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 user 2011-02-03 at 9:05:51 am Views: 39
  • #24223



    Kodak’s Fiscal 2010 Results Disappoint, but Consumer Inkjet Grows
    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
    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
    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.

    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
    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.

    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.