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April 17, 2015

Xplore Technologies acquires Motion -- How it came about

Today I listened to the full Investor Call broadcast Xplore held on April 16 about its acquisition of Motion Computing, and a lot of things are clearer now (listen to it here).

Motion didn't exactly choose to be acquired, and this was not one of these situations where a big company comes along and makes a financial offer just too sweet to resist. What happened was that Motion found itself in a financial bind caused by third party issues over which Motion had little to no influence over. Specifically, the supplier of the displays used in their Motion C5 and F5 semi-rugged tablets shut down its plants in South Korea without any notice to speak of. This left Motion, which uses a built-to-order model, high and dry and unable to fill C5 and F5 tablet orders, with those two products combining to about half of Motion's sales. With half of its sales essentially on hold, Motion's financial situation quickly went from being quite stable to critical, until their main lender foreclosed.

This requires some background information. Motion, like most US electronics vendors relies on Asian OEMs (Original Equipment Manufacturers) and ODMs (Original Design Manufacturers) to make its products. There are various nuances to such agreements, but suffice it to say that those OEMs and ODMs likewise rely on their vendors to supply parts. One such part was screens from a company called Hydis. Unfortunately, Hydis' parent company, Taiwanese E Ink saw fit to close two of the Hydis LCD manufacturing plants in South Korea.

Now one might assume it should be easy to source replacement screens for tablet products that, while quite successful, were not produced in the millions or even hundreds of thousands. It obviously can be done, but it's not easy. There's locating a suitable replacement, there's business arrangements, there's adapting and configuring and testing, all of which takes time, time which isn't available to a company doing build-to-order. Components are changed and re-sourced all the time, but always with proper notice and proper lead time. Apparently, that wasn't the case with E Ink's shutdown of the Hydis plants.

A bit more about Hydis. They make screens that we here at RuggedPCReview have long considered the very best. Originally launched by Korean Hyundai as Hyundai Display Technology and then part of Hyundai's Hynis Semiconductor, Hydis started working on a wide-viewing angle technology called "fringe field switching" (FFS) in 1996. That came in response to Hitachi launching the IPS display technology, which also provides superior viewing angles. Hydis was so convinced of the merits of their FFS technology that they decided to pretty much bet the farm on FFS. That was understandable as FFS not only provided 180 degree viewing angles from all directions, but also offered terrific contrast ratio, none of the dreaded color shifts that lesser LCDs to this day display when viewed from certain angles, lower power consumption than IPS, and also no "pooling" upon touch.

Hydis was spun off from Hyundai completely in 2001, just when Microsoft's Tablet PC effort got underway, and Hydis saw a big opportunity to be the dominant player in tablets. I recall that at Pen Computing Magazine we were blown away when we saw Hydis FFS displays in Sharp's Actius TN10W and HP/Compaq's TC1100 notebook convertibles in 2003. The Hydis displays were so much better than anything else that there simply was no comparison.

Just when things appeared to look bright for Hydis, Hynis sold them off to Chinese LCD manufacturer BOE, and the company became BOE Hydis. Between the Tablet PC never living up to expectations and other issues, BOES Hydis didn't do well and was acquired by Taiwan's Prime View International (PVI) which eventually, in 2010, became E Ink, the folks who pretty much had cornered the market on those paper-like eBook reader displays used by the Kindle and also by Sony. PVI had actually managed to nurture Hydis back to financial health, but did so primarily by selling and licensing Hydis FFS patents. This led to Korean protests that after BEO, E Ink was also simply "asset-stripping" Hydis and thus Korean intellectual accomplishment. Add to that the fact that E Ink fell on hard times itself after the eBook market was severely impacted by the iPad and iPad-class tablets, and it's no surprise that they didn't have the resources to properly fund Hydis.

That said, and much to Hydis' credit, the company did not rest on its FFS laurels. First came an improved FFS, and then, in 2007, AFFS+, which perfected the technology in numerous respects, including even better outdoor viewability.

Motion, always on top of technological advances, was an early adopter of Hydis displays, giving them an edge over competition that used lesser LCDs not nearly as well suited for tablets where the ability to view the image on the display from any conceivable angle matters much more than in laptops. The superior quality of the Hydis AFFS+ displays used in Motion's C5 and F5 tablets contributed to their wide acceptance, and continued to do so even in the latest generation of the platform, launched in February 2015.

Unfortunately, February 2015 was also the month where E Ink suddenly shut two Hydis plants in South Korea. The stated reason were "chronic losses" and "high manufacturing costs." That didn't sit well with the Koreans who felt that E Ink had let the plants become obsolete, on top of simply mining Hydis for its patents. The bottomline for Motion was that they had a very promising new generation of their C5/F5 platform based on Intel's latest 5th generation "Broadwell" chips, and no screens.

No product, no sale, and the rest is history.

Enter Xplore. Located within ten miles from one another, the two companies knew each other well. Some of the workforce had worked in both companies, and both certainly also benefitted from the presence of Dell, which although not having any deep business relationships with either Motion or Xplore, made for the presence in Austin of a steady pool of highly qualified technologists.

But if Hydis displays were so good, and especially well suited for tablets, didn't Xplore use them as well? They did. Xplore, too, was an early Hydis adopter, and that move may well have been what helped Xplore survive and eventually thrive while some of its direct competition did not. Xplore's high-end, ultra-rugged iX104 XC6 tablet has a Hydis screen. So didn't the Hydis shutdown affect Xplore as well? It did, but Xplore had inventory and did not entirely rely on build-to-order. And while Hydis certainly has an impact on Xplore as well, their financial situation was different from Motion's and they were able to not only absorb the blow, but also turn it into an opportunity by taking over a very complementary Motion Computing.

If there's ever been a better example of making lemonade from lemons, there haven't been many. Had Xplore not been there just ten miles away and a perfectly logical rescuer, Motion would have been liquidated and most likely totally ceased to exist. That would have been a massive blow to Motion's customers and employees, and also to the rugged computing industry in general. As is, Xplore says that "the vast majority" of Motion employees have been extended employment offers.

So what can we expect from all this? As is, Xplore sales apparently peaked in 2012 with over $100 million, but still were in the 80 million range for 2014. Xplore is a roughly 40 million business. Xplore warns that this doesn't mean that they're suddenly a $140 million business, and that it'll take a year or two until everything has been integrated and ironed out. Xplore Chairman Philip Sassower likened the opportunity as being given the chance to pick up a mansion in distress in a $5 million neighborhood for three quarters of a million. It'll take work and perhaps half a million investment, but then it'll be a $5 million mansion again.

And then there are the numbers. VDC estimates the 2015 market for rugged tablets as being worth about $585 million. And the 2015 market for rugged laptops about $1.2 billion. And that's on top of a massive number of consumer tablets, a portion of which go into the enterprise that would just love to have some more durable gear. So there's plenty of upside. Xplore is already working on getting suitable replacements for the Hydis screens. And Sassower wants for Xplore to be the #1 in rugged tablets. -- Conrad H. Blickenstorfer, April 17, 2015

Posted by conradb212 at 07:46 PM | Comments (0)

Xplore acquires Motion -- what it means

On April 16, 2015, Xplore Technologies and Motion Computing announced that Xplore was acquiring Motion. This was not a total surprise as both companies are in the rugged tablet computer market, both are pioneers in tablets, and both are located within ten miles from each other in Austin, Texas.

And yet, the announcement came as a surprise to me. When I had interviewed Motion CEO Peter Poulin in February of this year, Poulin had ended with saying "Motion is in a good position. According to VDC, Motion is the #2 player in rugged tablets, more than twice as large as #3," and he followed up with saying the company had just totally revamped all of their platforms for much greater performance and enhanced wireless communication and ruggedness. And that they had other products in the pipeline. "We're quite optimistic," Poulin concluded. And yet, just a couple of months later, Motion was acquired.

The move was also a surprise because both Xplore and Motion have shown remarkable resilience from setbacks and challenges throughout their existence. In an era where numerous rugged computing gear manufacturers either folded or were absorbed by either Motorola or Honeywell, Xplore and Motion persevered and remained independent.

As a privately held company, Motion's business fortunes were closely guarded, but the company's savvy, skills and determination were apparent throughout its history, starting with the unenviable task of taking Microsoft's flawed 2001/2002 Tablet PC initiative and running with it. Though highly publicized and initially supported by most major PC manufacturers, the Tablet PC didn't find widespread acceptance due to high costs and technology that just wasn't quite ready yet. Yet, Motion toughed it out and established for itself a nice niche in enterprise and vertical markets.

Both Xplore and Motion were especially skillful in recognizing valuable technology advancements early on, and quickly making them available to their customers. Both companies were pioneers in such productivity-enhancing features as dual input where pen and touch worked in harmonious unison, superior outdoor-viewable displays, ergonomics suitable for actual tasks at hand, and the ability of their products to not only hold up in challenging daily use, but also perform at full speed under any operating conditions.

On the Motion side, the company's early adoption of Intel's Mobile Clinical Assistant (MCA) platform was an impressive example of their unerring compass of what worked and made sense, and what didn't. Motion's C5 MCA -- with its square layout, integrated carry handle, and peripherals placed in the exact right spots -- became a big success, so much so that Motion added an F5 version of the platform for general enterprise and industrial use. Most impressively, while a good dozen other companies also introduced Intel MCA-based tablets, most quickly abandoned them again, lacking Motion's razor-sharp focus on their markets and tablet products.

Fellow Austin resident Xplore impressed through sheer determination. Time and time again Xplore found new investment as the company's leadership tirelessly presented its case. Which wasn't always easy with what for a long time essentially was a one platform product lineup.

I well recall first seeing them at a Comdex trade show in Las Vegas in the late 1990s where they had a large, terrific display, a convincing message, and jaw-dropping prototypes that, however, were not quite final yet. That was quite common back in those days, and most of the attempts led nowhere. But Xplore was back the next year, and the year after that.

When we published the Pen Computing print magazine and did annual Editor's Choice and best product awards, Xplore scored with its impressive GeneSys Maximus. I remember calling Xplore with the good news, and they were disappointed that it was the GeneSys that got the recognition, and not their then semi-secret brand-new iX104. Little did we know that that machine was to become the core engine of Xplore's success and future.

So why Xplore and Motion got together now, after all those years, I don't know. Business imperatives, I assume, and I am sure it makes perfect sense. But what does it mean looking forward, especially in the light of many such acquisitions that did not work out for the best? In the past we've seen large companies almost mindlessly snapping up much smaller ones. That's not the case here. We've seen fierce competition where one competitor eventually came out on top and annihilated the other. That's not the case here either. So let's see what Xplore and Motion bring to the table.

Historically, Xplore has been tending to the ultra-rugged tablet market whereas Motion concentrated on a variety of vertical markets that required durable, specially designed and configured tablets. Motion does not have anything that competes with the various versions of Xplore's ultra-rugged iX104 tablets (see here). Xplore doesn't have anything like Motion's C5 and F5 semi-rugged tablets with their integrated handles. Xplore also doesn't have anything like Motion's R12 tablet with its big 12.5-inch screen (see here). So there's no overlap there. And Motion doesn't have anything Android-based, whereas Xplore has its modern, innovative RangerX tablet.

There is a degree of overlap in just one area, and that's in the promising and potentially quite lucrative area of compact lightweight Windows tablets. That's the tablets for users who do need Windows, but want it in a trendy, sleek and attractive iPad-like design that's tough enough to hold up on the job. For that Xplore has their Bobcat (see here) and Motion has its CL920 (see here). These two, though, are also different enough to be able to co-exist in the short term, the CL920 the unified company's enterprise market tablet entry and the Bobcat for tougher assignments that require more armature and a higher level of sealing.

Most importantly, there is very little existing customer overlap with these two companies. Xplore has traditionally concentrated on oil & gas, military, government, heavy industry, and similar, whereas Motion is primarily active in healthcare, retail, construction, field service, and so on. If Xplore plays its cards right, it can emerge as a much larger company with a much broader reach, and also perhaps as an example of where 1 + 1, for once, adds up to more than 2. I've said it ever since the consumer tablet boom began, and I'll say it again: with the tablet form factor fully accepted virtually everywhere, there's tremendous opportunity for rugged equipment vendors to step in and successfully provide this desired and contemporary form factor in products that do not break on the job and in the field.

Overall, this development may also be good news for other independents in the rugged tablet market, companies like Getac, GammaTech, MobileDemand, the Handheld Group, and others: resistance is not futile. Keeping it in the family and preserving the unique, special expertise of the rugged computing industry may well be the best way to success and prosperity.

-- Conrad H. Blickenstorfer, 4/16/2015

Posted by conradb212 at 12:05 AM | Comments (0)