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 user 2004-03-22 at 10:11:00 am Views: 51
  • #6661

    Printing a Record of Growth

    With consumers snapping up color-photo printers and multifunction devices, outfits like HP and Lexmark could surprise investors

    At first glance, it might seem a bit strange that Evergreen Technology Fund manager John Rutledge has poured nearly $1 million into Hewlett-Packard ( face=Arial HPQ ) shares not for its booming PC business nor its servers and storage equipment — but for its printers. Rutledge likes that business’ prospects so much that he also invested an additional 4% of the $18 million he manages into printer maker Lexmark ( face=Arial LXK ).

    At a time when tech investors snap up shares of PC makers (figuring corporate users will be upgrading their old machines) or networking-gear suppliers (considering the proliferation of wireless networks), the printer sector gets no respect. Investors have largely overlooked the market. Heavyweight HP receives 31% of its revenue from imaging and printing devices. Yet, although it has launched a splashy marketing campaign, its stock is trading at $24 — or just 15 times 2005 earnings vs. p-e’s of 20 to 30 times 2005 earnings for many tech outfits.

    Not all segments of the printer world are so active. The corporate market, where Xerox ( XRX ) is strongest in many areas, seems stagnant today as businesses continue to be thrifty and avoid purchasing new gear until absolutely necessary. Although shares of Xerox, the leader in many imaging and printing devices, have hit a three-year high of $15.31 in January, the outfit is growing primarily through gains in categories such as MFDs — rather than through market growth, says Jim Firestone, Xerox’ chief strategist. “The market is strengthening, but there are no indications of robust corporate replacements,” he says.

    Xerox got out of the consumer printer business — the real growth engine in this recovery — when it restructured in the face of financial problems back in the summer of 2001. But it might come to regret that decision, says Grant. And though Xerox denies it, Grant believes it should start reselling consumer inkjet printers from partners — or create its own products.

    SEAMLESS CONNECTIONS.  Still, the smooth ride should last through this year as the printer giants improve their products and technologies. Already, most manufacturers offer devices that read memory cards from digital cameras, feature LCD (liquid crystal display) screens to offer photo previews, and provide spec sheets. Many, like HP, also sell digital cameras that work seamlessly with their printers.

    Other positive trends could come into play longer-term. In the next few years, many manufacturers are set to adopt a standard called PictBridge, which will allow any camera to communicate with any manufacturer’s printer. That could further boost sales, Haueter says.

    The producers are also working on making it easier to print pictures from cell phones. HP has announced that it’s developing a printer with Bluetooth wireless technology to transfer and print photos from Nokia ( NOK ) phones. And, on Feb. 12, HP, Canon, and Epson announced a group, dubbed the Mobile Printing & Imaging Consortium, to develop standards for printing snapshots from cell phones.

    The bottom line: Printer sales should remain red hot. And that means manufacturers could be printing money for some time to come.