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 user 2011-02-03 at 9:03:57 am Views: 39
  • #23978



    Kodak’s Fiscal 2010 Results Disappoint, but Consumer Inkjet Grows
    Today, Kodak reported its financial results for fiscal 2010. While there were bright spots for the firm, to be sure, Kodak’s overall performance was disappointing, and the company’s share price has fallen to about $3.75 per share as of mid-day, down 17 percent from today’s opening price of $4.24 per share. News that put the market in sell mode included a steep 25 percent decline in fourth-quarter revenue and a stunning 95 percent decline in fourth-quarter profit. Even the firm’s digital businesses revenue sank to $1.488 billion in the fourth quarter, down 25 percent from the year-ago period. For the full fiscal year, sales were $7.187 billion, down 6 percent from fiscal 2009. What compounds these gloomy results is that 2009 was hardly a banner year for the imaging industry, so, in some respects, Kodak’s performance seems worse than at the height of the recession.

    The firm says its decline in digital revenue in the fourth quarter “largely reflects the timing of intellectual property licensing revenues.” Compounding the intellectual property (IP) licensing problems for Kodak is that the firm just received some potentially bad news for this area of its business. On January 24, the U.S. International Trade Commission found that that Kodak’s patent claim is invalid and not infringed in a complaint that the firm brought against Apple and Research in Motion (RIM) over an image-preview feature used in phones. In a press release, Kodak expressed confidence that the ITC will ultimately rule that the patent claim at issue is valid and infringed by Apple and RIM. Still, the news of the ITC’s initial determination comes at an inopportune time for Kodak.

    Kodak does point to some improvements in its results, including a full-year 2010 loss from continuing operations of $58 million, or 22 cents per share—a $174 million improvement as compared with a loss of $232 million, or 87 cents per share in the year-ago period. Kodak held $1.6 billion in cash and cash equivalents as of December 31, 2010, up from $1.4 billion on September 30, 2010. The firm’s full-year revenue from its digital businesses grew by 1 percent, and Kodak’s digital businesses delivered $301 million in earnings from operations for the year, a $308 million improvement from 2009. Full-year 2010 consumer inkjet printer and ink revenue grew by 35 percent.

    Kodak’s move into the consumer inkjet business has proven to be a smart one. The business is delivering revenue growth. What is less clear is if and when the group will deliver much needed profits to the company as a whole. Kodak’s latest results announcements says its consumer inkjet business, “doubled gross profit dollars from ink during 2010.” While it is excellent news that the firm has grown its profit from ink, the firm needs to see much larger increases in this and other areas of its business in order to offset the declines in its traditional businesses and in its Graphic Communications group

    Xerox’s Profit Declines in Fourth Quarter
    On January 26, Xerox released its financial results for the fourth quarter of 2010. Much of the news from the printer and copier maker, which has expanded into the services business through its acquisition of Affiliated Computer Services (ACS), was good. Still, a fourth-quarter profit decline, a first-quarter profit estimate that was at the low end of Wall Street estimates, and the news that CFO Lawrence Zimmerman would retire sent the firm’s share price down more than 7 percent or 87 cents to close at $10.53. Mr. Zimmerman will be replaced by Luca Maestri, currently CFO of Nokia Siemens Networks.

    There was much positive news from the firm. For the full year, Xerox brought in $21.633 billion in revenue, up 43 percent from 15.179 billion in 2009. Xerox saw a 42 percent increase in revenue to $5.98 billion in the fourth quarter, up from $4.22 billion in the year-ago period, before the ACS acquisition. According to a presentation accompanying the results announcement, the firm derived 45 percent of its revenue in the fourth quarter from its services business. Revenue from technology, representing the sale of document systems, supplies, technical service, and financing of products, was flat or up 1 percent in constant currency. Total installations of Xerox equipment increased 6 percent. The firm saw particularly strong growth in installations of color and low-end monochrome devices. Installations of A4 monochrome MFPs were up 25 percent for the quarter and 46 percent for the fiscal year. Installations of A4 color MFPs were up 27 percent in the fourth quarter and 39 percent for the tear. Installations of mid-range A4 color MFPs increased 22 percent for the quarter and 27 percent for the year, and high-end color device saw an increase in installations of 19 percent in Q4 and 26 percent for the year.

    On the down side, Xerox’s fourth-quarter net income fell to $171 million, or 12 cents a share, down from $180 million, or 20 cents a share, one year ago. Excluding costs for restructuring charges and acquisitions, the company’s adjusted EPS for the quarter was 29 cents a share. Also disappointing for those who follow the supplies industry was supplies revenue was flat year-over-year at constant currency.Xerox forecast first-quarter 2011 earnings of 20 to 22 cents per share, on the low side of analyst expectations. For the full fiscal 2011, Xerox projects earnings of $1.05 to $1.10 a share, while analysts had estimated approximately $1.10 per share for the full year.

    Despite the market’s reaction to Xerox’s earning release, the company’s results show how many of Xerox’s strategies, including the shift to color hardware and entering the services business, have transformed the company for the better. However, as more companies look to follow this model and transform themselves from hardware vendors into services providers (see News Briefing, “Ricoh Will Invest $300 Million to Grow Services Business”), we suspect that more companies will see a flattening in supplies revenue, much like Xerox has. Indeed, according to a recent InfoTrends report (see News Briefing, “InfoTrends Study Reports Managed Print Services Reduces the Market for Supplies”),  MPS in the office environment will reduce the consumption of marking and paper supplies in the United States by $2.6 billion in 2014.

    Canon Reports Q4 Profit Declines but Strong Full-Year Results and Outlook
    On January 27, Canon reported financial results for the fourth-quarter and fiscal 2010, ended December 31. The firm complained that the strong appreciation of the yen dragged down profits. (Approximately 80 percent of Canon’s revenue comes from outside of Japan.) Canon indicated that the average value of the yen during the year was ¥87.40 against the U.S. dollar, a year-on-year appreciation of approximately ¥6, and ¥114.97 against the euro, a year-on-year appreciation of approximately ¥15. Indeed in the fourth quarter, Canon reported a net profit of ¥54 billion ($666 million), down 12.4 percent from the fourth quarter of 2009.

    Despite that blemish on its results, the firm’s other news was good. Fourth-quarter sales grew to ¥1.07 trillion ($13.2 billion), up 11.9 percent year-over-year. For the full fiscal year, Canon reported sales of ¥3.7 trillion ($45.8 billion), up 15.5 percent from fiscal 2009, and net profit of ¥246.6 billion ($3.0 billion), up 87.3 percent from 2009.For fiscal 2011, Canon expects full-year consolidated net sales to grow 10.6 percent to  ¥4.1 trillion ($50.6 billion) and net income to grow 25.7 percent to ¥310.0 billion ($3.8 billion).

    In its office equipment business, Canon saw a recovery in demand for MFPs, with sales volume for both color and monochrome models increasing in the fourth quarter. The company also saw a substantial increase in sales volume in its laser printer business, which had sluggish sales in 2009. In the firm’s consumer business, Canon said that demand for inkjet printers continued on a track to recovery. Sales of inkjet devices were particularly strong in Asia.

    In morning trading on the New York Stock Exchange, Canon’s share price was up slightly, a little over 1 percent.*U.S. dollar amounts are translated from yen at the rate of JPY 81= U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of December 30, 2010.

    Epson Reports Disappointing Q3 on Weak Inkjet Sales
    On January 28, Seiko Epson reported its financial results for the third quarter of fiscal 2010* and its consolidated results for the first nine months of the year. While there were some positives in the firm’s report, particularly in its performance for the first nine months of the year, Epson’s third-quarter performance was disappointing, and the firm’s mainstay inkjet business was weak.

    First, the good news. Cumulative net sales for the first three quarters (nine months) of the year were ¥747.3 billion ($9.17 billion*), up 1.2 percent over the same period last year. The firm attributed the increase to increased unit shipments of LCD projectors, crystal devices, semiconductor products, IC handlers, and business inkjet printers. Net income for the first nine months of the year was ¥17.0 billion ($208.7 million), up from a net loss of ¥4.7 billion in the year-ago period.

    Now, the bad news. By almost every metric, Epson’s third-quarter results were not good. For the third-quarter, Epson reported net sales of ¥268.0 billion ($3.29 billion), down 7.1 percent compared with the third quarter of 2009. In the quarter, the firm’s operating income fell 38.9 percent to ¥19.2 billion ($236.0 million), and net income declined a stunning 61.0 percent to ¥9.5 billion ($117.1 million.) One factor contributing to the net income decline is that Epson reported extraordinary losses for the quarter (see notice), including business structure improvement expenses of ¥5.343 billion ($65.6 million) related to the termination of its small- and medium-sized display business.

    Like Canon, Epson was impacted by the yen’s appreciation. The firm said during the quarter under review the average exchange rates for the yen against the U.S. dollar was ¥82.64, an 8 percent appreciation from one year ago, and the exchange rate for the yen against the euro was ¥112.23, which marks a 15 percent appreciation compared with the same period last year.

    But, more alarmingly, Epson also reported weakness in its core inkjet business. Third-quarter net sales in the information-related equipment segment were ¥199.7 billion ($2.45 billion), down 6.3 percent year-over-year. This area of the firm’s business includes the firm’s printer and supplies businesses, scanners, LCD projectors, LCD monitors, label writers, and PCs.

    Epson said that demand for consumer inkjet printers and consumables was weak, with unit shipments flat year-over-year. The firm said consumer inkjet sales were flat in Europe and contracted in North America, and shipments in this segment were “hurt by fierce competition in Asia.” In more positive news, Epson saw increased business inkjet printer demand in China and other parts of Asia, and unit shipments of large-format printers grew, but unit shipments of consumables for these devices declined and average selling prices rose.