Paul Todgham: And I would just add. This is, we believe, gross margin accretive based on all the tests and pilots we’ve run so far. And the drivers of that really are twofold. One is many of these customers, not all, but many of them are lower-volume customers. So expectations around volume discounts and so on are clearly lower and we’re — our list price realization is higher. And secondly, we’re selling our easiest-to-use products, which have less service associated with them, great technology, again, the power and the software that’s allowing us to command quite high margins when we sell.
Jim Ricchiuti: Thank you.
Operator: Thank you. The next question is coming from Jacob Levinson of Melius Research. Please go ahead.
Jacob Levinson: Good morning, everyone.
Rob Willett: Good morning.
Jacob Levinson: Paul, I appreciate your help over the years and wish you the best of luck in your next endeavor, and hope you get to work hard, and play hard, and move fast in whatever that next chapter is.
Paul Todgham: Thanks, Jacob.
Jacob Levinson: Just on China, I know this is – it’s a market I think sometimes that’s just hard to know what’s really happening if you’re not there, and it’s certainly been a challenge, for a lot of companies that we cover. And obviously, a big piece of that for you folks is consumer electronics. And maybe we have to wait another quarter to hear how that’s shaping up. But Rob, maybe if you can just give us a sense of what you’re hearing broadly from the field in terms of sentiment. And we’ve heard some companies indicate that January was actually off to a pretty good start. So just curious what you’re seeing there?
Rob Willett: Yes. So I visited China in the fall for the first time and since pre-COVID. So it has changed. Certainly kind of some of the enthusiasm and growth expectations are different very much. Greater China, for us, experienced the largest year-on-year revenue decline of any of our major regions. So we were down 29% in Q4 year-on-year and 28% for the year. So, I think it’s going to dampen growth expectations for many companies where that market was such a driver of growth over such a long period. The decline we experienced in automotive was most pronounced in China around the world for Cognex. So then certainly, electronics is a key part of our business in China. And as I mentioned, certainly with large customers we’re confident that we’re maintaining share.
And what we do for large smartphone companies and also in the EV space is highly advantaged, and we think we’re very well positioned to grow and help them grow as they need to in China. But also, I think we’re all seeing we’re in the early innings of a long-term shift in manufacturing away from China that could benefit us nicely this year and beyond. And we’re seeing production capacity moving from China, particularly for us, to India and Vietnam, and we’re making sure that we have strong presence, and relationships in both places to help with that transition. And then obviously, some of the EV battery opportunities that are sort of where there’s overcapacity in China and some stagnation there, it is resulting in businesses around the world, particularly in Europe and the U.S. growing.
So my overall view, I would say, in our own business, we have a strong group of committed Cognoids in China. We’re seeing very, very low turnover in terms of people leaving the business, and a lot of enthusiasm around our new products and new technology. We celebrated with them our 40th anniversary at the — near the end of last year and saw a lot of kind of Cognex culture playing out strongly. And we have a very seasoned management team. But certainly, I think the business that we kind of expect in China in the years to come will be lower and will result in opportunities elsewhere.
Paul Todgham: Yes. And Jacob, I’ll just add a couple of points specific to kind of our financials and maybe your first comment about I’ve heard China is off to maybe a little better start in January. So seasonality in China and Asia more broadly is slightly different than other parts of our business. We do typically see a step up from Q4 to Q1. So your comment may be very true and we would see it ourselves from a seasonality perspective. We’re basically flat against a year ago and flat against Q4 in our Q1 guide. But the answer is quite different. If you’re looking sequentially, we’re seeing a little bit of a step-up in Asia. If you’re looking year-over-year, we’re expecting China to be weaker than it was a year ago. So again, depending on your lens, that’s one aspect.
And the other color I would give on our full year results, we’re – again, as Rob mentioned, we were down 28% on the year for China. That’s 23% in constant currency and a five percentage point drag on FX with a weaker CNY. The biggest piece of that, the biggest contributor to that is our consumer electronics business — or was our consumer electronics business in 2023. So while the overall business was weak, our numbers were worse because of the disproportionate impact that consumer electronics plays in that. Which generally does follow different macroeconomic drivers and factors than the core Chinese business. I think it’s important to sort of separate those two. And certainly, as we’re going through the year, I know the team will call out those differences where they’re meaningful.
Jacob Levinson: I appreciate the color. I’ll keep it as one question. Thank you.
Operator: Thank you. The next question is coming from Joseph Donahue of Baird. Please go ahead.
Joseph Donahue: Hi guys. I’m on for Rob today. I wanted to dig into your discussion about the logistics outlook a little bit. Can you talk about where the optimism is coming from? Is it greenfield or brownfield larger or small customers kind of your expectations for the timing on when we might see an uptick?
Rob Willett: Sure, yes. Yes. Thanks, Joe. So revenue contracted last year 21% in logistics and was down 25% in 2022 after growing 65% in logistics for us in 2021. So certainly, we’ve seen kind of, as you know, pandemic-fueled investment particularly around e-commerce in the United States in 2021 and then overcapacity that’s being kind of worked through. And so that trend is continuing to play out perhaps as we might have expected. Our logistics business among newer smaller customers continues to grow nicely, not as much as we would like, right, last year, but good underlying growth potential playing there that we expect that to see. So we did see nice quarter-on-quarter growth in logistics in Q4. So that — there’s a picture developing that we think is pivoting back to growth quite nicely.
It’s coming from those smaller customers. It’s coming from customers beginning to embrace vision technology and edge intelligence. It’s coming from a penetrating parcel and postal applications. We’re seeing some nice wins from some big names, which are indicative of bigger business coming further. We see potential in a lot of geographies around the world, notably e-commerce in India. So there are certainly those trends happening nicely. Among our larger customers, we are confident that they will return to being larger customers of Cognex over time. The timing of that might still be a little tricky to call at this point. But I would say that our business is growing — kind of the momentum in the business, the reach, our technology, its acceptance in the market is growing nicely.
I think as one looks around, what one would read that is relevant perhaps to Cognex, not necessarily customers specifically. Although possibly Walmart, is a great example of the potential in logistics, the companies that they plan to automate or partially automate, many of its 100-plus U.S. warehouses in the coming years. So, we see that as a nice example. UPS certainly has been pretty open about their intention, to automate and improve the production, and throughput in their warehouses. And certainly, we think a very strong potential user of advanced automation and vision technology. So, these would be examples of some of the things that we see going on. You will note in our filings that we didn’t have a 10% customer last year, so that’s obviously notable.
But I think there are certainly better days ahead pretty much across the board for our entire logistics business. And we do expect it to grow this year.
Joseph Donahue: Okay. Thank you. And then related to that, next question would be kind of could you talk about whether we should have this margin headwind from this logistics project run beyond the first quarter? And then related to that, if the recurring revenue that you’ve described that’s associated with this project something that you think could be kind of expanded in terms of the software you’re developing to other customers? Or is it more of a unique situation that it’s going to be a one-off?
Rob Willett: So the quick answer is, one, it’s an in-quarter event where we took the decision, to help a large important customer implement some, of this technology that we call edge intelligence. This is a product we’ve been developing for quite a long time. And what it allows us to do is manage all of our vision systems, very, very appropriate for large customers with large deployments, manage them through middleware which allows us to calibrate support, upgrade but also provide a lot of key manufacturing data to our customers, right? And we’ve taken the view for a long time that customers should pay on a monthly subscription basis for that business. And so this is our largest success to that product so far. And we will be — we’ve signed a contract that will allow us to bill monthly for that and really hopefully add more functionality over time through it, right?
Then we have – when we go out and install now in some of our applications, we provide this technology to customers and we invite them to use it after a free trial period. So, this is one of our main pushes to try to get our business more on a subscription-type basis. And that business should be highly profitable as it continues to grow. We’ve been working really hard on this for a long time. It’s still early days in terms of its commercial rollout. This is a really nice first example, and we do expect to see many more as that technology kind of matures and customers become aware of its value.
Joseph Donahue: Thank you.
Operator: Thank you. The next question is coming from Joe Ritchie of Goldman Sachs. Please go ahead.
Joe Ritchie: Thanks. Good morning. Paul, wish you the best of luck. And then love the slides, so thank you for the additional detail this morning. My first question, maybe just starting on Slide 6. I know it’s really early in the year, Rob, and kind of hard to have a perfect crystal ball on exact growth rates for 2024. But I’m curious, you already mentioned that logistics you expect to grow. If you had to force rank your different end markets or businesses in ’24 and where you would expect to see the most growth versus potentially the lease growth, I’d love to hear any color you would have at this point?
