*NEWS*IS LEXMARK OUT OF INK ?

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*NEWS*IS LEXMARK OUT OF INK ?

 user 2006-07-31 at 2:30:00 pm Views: 51
  • #16108

    Is Lexmark Out of Ink?
    A
    revitalized Hewlett-Packard  appears to be successfully taking on a
    number of rivals, such as Dell , which is having to decrease the
    selling price of its computers to effectively compete with HP. Same
    goes for Lexmark , where HP has undercut what has traditionally been
    Lexmark’s turf — affordably priced printers,Lexmark has moved to
    increase its laser jet printer product offerings, playing on HP’s home
    turf as it owns approximately 40% of the laser market. But shifting
    product mix from inkjet to laser printers takes time. Meanwhile, other
    firms such as Canon  and Epson (which, along with Lexmark and HP, hold
    about 75% market share) are eating away at Lexmark’s more entry-level
    and aggressively priced product mix.
    The final competitive front
    consists of the battle for selling highly profitable printer ink
    cartridges and related supplies, or the notorious razor and razor-blade
    model popularized by Gillette, now part of Proctor & Gamble.
    Indeed, at times, Lexmark and others in the industry have sold their
    printers for a loss to ensure consumers purchase their own cartridges
    that reap huge profit margins. But lately, outside firms such as
    drugstore chain Walgreen  have begun to offer much cheaper ways to
    refill existing cartridges.Sounds like a tough industry, but it still
    has an estimated $85 billion market size and is expected to grow as
    consumers increasingly work from home or print their own digital
    photos. So, what is Lexmark doing to fend off competition and
    capitalize on these trends? For starters, it’s focusing on reducing
    costs and the overall cost structure of its operations. It has also
    increased R&D development and identified color printing as an area
    to focus on, as well as multifunctional, or all-in-one, devices capable
    of printing, copying, and faxing documents. Plus, there’s the move to
    laser jets.Fortunately, Lexmark has a conservative management team with
    a solid reputation for generating high levels of cash flow.
    Second-quarter results released Tuesday demonstrated that things are
    indeed tough currently as restructuring expenses are taking a big bite
    out of operating earnings, though on a per-share basis, they actually
    increased as management is buying back quite a bit of stock. Overall
    sales fell about 4%, but cash flow generation appeared to be decent.The
    stock fell Tuesday as third-quarter guidance was below what analysts
    were originally projecting. The shares have recovered a bit since then
    but are still way below the highs of $90 reached earlier in 2005 before
    industry conditions became grim.I’m currently relying on management’s
    track record of dealing with industry turmoil in the past, but if
    things don’t turn around relatively soon, I may have to take Legendary
    Investor John Neff’s advice and “fess up, get out, and move on” to a
    better investment idea. I’m not even sure he would find Lexmark’s P/E
    ratio low enough to warrant investment, but there is a chance Lexmark
    could eventually prevail from current weakness to profitably grow
    again.