Issue #0718/1/ - With the big three US printer manufacturers having recently reported quarterly financial information, we see Lexmark in a tough position, being gradually edged out. Meanwhile, Hewlett-Packard is totally dominant in the market and Xerox is pushing ahead hard.
Hewlett-Packard’s dominance of the printer market is clear when financial results for the company are compared to those of the other two US printer manufacturers.
Xerox is now confirmed as the competitor to watch. Back in 2001, Xerox nearly lost the battle for survival, with sliding revenues, unacceptable costs, huge debts and a market presence that was clearly unexciting to the printer buying community.
Now, although there are some dark spots in the Xerox portfolio, we see sales of office colour MFPs rising by a phenomenal 71%, contributing strongly towards the 9% revenue growth in colour hardware (now representing 48% of hardware generated revenue) and 4% overall revenue growth for the quarter.
This does not match the overall revenue growth at Hewlett-Packard however, where 6% (all figures quoted for Imaging and Printing Group only) represents just one of the many percentage increases for the group.
Whereas Xerox experienced an 18% slump in colour printer sales (presumably due in part to an understandable shift towards multifunction products), Hewlett-Packard managed to sell 19% more colour printer units than in the same period last year.
But, with overall MFP sales at Hewlett-Packard growing by 40% (no split given for colour MFPs), there is little doubt that colour growth at Hewlett-Packard is every bit as strong as at Xerox and that the company may be winning colour printer unit sales from Xerox.
Certainly in revenue terms, Hewlett-Packard’s business hardware revenues are on a healthy growth curve (up 3% this last quarter on hardware sales that grew by a healthy 21%) while Xerox actually struggled with a 3% drop in revenue from office hardware but posted an overall 2% increase in total revenue from its office activities.
Lexmark claims that business hardware revenue increased but did not offer a growth figure, except that revenue from business printer activities as a whole increased by 7%.
This is in sharp contrast to revenues from consumer inkjet activities (including supplies), which fell by 11% even though Lexmark’s inkjet unit sales increased following the dire situation in 2006 when unit sales were in decline.
To counter the decline, Lexmark has adopted a strategy of building a little more value into the hardware than has typically been the case by including a wireless network interface as a standard feature for more models in recognition of user trends towards wireless computing.
Although Hewlett-Packard’s revenue from consumer hardware fell by 2% in the quarter, unit sales were up by 7%.
Increasing unit sales is what every manufacturer needs, of course, because of the supplies sales that are generated. For Hewlett-Packard, supplies revenue (business and consumer) grew by 10% - a higher than normal growth rate.
Lexmark experienced ‘good revenue growth’ in business supplies but, hand-in-hand with sliding inkjet sales and revenues, Lexmark has experienced dwindling sales of inkjet supplies as well. As indicated from previous financial results, Lexmark’s failure to secure growth in the inkjet supplies market should be very worrying to the company and should prompt a massive review of the entire inkjet program.
As an assumption, it is not unlikely that this slump in inkjet supplies sales is the result of users not keeping (or not using) the hardware they have either purchased or received as part of a bundle for much longer than the time taken to drain the ink cartridge supplied with the machine in the first place!
Opinion of Lexmark inkjet printer build quality generally is poor – a shame when photo print quality from Lexmark has proven itself to be up with the best. I feel sure that it is the poor quality of the hardware, combined with high supplies prices, that is killing off Lexmark’s inkjet business. Is it sustainable?
Certainly personal experience with Lexmark inkjet hardware (and supplies costs) would not encourage me into long-term usage for anything.
There are a few highlights for Lexmark, including the fact that branded unit sales are showing strong growth while OEM units (e.g. Dell, IBM) are in decline (see TCPglobal Issue #0703 "Good news for Ricoh, bad news for Lexmark" for comment on IBM deal to supply hardware from Ricoh instead of Lexmark).
In fact, so good are branded laser printer hardware sales that revenue has increased for the fourth quarter in succession. From the inkjet perspective, again branded sales are showing growth, in this instance following a worrying decline in 2006.
However, despite some small indications of recovery, Lexmark does not expect to achieve revenue growth in the current quarter (Q2), suggesting negative growth in the low single digits.
Xerox highlights for the quarter include revenue growth that “exceeded our expectations” (Mulcahy) and is the best result since some time in the last century!! An impressive recovery from a near-death experience!
Driving this impressive recovery is an equally impressive growth in colour pages. It is only a year ago that Xerox was recording a rise to 8% (from 4% in Q1 of 2004) of printed pages being colour. Now we see 11% of pages printed being colour pages – an increasing rate of growth.
Colour as percentage - Xerox
With revenue having grown 17% year-on-year, the colour sector is now contributing 37% to Xerox’s total revenue, up from 25% in 2004.
For Hewlett-Packard, revenue growth is rocketing forwards and upwards and market shares appear unassailable. Year-on-year revenue growth per quarter (for the whole company) has increased from 4.6% to 13.2% in just one year (from one year into Mark Hurd’s incumbency as CEO), following a tough period of two years when revenue growth was in decline (from 11.8% in the same quarter of 2004).
For the Imaging and Printing Group, there is no segment where Hewlett-Packard has a market share less than 45% and can be as high as 57% (source: Hewlett-Packard). This high point is commercial mono laser printers where market share is the highest it has been since Q3 of 2000 but even the market share in the commercial colour printing segment is above 50% for the second time in a year.
Market shares for Hewlett-Packard in the inkjet market are also on the increase.
So, in conclusion, we can see Lexmark struggling to regain some semblance of stability while Xerox builds on the stability it has firmly established over the last several years.
In the top position, we see Hewlett-Packard extending its lead from an already strong standpoint. It is therefore somewhat bizarre to see signs that the company is cutting budgets. Is it sign of an onset of complacency or is the company tending towards greed, potentially to the detriment of its operations – after all, IPG operating profits are already at a record level, at $1.17bn or 16% of revenue, in comparison to 9.6% and 8.6% respectively for Lexmark and Xerox.
To help put this into perspective, Lexmark recognises that the only way it may be able to lift itself out of decline is to increase its spend on research and development, along with the increased advertising activities we have seen recently. And, Hewlett-Packard has Samsung snapping sharply at its heels, having rocketed from nowhere to the number two position in just a few years.
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