Issue #0439/2 - Recent company results show all the major companies enjoying healthy increases in hardware sales and growing revenues.
Steady improvement in business IT spending over the past year has resulted in major IT printer companies showing increased unit sales and revenue growth during the period based around the third calendar quarter of 2004.
Companies like Dell (Q3 FY05 ending October 2004) and Hewlett-Packard (Q4 FY04 ending October 2004), with all-round IT product offerings are seeing healthy results across most of their businesses. Hard copy only companies such as Lexmark (Q3 FY04) and Xerox (Q3 FY04) are also demonstrating encouraging performance.
Worldwide performance/all products
Hewlett-Packard and Dell are bitter enemies, so it with some glee that Dell points to market share gains in most of its major categories.Dell’s major claim to fame appears to be the fact that the company is growing at rates that exceed total market growth and that its market leadership in the computing market is being extended quarter by quarter. Dell claims that unit sales of systems overall grew by 22% against an 11% market growth. Certainly Hewlett-Packard’s claim for growth in unit shipments from its Personal Systems Group is at the market level of 11%.
Again, Dell claims 18% revenue growth in this area while Hewlett-Packard claims 9%. With growth of Desktop PC units having increased 18% year over year, Dell claims to be the fastest growing vendor, extending its market lead by 1.4 percentage points.
For the companies as a whole, Dell’s revenue growth was 18% with an operating Profit of 20% while Hewlett-Packard grew 8%, from what was a strong Q3 a year ago, with record quarterly revenues.
Hewlett-Packard’s Non-GAAP operating profit was 7% of revenue (GAAP – 6% of revenue), while the growth margin improved by 0.3 percentage points to 23.8%. The company managed to keep its operating expenses flat, a success that is said to demonstrate strong discipline in management.
These figures round off a good year for Hewlett-Packard in which revenue grew by 9% on FY03 and the company generated $5bn in profit.
Worldwide imaging and printing
Information from Dell on its printer products and its performance in the market is still somewhat patchy at best and no satisfactory answer has yet been forthcoming to several enquiries over the last few months.However, with printer shipments having doubled between sequential quarters, and said to be on target for shipping the five millionth printer by the end of its FY05 year (end January 2005), Dell surely can claim to have laid to rest the competition’s scepticism regarding its ability to succeed in the aggressive printer market. Certainly these numbers are small in comparison to five million inkjet printers in one month from Hewlett-Packard. But, for a company new to the printer market, having been operating for less than two years, these figures do represent considerable success.
Now that colour lasers have joined the line-up, including several unique or first-to-market products, and as Dell’s influence on the original equipment suppliers becomes more and more evident in the engineering sphere, together with products that are increasingly taking on a characteristic Dell styling, customers will doubtless be drawn towards the one-stop-shop nature of dealing with Dell.
Lexmark reports 9% growth from Q3, 2003 with revenue for the quarter now up to $1.3bn. Gross profit margin was up 3.1 points to 35.2% while operating expenses were 13% higher than in Q3 the previous year.
Following its severe financial difficulties at the turn of the century, Xerox has made steady progress towards settling itself back into stability. This last quarter is no exception. Cash balance has improved by $1.1bn while debt has been reduced by $1bn on the position a year ago.
Gross margin at Xerox was 41%, up 0.2 points over last year and its pre-tax profit margin is up 0.6 points to 4.4%. The situation for the company is improving even though revenue is flat compared with Q3 of 2003, having posted a 2% negative growth figure in that quarter over Q3 of 2002.
At Hewlett-Packard, the Imaging and Printing Group (IPG) has again experienced solid growth of 5%. The company shipped record numbers of printers, 47 million in all for FY2004 and 14 million just in Q3, bringing in record profits. Operating profit for the whole year came in at almost 16% - well over the company’s target of 13-15%.
Another record, operating margin for the quarter was $1.1bn, or 16.6%, and was the largest of any group within the company. Next closest was the Services group, which includes Managed Print Services, that outgrew the market and returned an operating margin of 10%.
Geographical performance
Showing slowest growth, the Americas is tending to trail both the EMEA and Asia Pacific regions.For Hewlett-Packard, Asia Pacific was the region displaying the highest growth rate within the company (13%), followed by EMEA (11%). The company’s overall financial results have, of course, been assisted by the excessive weakness of the US Dollar that is responsible for all but 4% of the revenue growth.
Although Dell is claiming its highest unit growth rates occurred in EMEA, at 31% (against 16% for the rest of the market) with 27% growth in revenue, the proportion of Dell’s worldwide revenue attributed to EMEA actually dropped from 22.2% almost a year ago to 20.8% in the last quarter, despite the effects of currency fluctuations. This slack was taken up by the Americas, where the proportion of revenue has actually risen from 67.4% to 68.6%. Asia Pacific has also taken revenue share out of EMEA.
Product news
Amongst Hewlett-Packard’s record-breaking results was a figure of five million inkjet printers sold just in the month of October. Offering the most robust contributions to the results though, were shipments of colour laser printer hardware that was up by 31%, together with strong growth in sales of multifunction devices.Unsurprisingly, colour is also Xerox’s focal point. Revenue growth was 18% compared to 15% a year ago and now accounts for 24% of total revenue.
Growth in unit sales has been very strong for Xerox. Sales of colour copiers & MFPs grew by 19% and colour printers by 40%. The solid ink Phaser 8400 is said to have had a major impact on this position. Even sales of mono copiers and MFPs grew by 20%.
Xerox Office revenues were flat in Q3 with digital hardware growing by 6% but offset by the decline in light lens hardware of 44% (now representing less than 7% of revenue).
While hardware sales are improving, and revenue grew by 5%, post sales and financing revenues at Xerox are having a hard time, with a 2% decline, resulting in the flat revenue overall for the company.
Growth in supplies revenue at Hewlett-Packard was not a record by any stretch of the imagination but still returned a steady growth rate of 8% with full year growth of 10%. Within this category, photo media shipments increased by a massive 45% as digital photography continues to increase its grip on photographers around the world. Hewlett-Packard has also benefited from this trend through sales of digital cameras, with strong products promoting 10% growth in unit sales.
With supplies accounting for 54% of revenue within IPG, and with growth always at or above the 8% level (having been as high as 16%), supplies revenue totals are more than $3.5bn – or about 16% of total Hewlett-Packard revenue – second only to revenue from desktop PCs where growth is only 6% (on single figure unit growth).
Because revenue from supplies, and growth in that revenue, is essentially guaranteed – we should, therefore, see supplies revenue outstripping revenue from desktop PCs in the not-too-distant future to become the largest earner for Hewlett-Packard as well as the largest profit generator.
In contrast, home hardware revenues continue to fall (down 2% in Q3), largely the result of heavy price erosion outweighing the benefits gained from strong growth of All-in-One product sales. Reducing sales of single function printers compounds the problem.
As we watch the development of Managed Print Services in the industry, it is also useful to note that Hewlett-Packard’s Services Group experienced 13% growth in the quarter but operating profit was down a little (at 6%) from 2003 level. Of this services revenue, Customer Support accounts for 62% and Managed Services 20%, which is 3% higher than last year – at the expense of both Customer Support and Consultancy and Integration.
Managed Services grew by 35% for the quarter to achieve this new level (in comparison to 10% growth for Customer Support and 4% for Consultancy and Integration). Growth for the whole year was 38%, up from 22% in FY03. Hewlett-Packard has acquired a number of major contracts around the world but the biggest deals are not for print management. However, the success does demonstrate the company’s capability in the managed services arena and as time progresses we should start seeing managed print playing a more prominent part in company reports.
Dell is also making gains in managed services with revenues up 47% year-on-year. To build on this success and expand its influence geographically, Dell has opened an enterprise command centre in China and will open one for EMEA in December.
Kyocera Mita
Although no financials are available for Kyocera Mita, the company is very excited about its performance in Q3.In Europe, Kyocera Mita highlights mono printer market share figures from Gartner Group that show the company having risen through the ranks from fifth place to third place since Q3 of 2003. Now claiming 10.1% of the market (up from 7.1%), Kyocera Mita displaces both Lexmark and Samsung.
Kyocera Mita’s growth has specifically been at the expense of Hewlett-Packard, whose market share has fallen from nearly 59% to less than 55%. Samsung has also lost out, with market share shrinking from 7.5% to 6.9%, while Brother, in second place, has grown unit shipments to increase market share from 12.5% to 14% and Lexmark has improved share from 8.2% to 8.7% despite falling to fourth place.
Kyocera Mita also now claims to have broken the double digit share barrier (5.8% to 10.2%) in the 16-20ppm colour printer segment with its FS-C5016n single pass colour laser printer in a colour printer market segment that has seen growth of about 20%.
Demand for colour printers has demonstrated dramatic increase over the year with unit shipments of colour laser (page) printers having doubled in Europe.
Clearly pleased with these market results, Kyocera Mita indicates that its shipments of mono laser printers have increased by 45% between Q3 of 2003 and Q3 of 2004. Similarly, shipments of colour printers from Kyocera Mita have jumped by 24% (outpacing the market by 4 percentage points). The company credits the success not just to increased effort in small countries but to increased acceptance of its long-life ECOSYS technology, even in the three largest European countries.
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