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Richa Gupta – Analyst

Michael Liard – Director

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vdcresearch.com | 508.653.9000

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TABLE OF CONTENTS

INTRODUCTION ............................................................................................................................................................................ 02

BARCODE PRINTING ..................................................................................................................................................................... 02

THERMAL BARCODE PRINTERS ................................................................................................................................................... 03

THERMAL TRANSFER CONSUMABLES SUPPLY FLUCTUATIONS ............................................................................................. ...5

END-USERS MIGRATING FROM TT TO DT ................................................................................................................................... …6

WHAT TO EXPECT ......................................................................................................................................................................... …8

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INTRODUCTION

Demand for barcode label printing has seen significant growth over the past few years as enterprises have increasingly

adopted a growing diversity of barcodes in order to achieve objectives such as:

Expanding and enhancing day-to-day operations

Associating more information with assets, products and personnel

Enhance product identification (and inventory) accuracy, and prevent costly errors

Ensuring compliance with government, industry and consumer mandates

Attaining greater visibility into operations and processes

Gathering and distributing information faster and more efficiently to improve decision-making process and

effectiveness

Based on VDC’s ongoing coverage of the barcode market, the barcode printer market was valued at 2.0 billion dollars in

2011 and is expected to grow at a Compounded Annual Growth Rate (CAGR) of 6.4% through 2015, when it is expected to

approach 2.6 billion dollars. While VDC expects deployments in mature markets such as the US and Western Europe to

continue accounting for the lion’s share of dollars spent on barcode printers for the foreseeable future, long-term growth will

increasingly be fueled by emerging countries in Latin America, Eastern Europe and Asia-Pacific, especially as production

continues to shift to these economies and the Transportation & Logistics sector required to support this shift is developed.

BARCODE PRINTING

Barcode printers are available in various technologies, configurations and form factors, with organizations typically selecting

their devices based on budget, application & use environment requirements, or the product portfolio of a preferred channel

partner. The quality and readability of the barcode (on labels, tickets, tags, receipts, etc) is not only dependent upon the

printing technology, but also on the media it is printed on.

The chart below provides a visualization of the different types of barcode label printing technologies deployed across

enterprise end-user organizations:

Exhibit 1: Barcode Printer Technologies

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There are three primary types of non-thermal printing technologies: Impact/ Dot Matrix, Laser and Inkjet. Although these

devices support a diversity of solutions in a wide array of installation environments, they are most commonly used to

support low to moderate printing applications with less stringent print requirements. The following table highlights some of

the features and characteristics of each of these technologies –

Exhibit 2: Non-Thermal Barcode Printer – Feature Set & Characteristics

THERMAL BARCODE PRINTERS

Thermal printers are increasingly becoming the most widely used barcode printer type due to the following characteristics:

Lower overall cost over the life of the printer (Total Cost of Ownership) resulting from (relatively) fewer

consumables-related expenses and low upfront investment costs

Offer higher print quality (Image printed is sharp and has high resolution)

Ease of use as compared to non-thermal printers

Ability to support broader range of barcode printing volumes

More durable print and media (particularly with Thermal Transfer technology)

According to VDC’s research, hardware vendors derived $1.6 billion in revenues from sales of thermal barcode printers in

2011, a value expected to approach $2.1 billion by 2015 (CAGR=6.8%). Thermal barcode printers accounted for over 80%

of worldwide sales of all barcode printing technologies (both thermal and non-thermal).

There are two types of thermal printing technologies: Direct Thermal (DT) and Thermal Transfer (TT); however, a typical

thermal printer is capable of operating in either mode (DT or TT). This means that although a thermal printer may be sold as

a specific technology type, it can be reconfigured to support the other thermal technology without having to purchase an

entirely new device, thus minimizing the costs associated with switching technologies. Features and use environments for

each type of thermal printing technology are described in the table below.

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Exhibit 3: Thermal Barcode Printer – Feature Set & Characteristics

TT technology is capable of printing on a wider variety of media (than DT) because the ink from the ribbon is melted onto

the paper or substrate, whereas DT requires a specialized paper that reacts to heat. The ability to melt the ribbon coating

onto the media not only enables TT technology to provide more durable printing, but it also enables media suppliers to

develop specialty material compositions for their TT products that can further improve durability. The ribbon also provides

an added layer of protection for the TT printhead (by preventing abrasion or contamination with the media), thus extending

the duty cycle (of the printhead) and minimizing costs associated with printhead replacement.

TTR comes in 3 different formulations: wax, resin and wax-resin combination. Each of these ribbons offers a varying degree

of print durability and media compatibility. The following table highlights the key characteristics of each of the 3 types of

ribbon formulations along with their primary use environments:

Exhibit 4: Thermal Transfer Ribbon Classification

Wax ribbons, as mentioned in the table above, are typically suitable for use in less harsh environments where the enterprise

is printing on uncoated paper, labels or tag stock. They are the most commonly used and deployed TTR because of an

attractive price-performance ratio, wider availability and strong alignment with many barcode printing application

requirements. VDC’s research shows that in 2011, wax ribbons accounted for over 60% of global TTR sales. The hybrid

and pure resin ribbons are typically used to support applications with higher image durability, barcode scan-ability

requirements, and the ability to withstand high temperatures & scratches that cannot be met with wax-only ribbons.

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As mentioned previously, DT technology does not require ink; however, this does require specialized thermal paper that will

react to the heat being applied from the print head. This has constrained the ability of DT media suppliers to develop more

robust and durable materials, thus making DT media more susceptible to environmental and physical conditions and

therefore less durable. In addition, the direct contact between the media and the print head creates more abrasion, resulting

in a shorter duty cycle for the print head. It is because of these differences that TT has become the preferred barcode

printing technology in many environments where print and media durability is critical and DT has become the preferred

technology in markets that have less stringent requirements.

With that said, however, DT technology has become more competitive with TT in a growing number printing environments that

have less strict print/image durability requirements and/or do not need to withstand harsh elements for extended periods. DT is

gaining increased consideration in these environments due to factors including:

Material composition improvements that enable DT print and media to withstand bright light, moisture, chemicals,

scuffing and temperatures up to 180°F – making it near archival and extending image integrity up to 25 years

Lack of a ribbon correlates to decreased consumable and disposal costs (minimizing the environmental impact), as

well as a more simplified user experience and less down time (associated with changing of the ribbon) – improving

the device’s TCO

Wider availability and diversity of lower-priced DT consumables in global and regional markets

THERMAL TRANSFER CONSUMABLES SUPPLY FLUCTUATIONS

The global market for Thermal Transfer Ribbons (TTR) has been experiencing considerable supply and price fluctuations

over the past 12-18 months. The recent volatility in this market is a direct result of PET pricing and capacity instability. PET

(polyethylene terephthalate) is made from ethylene glycol – a petroleum derivative – and terephthalic acid. This means that

PET capacity and prices are intimately tied to the fluctuations of the petroleum industry. In addition, PET films have become

a critical component in the production of alternative energy solutions (i.e.: solar panels) and consumer electronics – which

means there is greater global demand and more strain on manufacturing capacity. The opportunity within these burgeoning

markets, as well as the higher PET margins associated with them, have resulted in restraints of the PET capacity used to

support TTR manufacturing and greater price volatility. This has led to TTR vendors placing their large customers on

controlled allocation until the capacity issues are addressed as well as having to raise prices. VDC expects that the PET

shortage will be resolved by the end of 2013 as more global capacity is brought online and relevant projects wind down.

TTR vendors have had to raise ribbon prices due to the continued instability & volatility in the sourcing and pricing of raw

materials, a trend expected to continue through 2013. Enterprises using wax ribbons typically have less harsh print image

durability requirements and/or are tight on their budgets for barcode printer consumables-related purchases. It is for this

reasoning that VDC expects these enterprises to be more willing to consider migrating their printers over to DT mode.

With enterprises constantly on the lookout for ways to enhance operational efficiencies and productivity while improving

overall profitability, investments in print technology solutions are now being made with a greater emphasis on reducing the

cost to print each label, minimizing the environmental impact, and decreasing the TCO. This is not only creating a

fundamental change in how an enterprise selects which printing technologies are best-suited to their specific installation

environments, but is also increasingly resulting in a re-evaluation of legacy printing systems as devices are

refreshed/upgraded.

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END-USERS MIGRATING FROM TT TO DT

Leading ribbon vendors expect 2012 & 2013 to be challenging years as they face an increasingly difficult environment

resulting from raw material constraints and cost escalations/fluctuations. A number of low cost TTR manufacturers,

particularly in the Asia-Pacific region, are looking to capitalize on this supply shortage and make their products highly

available to the enterprise end-user community. The quality and consistency of these ribbons, however, remains

questionable. Organizations are thus increasingly considering alternative barcode printing technologies – direct thermal, in

particular—owing to the ease of conversion.

VDC’s research on barcode using enterprises and their printing requirements indicates that more than 1/3rd of the existing

thermal transfer printer market – and their associated ribbon revenues – is exposed to this shift. This estimate is based on

the typical print durability requirements, installation environments and labeling applications that these printing solutions are

deployed for. Preliminary applications where the TT to DT shift is expected to occur in the transportation sector include

warranty returns, markdowns, price labeling, order fulfillment, and reverse logistics.

Based on this, we estimate the total available market (TAM) opportunity for the migration from TT to DT printers in North

America, South America and Europe at an aggregate of around $450 million for 2012 and 2013. TT to DT conversion rates

are expected to range from 10-20% of those expected to refresh during this time period – depending on the region, vertical

and applications under consideration, which correlates to more than $75 million for the 2 years. VDC expects 2012 to

account for majority of the TT to DT shift for reasons including:

~40% of the TT printer installed base is expected to be refreshed through the end of 2013, with the majority

expected to happen in 2012

A significant number of enterprises did not become aware of supply issues until early 2011, creating a greater

sense of urgency to react quickly and implement near-term strategies

Enterprises are placing greater emphasis on reducing the cost to print, environmental impact, TCO, maintenance,

etc. – creating a fundamental shift in how they are determining what the best technologies are for their specific

installations

The following chart provides VDC’s estimates, based on end user data gathered in Q4 2011 and Q1 2012, on the

percentage of the TT market that is susceptible to converting to DT through 2013.

Exhibit 5: VDC Estimates on Percentage of TT Market Likely to Convert to DT

In order to further validate this trend, VDC surveyed 424 enterprises – across all Tiers – within the Transportation vertical

that are currently using thermal barcode printers, across the Americas (North and South) and Europe. All respondents were

key decision-makers or influencers in their organizations and had titles of manager or higher. The goal of this survey was to

gauge the enterprise community’s awareness & knowledge of the improvements in DT and the current TTR shortage, as

well as gain a deeper understanding of the TT-to-DT shift and the strategies being used to mitigate the risks associated with

the PET shortage. Demographics for this survey are provided in Appendix A.

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VDC focused on the transportation & logistics vertical for this assessment given the high likelihood of the shift to DT being

more mature in this particular economic sector, for reasons including:

Less harsh print durability requirements – the environmental elements that organizations within certain sectors of this

vertical are exposed to are relatively less harsh as compared to the Industrial/Manufacturing vertical which could be

subjected to extensive exposure to light and chemicals, among others.

Better inventory management & control – leading to higher inventory turns and thus shorter shelf life needs for

product identification & tracking labels

Criticality of barcode printing to core processes – to improve business processes and reduce operating expenses

Need to minimize operational & service-related downtimes, and reduce Total Cost of Ownership (TCO) over

product life & duty cycle – investments in lower-priced, higher-performing hardware products is increasing within

this vertical and their inherent impact on an organization’s bottom line is helping provide a more attractive ROI and

TCO

Re-evaluation of technology usage to reduce carbon footprint and be ‘green’ – organizations within this vertical are

also looking to align their technology investments with growing need within the marketplace to minimize CO2

emissions and fuel costs

Slightly more than half (~56%) of all TT using respondents in the transportation & logistics sector were aware of the global

raw material shortage and its impact on the manufacturing and supply levels of TTR. Of this population, nearly 2/3 of

respondents expect the shortage to have a negative impact on their organizational operations, necessitating the

development of contingency and action plans.

The vast majority of companies that are developing their action plans expect to execute upon their strategy upon their

planned refresh cycles, hoping to weather the storm throughout the TTR supply constraints by engaging in ribbon saving

measures or increasing their current inventory levels (of TTR). However, when asked about the primary strategy to help

mitigate the risk associated with TTR supply, the two most commonly cited plans pertained to migrating away from TT to

either Direct Thermal or a non-thermal printing technology (see Exhibit 6).

Exhibit 6: Survey Respondents’ Strategies to Address TTR Shortage

0% 20% 40% 60% 80%

No action

Find additional ribbon sources

Increase ribbon inventory/Pre-order more

Convert to a non-thermal printing solution (Laser, Impact, Inkjet)

Convert to Direct Thermal printing

(Percent of Respondents) (N=125)

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The following table provides the primary reasons respondents’ are considering or migrating to DT systems:

Exhibit 7: Survey Respondents’ Primary Reasons for Migrating to DT

The information in the aforementioned table validates our thinking on several dimensions, including:

Enterprises are aggressively looking to improve their TCO and minimize consumable expense

The current TTR capacity issues, although highlight and facilitating the shift to DT, are not the primary reasons for

this migration

Printer down time associated with TTR replacement is a significant issue for TT using enterprises

Increased corporate responsibility policies and incentives (e.g.: going green) are becoming more prominent

selection criteria for core technology adoption and refresh.

WHAT TO EXPECT

The following highlights VDC’s assessment & expectations of the ongoing migration from Thermal Transfer to Direct

Thermal printing technology:

The total global opportunity for the TT-to-DT technology migration to account for nearly $160 million dollars (in aggregate)

from the period of 2011-2013.

The current PET shortage is expected to be resolved by the end of 2013; however, during that time, a significant

number of enterprises, particularly those using wax ribbons, will consider migrating from thermal transfer to direct

thermal printing systems. This is expected to have significant impact on the SMB (Small to Medium Business)

segment of the market, which is largely comprised of smaller firms that are more price sensitive and operating on

lower margins.

The TTR supply issues have highlighted – and slightly facilitated - a trend that has been emerging over time and

that is expected to continue beyond 2015, particularly if material composition development continues at its current

pace

As enterprises come upon the end of their printer refresh cycles, a significant number are expected to re-evaluate

their existing barcode printing and image durability/longevity requirements before deciding to continue with legacy

systems or migrating to an alternative printing technology.

Although we predict that the TT-to-DT shift trend will drop in the years following the resolution of the raw material

supply issues, the growth of the shift will be higher than the historic rates (of the TT-to-DT migration) due to: o Greater awareness of the benefits and limitations of both technologies

o Increased consideration of DT for more applications

o Better performance and higher life expectancy

o Implementation of strategies to mitigate this type of supply & price volatility if it were to happen again

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ABOUT VDC

VDC Research Group (VDC) provides exceptionally detailed direct-contact primary market research and consulting

services to many of the world's largest technology suppliers, innovative start-ups and leading investors. The firm is

organized around six practices, each with its own focused area of coverage. Our clients rely on us for highly segmented research and analysis

which is derived from our unwavering commitment to the idea that all markets are collections of smaller market segments and t hat winning

companies must develop and execute strategies that are segment-specific.

For more information about this research product, please contact:

VDC Research Group, Inc. | 679 Worcester Road | Suite 2 | Natick, MA 01760

Mike Collette – VP, Sales & Enterprise Accounts, 508.653.9000 x112, [email protected]

Richa Gupta – Analyst

Michael Liard – Director, AutoID Practice

VDC Resear ch Gr oup , Inc. | ©Cop yr ight 2012

mailto:[email protected]

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