Issue #0426/1 - The market looks good for Dell, Hewlett-Packard and Xerox, all of which have reported positive financial results.
Calendar Q3 results from three printer manufacturers indicate that there is a distinct upbeat mood in the industry.
Although revenues at hard copy focussed Xerox were down 2% on the same period last year, Imaging and Printing Group (IPG) revenues at Hewlett-Packard returned 8% growth in the quarter and Dell is upbeat in its expectations to ship five million printers in its FY 2005, year to end of January 2005.
In unit terms, Dell’s achievement would represent something in the order of a 150% increase in sales. Considering the company is just about to celebrate its first anniversary in the European printer market, having launched its own brand in the US in the spring of 2003, high growth figures would be expected. I’m sure Dell will be pleased with its performance – allowing for revenue for supplies as well as hardware, it is unlikely that revenue growth from its imaging and printer business will have been much below 200% and could well have exceeded that level. The company expects that its revenue from imaging and printing will be around the $1bn at year-end.
In terms of the corporation overall, growth at Dell in Q2 was 20%, taking revenues to $11.7bn. The company is proud that the overall increase in its unit sales for the quarter was 19%, in comparison to a rest-of-market unit sales increase that it claims was only around 13.5%.
Much more mature Hewlett-Packard recorded a 9% overall growth in Q2, taking revenues to $18.9bn for the quarter. Hewlett-Packard, pragmatic as always, notes that, adjusting for currency means that real growth would have been 5%. Overall growth in Q2, 2003 was recorded at 5%, so this year’s 9% is a significant improvement for a company that already leads the field in most markets that it plays in.
Xerox, for its part, recorded a 2% drop in overall revenue for the quarter but with a very strong growth in hardware unit sales that brought a 5% increase in revenue. Although this growth is lower than last year’s (at 8%), it is nonetheless very healthy and includes a factor that Xerox excitedly reports – that colour hardware sales accounted for 25% of total hardware revenue for the first time ($944m of $3853m is just the right side of 24.5% to be able to claim 25% - it does not however exceed 25%!).
This position in the colour market has been fed by a 17% growth in colour revenue, which was not a high for Xerox – growth levels have been as high as 20% and 26% in the last year. It is however, confirmation that Xerox has a firm grip on colour and is making excellent inroads into the colour office market.
In terms of office product revenues, Xerox records a 3% decline, as light lens technology products still require the provision of a service function but is now small enough (36% negative growth) not to be able to support itself financially. Digital office products brought in 2% growth in revenues driven by strong unit sales, particularly in colour, as already noted. However, again this figure is not a high for Xerox. Year on year revenue growth in this sector has been as high as 13% in the last year.
To emphasise this success in the digital office, Xerox quotes growth in colour printer unit sales as high has 54% over the same period last year – apparently fuelled by huge interest in its solid ink technology now that the price point has been reduced to less than $1,000, a level that allows it to compete in the low-end office colour segment with its built in duplexing and high print speed.
Supporting this impressive growth in colour printers is a 40% increase in revenues from colour copier/MFPs and a 25% increase on mono copier/MFPs. Also indicative of the success of Xerox’s strategies for recovery from its 2001 low, is the fact that value added services reported huge growth in Q2, at 36%, following a long period of minimal or negative growth.
To focus on Hewlett-Packard’s Imaging and Printing Group (IPG), reported growth was 8% for Q2 but, the significance is that revenues were at a record-breaking calendar Q2 level for Hewlett-Packard at $5.6bn. This represents nearly 10m printer units shipped in the quarter, which brings total printer shipments to 320m in the company’s 20-year history in the printing market.
Although business hardware revenues were up 8% on last year, home hardware continues its decline with a –5% growth. Strong growth in the All-in-One inkjet segment is offset by a sharp decline in the single function printer segment – indicating that single function printing has more than peaked and that the home market as a whole is maturing to the point where relatively few sales are first time purchases and users are now appreciating the benefits offered by multifunctionality in an environment where space is usually at a premium.
Take, for instance, the compact Hewlett-Packard AiOs such as the PSC1200/1300 series. They are ultra-compact (to use Hewlett-Packard’s description), taking up less than double the shelf space (or less than 1.5 times the shelf width) of a stack of A4 paper packs.
Supplies growth is slight anomaly for Hewlett-Packard. Revenue growth was a modest 9% when the company has become familiar with reporting growth more in the order of 16% (Q3, 2003).
However, this growth still meant that supplies contributed 58% to the total IPG revenue for the quarter - a figure that I believe to be a record.
There are two very valid points that must be made here. Firstly, Hewlett-Packard reduced pricing on supplies products in March, 2004. Secondly, perhaps these price reductions were driven by recognition that 16% growth and revenue contribution to IPG approaching 60% was becoming unjustifiable. If this is the case, these figures can only strengthen respect for Hewlett-Packard. Shame the same can’t be said for consumables retailers who have not responded with retail price reductions of their own!
Other products in the IPG portfolio also strengthen the company’s position as a global leader in imaging and printing. For instance, revenue from sales of digital cameras, an area where Hewlett-Packard has struggled to make an impact since its entry into the camera market some five years ago, grew by 11%.
IPG operating profit accounted for 14% of revenue, also a Q2 record, a figure that is up 12% year-on-year. Hewlett-Packard reports that overall operating margin (GAAP) was 3.5% of revenue (up from 1.7% the previous year), while Dell reports overall gross margin to be 18.2 %.
For Xerox, gross margin is recorded as having risen by 1.5 points from Q1 of 2004, to 41.3% of revenue but this figure is a little lower than Q2 of last year (42.4%). In terms of pre-tax profit margin, there was a healthy increase to 7.1% from the figure of 2.8% recorded last year.
Xerox indicates that it has been working hard at reducing its cost base and the success of the strategies used is certainly demonstrated in the figures quoted. Part of this process has involved the reduction of selling, administration and general expenses by 4% in Q2, meaning that these activities now represent 27.3% of revenue.
Hewlett-Packard also reports regional successes, with Europe experiencing three-and-a-half times faster growth than the Americas (14% to 4%). As a result, EMEA can now claim to be the largest region within Hewlett-Packard, accounting for 39% of worldwide revenue (up from 37% a year ago), while US representation has fallen to 38% from 41% a year ago.
Other shifts within Hewlett-Packard include the fact that the Personal Systems Group (PSG) has had an excellent quarter, boosting its performance to the point where it can now claim to be the number contributor to revenue within Hewlett-Packard, toppling IPG from its historically-held top slot. IPG’s growth was a solid 8%, a relatively stable performance year-on-year, while PSG has been able to boost growth from just 5% a year ago to 19% in calendar Q2 of this year. In 2003, IPG created 30% of total revenue, against PSG’s 28% but this year IPG has remained static at 30% while PSG now accounts for 31% of revenue. This change in position is perhaps testament to the hard work Hewlett-Packard has put into the post Compaq/HP-merger company and the degree to which the Hewlett-Packard is succeeding in its unified market approach to computing, digital imaging, entertainment and the ‘total experience’.
All three companies maintain a very positive outlook - with Dell forecasting sales of five million printer units by the end of the year and Hewlett-Packard becoming increasingly involved in digital entertainment.
Xerox is basing its outlook on the fact that earnings performance exceeding expectations, hardware revenue and unit sales growth has been strong and it has focused on improving costs and expenses. Furthermore, the company is pleased and encouraged that its technology investments are bearing fruit and it is continuing to take action to drive growth.
One final note on Dell:
As noted almost a year ago, Dell is providing very little information on its imaging and printing business.
While other companies, like Hewlett-Packard and Xerox, provide breakout information on the imaging and printing or office printing sectors, as appropriate, there is a distinct feeling that Dell in the US still does not have a firm handle on the significance of its imaging and printing business and is unwilling to share information.
In Europe, Dell in Europe has recruited high level staff from imaging and printing experts Hewlett-Packard and Xerox and, as result, the flow of information from Dell on imaging and printing products has improved significantly over the last few months.
A more detailed breakdown of regional and product information from Dell would undoubtedly help its standing in the market, whereas the apparent unwillingness or secrecy still arouses suspicions.
~End~
