Zebra Technologies’ Record Quarter Came With a 2027 Margin Warning

Zebra Technologies reported a record third-quarter, with revenue up 22.3% year over year to $1.61 billion and adjusted earnings per share at $4.95, surpassing expectations. However, the market reaction focused on the company's warning about profit margins for 2027. CEO Bill Burns indicated that fourth-quarter profitability should serve as a baseline for the following year, with adjusted EBITDA margin expected to be around 22% and full-year 2026 margins at 23.5%.

The margin warning stems from memory costs, a crucial component for Zebra's mobile computers. Memory costs grew to $145 million in Q3, up from $120 million in August, and memory price increases accounted for only half of the $50 million increase in memory costs. Despite price hikes, Zebra's margins are expected to dip due to the higher costs, despite securing more memory supply.

AI is expected to be a net positive for Zebra, but the company is still in the early days of this trend. Management anticipates a multiyear refresh cycle starting in 2027, with growth expected to hit the high end of its 5% to 7% long-term target.