*NEWS*WHY AREN’T CONSUMERS BUYING LEXMARK

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*NEWS*WHY AREN’T CONSUMERS BUYING LEXMARK

 user 2005-10-31 at 10:23:00 am Views: 67
  • #14444

    Why Aren’t Consumers Buying Lexmark?
    NEW YORK – What’s wrong with Lexmark?
    For
    its third quarter, ended Sept. 30, revenue at the Lexington, Ky.-based
    printer maker fell 4%, year-on-year, to $1.22 billion. Not so good. But
    look at profits, and things get really ugly. On a per-share basis,
    Lexmark’s profits fell nearly 50% from a year ago. Not surprisingly
    Lexmark has been taking it in the shares, currently trading at around
    $41, off $50, or 55% from its 52-week high of $90.50.
    And while the
    printer market is indeed maturing, things at competitors are a heck of
    a lot better. For instance, rival Hewlett-Packard , which dominates the
    U.S. market with a 49% share, according to InfoTrends/CAP Ventures,
    somehow managed to grow its printing and imaging group by 5% in its
    third quarter.
    Lexmark CEO Paul Curlander blames slower consumer
    demand, but the real reason may be more fundamental: lack of innovation
    in a cutthroat consumer business. “We’ve been more reactive than
    proactive,” Curlander admitted to analysts earlier this week.
    Analysts
    are more blunt. “Lexmark needs to come out with new products, sooner
    rather than later,” said FTN Midwest Research analyst Bill Fearnley.
    Although
    Lexmark is increasing its R&D spending–it’s spent about $252
    million over the last three quarters–that’s still just a fraction of
    the $1 billion spent annually by HP.
    Lexmark’s aging tech and
    limited product line is hurting it where it counts–retail. While
    Staples  and Circuit City , both strong Lexmark vendors in the U.S.,
    declined to comment on their handling of the company’s printers, visits
    to both chains in New York City found no Lexmark laser-jet printers on
    the sales floor–while there were extensive offerings of HP products.

    “Anytime
    you see retailers carrying less of a particular brand, one of the
    leading reasons is because of less consumer demand,” said
    InfoTrends/CAP Ventures analyst Robert Palmer.
    Another issue: Dell .
    Since 2003, Dell has been bundling Lexmark printers–albeit under the
    Dell brand–with its new PCs. That was great news for Lexmark, at least
    for a while. But since ink-jet printers are a razor and razor-blade
    business model (meaning that the profits are in selling the replacement
    ink-cartridges, not the printers themselves), Dell doesn’t care if it
    sells Lexmark’s printers at a loss. Dell can make up the loss–and a
    lot more–by marking up the ink-cartridges.
    “Dell wants a piece of
    the replacement ink market, and they can afford to sell the printers at
    a loss,” said MTN Midwest Research’s Fearnley. “Lexmark has to get the
    units out there and sell the ink.”
    While there isn’t much Lexmark
    can do, at least in the short term, about Dell, it can try to reignite
    consumer excitement in its own brand. And the company is trying.
    Curlander said Lexmark is plotting an aggressive advertising campaign
    this fall. And the company recently announced a new family of $500 or
    less monochrome and color laser printers aimed at small and
    medium-sized businesses. These printers are not particularly
    innovative, but it’s a sign to investors that the company is learning
    from its mistakes.
    It better start learning faster. Curlander
    himself admitted that Lexmark was expecting similar revenue loss next
    quarter, adding lamely, “But things are not getting worse.”
    “Lexmark has to run as fast as it can to catch up,” Fearnley said.