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 user 2007-07-27 at 2:28:00 pm Views: 38
  • #18470

    Lexmark’s Inkjet Printer Quandary
    Lexmark International Inc. is in a quandary.
    At a time when sales of inkjet supplies are slowing and Lexmark is aggressively pricing its inkjet printers, the company is facing a full-court press from the likes of Hewlett-Packard Co. on the corporate side.With expectations that inkjet printer cartridge sales will keep falling, Lexington, Ky.-based Lexmark may be forced to make changes to protect its share of the business market and improve performance with consumers. That could include growing its sales force, overhauling marketing or exiting the inkjet printer market altogether. It may also require coming out with more multifunction products at the same time cash flow is slowing.”Lexmark needs to go after the enterprise market in a more deliberate way,” said Don Dixon, an analyst at Gartner. “They need to broaden their product portfolio to more multifunction printers and hire a bunch more sales people.”

    Officials at Lexmark declined to comment, citing a so-called quiet period ahead of earnings.
    Lexmark’s woes in the inkjet printer market stem partially from an industrywide slowdown. For years, printer makers like Lexmark would make money not from the printers but from the after-market sales of supplies such as ink. While selling ink had been a lucrative business, third-party vendors have stepped in and undercut the market. Both Rochester, N.Y.-based Eastman Kodak Co. and Palo Alto, Calif.-based H-P responded by introducing new technology that further pressures prices.The dropoff in inkjet supplies sales and aggressive inkjet printer pricing prompted Lexmark to warn investors last week ahead of the announcement of its second quarter earnings results.

    Even though Lexmark has seen a 30 percent year-over-year increase in branded inkjet printer sales, it hasn’t improved gross margins.”The key fundamental question/risk remains whether Lexmark is trapped in the low end of the inkjet market and how much it will cost (in terms of discounting and promotions) to ensure appropriate unit growth,” Sanford Bernstein analyst Toni Sacconaghi said in a recent research report.What’s more, some analysts say Lexmark is losing shelf space at retailers to H-P and Kodak, which have been quick to churn out new products. Analysts hope Lexmark will announce products for consumers and business customers ahead of the fall shopping period, with a greater focus on printers than can scan, copy and print.Gartner’s Dixon said Lexmark’s product line is not as broad as H-P’s.On the corporate side, where Lexmark enjoys brisk business, selling largely to the health-care and financial markets, the company is finding itself in defensive mode against H-P, which hired away Bruce Dahlgren, a Lexmark marketing executive who analysts said left a big void at Lexmark.Lexmark shares traded Friday at $45.64, significantly off the 52-week high of $74.68, reached last December. Although the shares took a hit on the warning earlier this month, the stock has been able to trade a bit higher than its 52-week low of $43.50, set July 9, thanks in part to leveraged buyout talk and a valuation that’s much lower than some peers.