Zebra Technologies (ZBRA) Q3 2025: RFID and Asia-Pac Drive 23% Regional Growth Amid Segment Realignment
Zebra’s third quarter underscores a business in transition, leveraging double-digit RFID and Asia-Pacific gains while realigning segments to sharpen its AI and automation focus. Management’s confidence in sustainable growth is rooted in diversified end-market exposure, but near-term demand remains uneven across geographies and verticals. Strategic capital deployment, including a $500 million buyback and the integration of Elo Touch, signals a commitment to both innovation and shareholder returns as Zebra positions for the next wave of digitization and AI-driven workflow transformation.
Summary
- RFID and Asia-Pac Outperformance: Double-digit RFID and 23% Asia-Pacific growth offset softness in EMEA and manufacturing.
- Segment Realignment Signals AI Push: New reporting structure reflects a pivot toward connected frontline and automation solutions.
- Capital Allocation Reinforces Growth Agenda: $500 million buyback and recent acquisitions anchor long-term strategy.
Performance Analysis
Zebra delivered 5% year-on-year sales growth in Q3, with standout contributions from Asia Pacific (up 23%) and Latin America (up 8%), while North America grew 6% on strength in mobile computing and RFID. EMEA remained a drag, declining 3%, with mixed results across the region. Segment performance was led by Asset Intelligence and Tracking (AIT), up 11%, driven by RFID and printing, while Enterprise Visibility and Mobility (EVM) posted a modest 2% gain as strong mobile computing was offset by a tough compare in data capture (scanning).
Gross margin contracted 90 basis points to 48.2% due to higher U.S. tariffs, partially mitigated by pricing actions and supply chain initiatives. Operating expense leverage improved, supporting a 20 basis point EBITDA margin expansion to 21.6%. Free cash flow generation remained robust at $504 million year-to-date, and the balance sheet is strong with over $1 billion in cash and a low leverage profile. Recent acquisitions, including Elo Touch and Photoneo, contributed to inorganic growth and are expected to further lift results in Q4 and beyond.
- Regional Divergence: Asia-Pacific and Latin America outperformed, while EMEA and manufacturing verticals remained weak.
- Product Mix Shift: RFID and printing drove AIT growth; mobile computing led EVM, but scanning lagged.
- Margin Management: Tariff headwinds persisted, but pricing and supply chain actions blunted the impact.
Operational execution and targeted capital deployment have positioned Zebra to weather near-term volatility while investing for long-term growth in digitization and automation.
Executive Commentary
"Our team executed well in the third quarter, delivering results above our outlook, driven by solid demand, lower than expected tariffs, and strong operating expense leverage. We achieved double-digit earnings growth by driving operational efficiencies as they continue to invest in our leading portfolio of solutions."
Bill Burns, Chief Executive Officer
"We have been deploying capital consistent with our allocation priorities. Through October year-to-date, we have repurchased more than $300 million of stock and acquired 3D machine vision company Photoneo and Elo Touch solutions with cash on hand in our existing credit facility. We continue to maintain excellent financial flexibility for investment in the business and return of capital to shareholders."
Nathan Winters, Chief Financial Officer
Strategic Positioning
1. Segment Realignment: Connected Frontline and Automation
Zebra has reorganized into two new segments: Connected Frontline and Asset Visibility & Automation. Connected Frontline focuses on empowering workers with mobile computing, rugged tablets, and AI agents, targeting a $20 billion addressable market. Asset Visibility & Automation targets supply chain digitization through RFID, printing, and machine vision, aligning with secular trends in automation and data-driven operations. This realignment reflects Zebra’s intent to sharpen its focus on AI-enabled workflow solutions and deepen integration across customer environments.
2. RFID and AI as Growth Catalysts
RFID remains a consistent growth engine, with double-digit expansion and broadening adoption across retail, logistics, and manufacturing. Zebra’s leadership in RFID is being leveraged to expand use cases, including fresh food, quick-serve restaurants, and healthcare. On AI, the company is piloting “Companion” AI agents and wearable solutions, aiming to drive both hardware upgrades and recurring software revenue. Management expects initial AI-driven revenue in 2026, ramping in subsequent years as pilots convert to scaled deployments.
3. Capital Deployment and M&A Integration
$500 million in share repurchases is planned over the next year, reflecting confidence in cash generation and a commitment to shareholder returns. The integration of Elo Touch, a leader in point-of-sale and self-serve kiosks, expands Zebra’s reach in retail and hospitality and supports a unified platform vision for mobile and fixed digital touchpoints. Early synergies are emerging in both revenue and cost, with Elo expected to contribute $100 million to Q4 sales and maintain a mid-single-digit growth profile.
4. Supply Chain and Tariff Mitigation
Zebra has reduced U.S. imports from China to below 20%, enhancing supply chain resilience and mitigating tariff exposure. Pricing actions have yielded incremental sales growth and are seen as broadly in line with industry peers, with minimal demand impact. Management expects full tariff mitigation by Q2 2026, supporting margin recovery and operational flexibility.
5. Diversified End-Market and Geographic Exposure
Strength in Asia-Pacific, India, and Latin America is balancing EMEA softness, while retail and e-commerce remain growth anchors. Zebra’s go-to-market investments in Japan and India are paying off, with new customer wins and expanded applications in postal and logistics sectors. Manufacturing and healthcare remain challenged, but pipeline development continues for future cycles.
Key Considerations
Zebra’s Q3 demonstrates a multi-pronged approach to growth, risk management, and technological evolution. The company’s ability to navigate regional and vertical volatility, execute on M&A, and invest in AI and automation positions it to capitalize on secular digitization trends.
Key Considerations:
- RFID and AI-Driven Upside: Sustained RFID adoption and early AI pilots suggest multi-year growth levers beyond current hardware cycles.
- Segment Realignment for Strategic Clarity: New reporting structure will enable clearer tracking of progress in frontline digitization and automation.
- Tariff and Supply Chain Flexibility: Rapid reduction of China exposure and pricing discipline are supporting margin defense and resilience.
- Capital Allocation Discipline: Share repurchases and targeted M&A are balanced with organic R&D investment to drive both near- and long-term value.
- Uneven Demand Remains a Watchpoint: EMEA and manufacturing headwinds persist, requiring ongoing vigilance and pipeline development.
Risks
Macro uncertainty, regional demand volatility (especially in EMEA and manufacturing), and the pace of AI adoption represent ongoing risks. Tariff policy shifts or supply chain disruptions could reintroduce margin pressure, while competitive dynamics in AI and automation may challenge Zebra’s ability to sustain premium pricing and differentiation. Management’s guidance assumes no major changes in trade policy or demand environment, which may prove optimistic if macro conditions worsen.
Forward Outlook
For Q4 2025, Zebra guided to:
- Sales growth of 8% to 11%, with approximately 850 basis points from recent acquisitions and FX.
- Adjusted EBITDA margin of roughly 22%, absorbing a $6 million net tariff impact.
- Non-GAAP EPS between $4.20 and $4.40.
For full-year 2025, management maintained guidance:
- Sales growth of about 8%.
- Adjusted EBITDA margin of 21.5%.
- Non-GAAP EPS of approximately $15.80, up 17% year-on-year.
Management highlighted stable second-half demand assumptions, continued strong execution in RFID and Asia-Pacific, and ongoing focus on mitigating tariffs and integrating Elo Touch. Year-end project spend is expected to match prior year levels, with pipeline conversion a key Q4 focus.
- Stable pipeline conversion required for Q4 targets.
- Tariff mitigation actions to drive margin normalization in 2026.
Takeaways
Zebra’s Q3 results reinforce its position as a leader in digitization and automation, with RFID and Asia-Pacific driving growth amid mixed end-market conditions. The company’s segment realignment and AI investments signal a strategic pivot toward higher-value, software-enabled solutions. While near-term demand is uneven, disciplined capital allocation and supply chain actions provide a foundation for sustainable growth.
- RFID and Connected Frontline are Emerging as Core Growth Engines: Sustained double-digit RFID growth and early AI pilots underpin the company’s long-term vision for digitized, automated workflows.
- Capital Deployment and Segment Focus Will Determine Next-Phase Value Creation: Successful Elo integration and execution on the new reporting structure will be critical to maintaining growth and margin resilience.
- Investors Should Monitor AI Revenue Ramp and Supply Chain Shifts: The pace of AI adoption and further reduction of China import exposure will be key drivers of future margin and topline performance.
Conclusion
Zebra’s Q3 highlights both the opportunities and challenges of leading digital transformation in frontline industries. The company’s diversified growth engines, disciplined execution, and strategic capital deployment position it well for the next wave of automation and AI adoption, though vigilance is warranted as macro and competitive risks persist.
Industry Read-Through
Zebra’s results and evolving strategy offer a lens into broader industry dynamics for enterprise hardware, automation, and AI-enabled workflow providers. The continued outperformance of RFID and the accelerating push into AI-driven solutions highlight opportunities for peers to deepen software integration and expand recurring revenue streams. Supply chain resilience and tariff mitigation remain critical across the sector, while regional demand volatility underscores the importance of geographic diversification. The Elo Touch acquisition signals that vertical integration and unified platform strategies may become increasingly important for competitors seeking to capture the next phase of digitization in retail, hospitality, and logistics.