back in would have had better quarter.
You want to give any color on that Todd?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
Other that other than it is representative of how we have been investing from a
sales coverage standpoint in the international theaters is we strive to a much
better geographic balance on our three to five-year plan. We've been very
focused on driving a much more balanced geographic revenue mix. So we're
starting to see some of the initial returns from that investment.
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
I have to tell you, I think that 2004 for the Taz (ph) team -- the America's
team -- is a very important year for us because obviously they are big component
of our revenue. And I think -- right now my data points tell me we're going to
have a solid year in the America's, but clearly it's all about execution from
this point forward. And that's included, by the way, in the guidance we've given
you.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
Speaking of that guidance, especially as it relates to the first quarter, you
suggested somewhere between 404 and 413, given your given your percentages over
393. Would the mix of that revenue look very much like Q4? Or given the several
unusual events, would it look more like Q3?
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
I think it's going to look like Q3, quite frankly. Q4 had some anomalies, as you
noted -- the big deferrals for wireless and scanning and also the $5 million
deferral we decided to take in EMEA for sales out. If you look at Q3, it's more
like Q3. Wireless is going to pop back up in Q1 because of that deferral,
scanning will pop up a little bit in Q1 because of the deferral. And so I think
Q3 is your best guiding point.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
If I dare take you out to the full-year guidance you've given us, what might
that mix look like? More like Q3 also?
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
I think so. However, I would say that wireless infrastructure will probably come
up a bit from what it did in 2003 where we've got -- there is some interesting
things happening in the wireless base that intrigue us in terms of the interest
customers have in our technology and interestingly enough, outside of the
vertical markets we serve. So we will see in general. Geographic mix, however,
will be closer to that of what you saw in Q4.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
Thank you very much.
- --------------------------------------------------------------------------------
OPERATOR
Mark Roberts, Wachovia Capital.
- --------------------------------------------------------------------------------
MARK ROBERTS - WACHOVIA CAPITAL - ANALYST
The good afternoon. I've got a couple of questions regarding -- you talked about
investment you're making this coming year in worldwide salespeople. Can you give
us a sense of exact or in just round numbers how many people you're expecting to
add in worldwide sales?
- --------------------------------------------------------------------------------
UNIDENTIFIED COMPANY REPRESENTATIVE
I am going to toss that one over to Todd Abbott who runs sales force. How many
people are we going to add, Todd?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
From the last two quarters -- Q4 and looking into Q1 -- what we're going to be
doing is in essence we've added about from a gross base a gross basis 60 in each
quarter. That's both a combination of sales and sales support and a minimal
amount of some vertical staff, but predominantly field-based sales and sales
supports across each of the three theaters. That will net down a little that
with some of the restructuring that Bill spoke about in EMEA. What we have done
is eliminated some layers of management and replaced them with people out in the
field covering customers.
- --------------------------------------------------------------------------------
MARK ROBERTS - WACHOVIA CAPITAL - ANALYST
So what, net around 100 people, say?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
Closer to 80.
- --------------------------------------------------------------------------------
MARK ROBERTS - WACHOVIA CAPITAL - ANALYST
Okay. Can you give us a sense of -- I'm just trying to understand from what Mark
was talking about operating leverage in the model as we move forward in trying
to keep the operating expenses relatively flat. When would you expect these
people to kind be fully productive? I guess the question is how long is the ramp
up time for these folks?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
It's a great question. I think what you're going to see -- and this is something
we've got in our management system to really starts begin to track; we do not
have the track record to really understand what it has been historically, but we
now track that with each of the quarter's new hires to see what that
assimilation and ramp is. I think what you're really going to see is the bulk of
that affect really not to come into play until the second half, and then clearly
going into '05 they will be fully ramp. It will be somewhere between 6 to 12
months before the really get truly productive and effective at the rate that we
would expect them on an ongoing basis.
- --------------------------------------------------------------------------------
MARK ROBERTS - WACHOVIA CAPITAL - ANALYST
So you're adding the overhead now, and we would expect to start seeing the
productivity of those people start to pay off in the second half of '04 and then
kind of fully integrated into '05?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
I think that's a good conclusion, yes.
- --------------------------------------------------------------------------------
MARK ROBERTS - WACHOVIA CAPITAL - ANALYST
Do you have kind of specific sales targets for these folks, either historical
statistics or at least your expectations about how much revenue per sales team
do you expect to produce?
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
Let me jump in. It varies by theater and it varies by vertical markets. I'd hate
to give you a specific figure, but we have some salespeople out there that carry
quotas of just a few million dollars and we have some salespeople out there that
carry quotas of $20 million and more so that it's very difficult to give you an
average for these multiple people, these 80 people that will be netting out. But
suffice it to say, it is somewhere between 2 million and 20 million per head.
- --------------------------------------------------------------------------------
MARK ROBERTS - WACHOVIA CAPITAL - ANALYST
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
David Feinberg, Morgan Stanley.
- --------------------------------------------------------------------------------
DAVID FEINBERG - MORGAN STANLEY - ANALYST
I wanted to confirm if you could quantify the impact of zero cost inventory in
the quarter and also let us know how much you still have on the books that might
be applied going forward.
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
With regard to the inventory, as we said, we think the impact on gross margins
in the quarter was about $10 million.
With regard to the total amount of that inventory that actually would be
sellable, I cannot tell you right off the top of my head. Basically when we did
our restatement, the process that we instituted was to take a look at the
inventory on an ongoing basis, and we looked back essentially six months,
identify slow movers, and then compare the demand against what we hold. And to
the extent that obviously the demand is lower than what we hold, we reserve 100
percent on that difference. If we then all of a sudden get an order in where it
clears a bunch of that inventory out, it can benefit us in a particular quarter.
But suffice it to say, in the fourth quarter $10 million, and on the going
forward basis to the extent that that runs outside of what we normally think it
would be, we would certainly highlight that for you so that you understand how
that's impacting our performance.
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
There's two sides of the coin on Q4 inventory that I look at. One, that it had a
negative impact on our overall turns and that it had a positive impact, more
than we would have liked, in terms of gross margin. The positive side of the
equation as opposed to that is that it does continue to show the progress we're
making in inventory management in the Company. I don't want that to get lost on
anyone in total. Because we had to take down the reserve, the impact on the
turns hit us. But this is also quite good operational excellence by the team,
and I've got to congratulate that group in operations for continuing to do a
much better job at managing inventory.
- --------------------------------------------------------------------------------
DAVID FEINBERG - MORGAN STANLEY - ANALYST
Just a quick follow up. Can you give us a little bit more insight into the test
that you applied to figure out whether or not that inventory is impaired and how
often you apply it or you re-examine it?
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
We're reexamining it every time we close our books. And essentially what we do,
like I said, is we -- on a part by part basis we're looking back over what was
the utilization over the last six months, multiply that by two to get a year's
usage and take a look how much we have on hand. To the extent that we have parts
that are very slow-moving but that we have them on hand, we then apply a reserve
against the value of those parts, the differential being what the last six
months usage was versus what we have on hand. If we then go and sell those -- if
we reserve those parts but then all of a sudden sell them in a he future
quarter, essentially it helps margins because you've got very low-cost material
going into cost of goods sold. Is that clear?
- --------------------------------------------------------------------------------
DAVID FEINBERG - MORGAN STANLEY - ANALYST
That's helpful. Thank you. One last question. On the process improvement in IT
spending that you highlighted for '04, I wanted to know if that was baked into
the OpEx guidance that you provided or if you were planning on capitalizing
those expense (ph)?
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
There's a fair amount of it that gets capitalized, and when you look at the
variance chart that we gave you and you see OpEx going up 3 million for IT,
that's the OpEx component of it. There's a large component of it that's capital.
And basically for your cash flow modeling what I would tell you is that capital
spending is probably going to be up at around $100 million or so for 2004.
- --------------------------------------------------------------------------------
DAVID FEINBERG - MORGAN STANLEY - ANALYST
Thank you very much.
- --------------------------------------------------------------------------------
OPERATOR
Jack Lieberman (ph), Reliance Management.
- --------------------------------------------------------------------------------
JACK LIEBERMAN - RELIANCE MANAGEMENT - ANALYST
I was just wondering, I haven't heard very much about the personal shopper. What
do we stand with that? I know there were several tests -- there were a few tests
going on with some major retailers in the US, and I've not heard anything
further. Could you give me an update on that?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
We think we're progressing very well with that technology. It's been a
technology and really driving a new business model in the retail space that's
been going through a number of different tests, a number of different pilots.
We're progressing very well with the expectation of moving from pilot into some
production systems over in the coming quarters as the ROI that our customers are
seeing from that are starting to deliver some very positive results. So we're
very optimistic on the traction of that technology and the paradigm shift.
- --------------------------------------------------------------------------------
JACK LIEBERMAN - RELIANCE MANAGEMENT - ANALYST
Do you have any hopes of a roll out at all this year?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
Absolutely.
- --------------------------------------------------------------------------------
JACK LIEBERMAN - RELIANCE MANAGEMENT - ANALYST
You do?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
Yes.
- --------------------------------------------------------------------------------
JACK LIEBERMAN - RELIANCE MANAGEMENT - ANALYST
Are the consumer products companies willing to defray the cost to the retailers
in the system?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
That's something that we're looking at and have had discussions on. It clearly
has the potential now to drive a model of delivering coupons to the consumer
that is much more effective than the paper-based model that the market knows
very well. And that's a $7 billion spend in the market today and the effective
rate is extremely low. So that's something that we're looking at with some of
the initial pilots and roll outs, and it's something that is very attractive to
that segment of the market.
- --------------------------------------------------------------------------------
JACK LIEBERMAN - RELIANCE MANAGEMENT - ANALYST
Thanks very much.
- --------------------------------------------------------------------------------
OPERATOR
Richard Davis, Richard W. Davis & Co.
- --------------------------------------------------------------------------------
RICHARD DAVIS - RICHARD W. DAVIS & CO. - ANALYST
I have three questions, one of which involves competition. It came to my
attention that Cisco has mounted a sort of a program to use themselves and
handheld products and also Intermec in a sort of a lashed, and they called it a
solutions technology integrator or CCX is the program I believe they call it. I
was wondering -- this is a direct effort to get into some of your vertical
markets. I was wondering how you'd be handling that and how you try to deal with
it effectively.
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
Let me answer that one first. First, on the Cisco situation -- I'm sorry, I'm
getting a little feedback in my ear on the line. Let me switch headsets if I
can. You have got it as well? So I'm going to do my best here in keeping it low.
So what we consider what Cisco has just done is a great validation of our
enterprise mobility architecture and strategy. They are basically stepping up to
attempt to partner with other mobile computing players and otherwise to
replicate our end-to-end enterprise mobility solutions set. However, that's very
difficult to achieve and the issue is that if you don't have all of the
components of enterprise mobility, be that capture, move and manage -- capture
meaning how do you deliver information to the point of activity, how do you
capture information at the point of activity and the point of business decision,
which you actually do through advanced data capture technology. Secondarily, if
you don't have the wireless infrastructure that communicates to the mobile
computers and the application program interfaces that reside on the mobile
computers and they're not virtually tethered very tightly together, you'll
absolutely run into more difficulties than not. And then there's another
component, the managed component, which lives inside the data center, which
enables you to manage the enterprise-wide mobility architecture that you have
built.
I think that we haven tremendous technology lead on any number of several
vendors that might want to come together to do this with multiple point players
and multiple point vendors in the market. Because today, the maturity of
enterprise mobility is still so young, that going to a single vendor -- I'm
getting the feedback again -- going to a single vendor is much more of the right
solution today, than not. I'm sorry because I have had so much feedback on my
headset I may not have answered that as articulately as I might like. But
suffice it to say that I think that, one, it's a great affirmation of our
strategy; two, we're healthily paranoid that they may have some success, but
also recognize that they would have to very tightly integrate with the players
in the market in mobile computing, that these players don't have integrated
advanced data capture capability in many ways; and thirdly, the managed
component is just completely missing from the end-to-end enterprise play.
So we believe a single vendor solution today will not only allow our customers
to bring new applications to mobile computing in a time to market that gives
them a competitive advantage versus trying to do it through vendors'
infrastructures, four different vendors' proprietary software, but we also think
that we drive a much lower total cost of ownership with an end-to-end solutions
set than they would bring because we can get it done faster, we can get it done
less expensive and we've got the know-how and 25 years of tribal (ph) knowledge
and history in the vertical markets to be able to build a real customized
solution in this space. So we were pleased to see that people were following our
lead, and we think that we've got at least a 12 to 18 months lead at this moment
in time.
- --------------------------------------------------------------------------------
OPERATOR
(OPERATOR INSTRUCTIONS) Peter Barry, Bear Stearns.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
I know you no longer provide specifics as it regards revenues looking at
vertical market or application, but could you give us some color in terms of
some of the stronger or maybe weaker components, both the vertical as well as
application?
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
I'm going to take a crack first, and then will ask Todd to give you some color
or commentary. We will eventually, once we full sales out and information
provided by our partners, be able to get back on track with providing much more
reliable vertical and application data. Applications data will be very
difficult; vertical data will be much more possible in the early days.
However, I would say that we're still seeing strength in the entire retail
vertical supply chain, the supply chain of retail. I would say that we're
pleased with the progress we're making in transportation and logistics, also
that of manufacturing. And we're enthusiastic about the opportunities for growth
in health care, and certainly in government. Government breaks down into two
spots -- the federal government, primarily made up on the DOD, which includes
the Department of Homeland Security; as well as some of the civilian agencies.
But really exciting stuff is going on in the public sector market, really even
the first responder space. I'll let Todd talk a little bit more about what's
happening there as well.
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
I think government and health care are the two key developing markets for us
that we're optimistic on both short and long-term, health care in the context of
medical administration or medicine administration in the hospitals, and in
government both from a ticket citation and public safety, as well as going all
the way down into a Department of Homeland Security, first responder kind of
opportunity. We see lots of opportunity there for mobility in those
applications.
We're also seeing good traction now and increased attraction from the vertical
coverage and vertical response in the international theater, especially over in
Asia. So the vertical that we've identified (indiscernible) the key early
adopters of mobility and adoption of extending the data to the point of capture
and to the point of delivery of information to the transaction it still talks
about, is now starting to really take hold. We're pretty optimistic on our
(indiscernible). And as Bill indicated, I think we would expect to be able to
start to report that on a more ongoing basis in the coming quarters.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
While we're on government, where does the U.S. Postal Service fit in here?
We've heard various reports that they're going through a significant overhaul
upgrade, if you will. Can you comment on that and how significant that might be
in the nearby?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
The Postal Service is going through a process, an RFP, looking at the next
generation of their mobile platform. We're continuing to work with a set of
partners to continue to maintain the market presence that we have with the
Postal Service as we are the incumbent. We're very committed to continuing to be
the partner of choice with the Postal Service. It is a very large transaction,
and one that's going to take a period of time. And we really won't have anything
to report on that for several quarters as it goes through their analysis over
the next at least two to three quarters.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
Is it likely to be an '04 event, at least in terms of the award?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
It has potential to be awarded, but would have no marketable impact from a
revenue standpoint probably until '05.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
So if I could summarize what you've both just said, it really was in the
quarter and likely to be an '04 a reasonably balanced vertical market
performance. Is that fair?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
Yes, I would say that that is fair. We're pleased with the traction we're
getting in some of the development areas, and we're pleased with the traction
we're getting in our historic verticals, specifically around the retail supply
chain.
- --------------------------------------------------------------------------------
PETER BARRY - BEAR STEARNS - ANALYST
Thank you again.
- --------------------------------------------------------------------------------
OPERATOR
Mike Whitfield (ph), Wachovia.
- --------------------------------------------------------------------------------
MIKE WHITFIELD - WACHOVIA - ANALYST
I wanted to ask about -- earlier somebody had asked about the way the service
business has been migrated in-house and how that impacted VARs. What is the
impact of these new sales hires versus how you contrast that with the desire to
move to greater channel sales?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
Some of the sales hires that I referred to as well as the support were channel
sales people. We've put them all into the same category. Our approach from the
sales coverage standpoint is to be very channel-centric. The responsibility of
our enterprise sales or territory sales people is to generate demand, generate
knowledge of enterprise mobility and how it can impact our customers' business,
and work with partners. We work with our partners relative to the
industry-specific solutions. And the fulfillment and of the equipment will more
than likely come through partners as we move from more of a direct to a
channel-centric model. So the combination of working more closely with our
partners in covering our territories and the investment in channel account
managers to develop and align the business plans of our partners should be
viewed as a very positive thing -- it is viewed as a very positive thing -- from
our partners.
- --------------------------------------------------------------------------------
BILL NUTI - SYMBOL TECHNOLOGIES - PRESIDENT & CEO
The one thing I want to make sure I follow up on is what I don't want any of
the analysts to do is to think that we're moving away from creating and driving
the Symbol brand in a high touch away. If you think at high touch selling, the
direct sales rep or the high touch sales rep does every that does everything a
direct sales rep does except for take the order at the end of the day. They are
there to create budget; there they are to drive higher and wider coverage models
in the account; they are to create strong; long-term annuity relationships; they
are there to work as a consultant to the customer with respect to how they can
implement our technology to achieve their goals; they are to sell not just point
products, but an overall solution set; and they will bring partners in to do
largely the implementation, the deployment and the fulfillment of product
because at the end of the day the best practice is ensuring that the solution
works, not just that the hardware works, when you implement it, and they have
the application integration knowledge, they have the deployment skills, they
have implementation skills. But I want to be very clear here -- high touch is
actually about taking our game to a much higher level with respect to how we
sell to customers than we have done so in the past.
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
We also introduced a new roll this year in our sales team, which is a territory
manager roll that did not exist before. These are the type of account managers
that have a territory like the state of New York or the state of Florida. Their
responsibility would be to work with our partners. They're 100 percent
channel-centric. They really work on the tier two or the commercial markets, if
you will. And that's a coverage model that we did not have before going into
this year. So that will drive significant incremental demand for our channel
sales activity.
- --------------------------------------------------------------------------------
MIKE WHITFIELD - WACHOVIA - ANALYST
So would any of these new sales hires then be tier one direct to company sales
reps?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
Sure, high touch and leveraging from our channels from a solution set
standpoint does not preclude them from tier one. In fact, we've done a number of
transactions in the last several quarters, very large transactions that
historically would never have gone through a channel that now do. We would
expect our high touch reps would be leveraging specific application business
partners in the DC, and in store, and in merchandising, and bringing that
expertise of their solutions and their expertise of the applications and
business in working with us to generate the demand for our platform.
So high touch by definition means that the fulfillment of our equipment, whether
it's a tier one or a tier two, is not determined by whether or not we're calling
on that customer or not. We really would prefer each of our high touch reps to
be working closely with partners and leveraging their solution expertise in the
tier one as well.
- --------------------------------------------------------------------------------
MIKE WHITFIELD - WACHOVIA - ANALYST
A final question is are your channel partners restricted to list only quotes
now?
- --------------------------------------------------------------------------------
TODD ABBOTT - SYMBOL TECHNOLOGIES - SVP OF WORLDWIDE SALES & MARKETING
No. We have a process to enable them to get price exceptions as needed. I
referred before to rolling out a more rationalized price list, as I think right
now we've got too many exceptions going through because we do not have as
rationalized of a global price list as we need. And that's something we're going
to be addressing in the second quarter. But there is a process to enable them to
get exceptions to their contracted price.
- --------------------------------------------------------------------------------
MIKE WHITFIELD - WACHOVIA - ANALYST
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
Richard Davis.
- --------------------------------------------------------------------------------
RICHARD DAVIS - RICHARD W. DAVIS & CO. - ANALYST
A couple of quick balance sheet questions. Does the line of credit available go
up to $60 million now that you're current with your 10-Qs?
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
We should have that amount of availability soon. It's not automatic, but it's
definitely going to happen.
- --------------------------------------------------------------------------------
RICHARD DAVIS - RICHARD W. DAVIS & CO. - ANALYST
I got the drift. In the March 10-Q it mentions the increase of the $72 million
for the loss provision on legal settlements. Does that include some allocation
towards potential government fines?
- --------------------------------------------------------------------------------
PETER LIEB - SYMBOL TECHNOLOGIES - GENERAL COUNSEL
The 72 million, when added to the 70 million that we previously reserved -- so
the total of 142 million -- represents to us our best estimate of the cost to
the company or settle or resolve both the class actions and the government
investigation as well. This is Peter Lieb -- I am the General Counsel --
speaking.
- --------------------------------------------------------------------------------
RICHARD DAVIS - RICHARD W. DAVIS & CO. - ANALYST
You think you can do the deal. Does that also include -- because of its position
on the page, it seemed to refer to Pinkowitz vs. Symbol, Hoyle vs. Symbol and
Salerno vs. Symbol, but left unsaid DL Stain (ph) vs. Symbol and Gold vs.
Symbol.
- --------------------------------------------------------------------------------
PETER LIEB - SYMBOL TECHNOLOGIES - GENERAL COUNSEL
That's correct.
- --------------------------------------------------------------------------------
RICHARD DAVIS - RICHARD W. DAVIS & CO. - ANALYST
Thank you very much.
- --------------------------------------------------------------------------------
OPERATOR
There are no more questions at this time. I will turn the conference back to
Mr. Greenquist for any closing or further comments.
- --------------------------------------------------------------------------------
MARK GREENQUIST - SYMBOL TECHNOLOGIES - SVP & CFO
I would just like to thank everybody for joining us. And we will be basically
re-leasing first quarter earnings some time either late April or early May. We
will talk to everybody again then. Thank you.
- --------------------------------------------------------------------------------
OPERATOR
That does conclude today's Symbol Technologies fourth quarter 2003 earnings
teleconference. We thank you all for your participation. You may now disconnect.