HP:TO GET AGGRESSIVE ON INKJET PRICING

[Anonymous]

HP
vows to get aggressive on printer pricing

 Feb.,
2005

SAN FRANCISCO/NEW
YORK – Hewlett-Packard Co. has fired the first salvo in what may turn out to be
a price war over consumer inkjet printers, a move made easier by last week’s
ouster of Chief Executive Carly Fiorina, analysts said Thursday.

“We are not
satisfied with our consumer hardware performance in the first quarter, and we
will take aggressive action to correct this in the coming quarter,” said Vyomesh
Joshi, who runs both HP’s printer and PC businesses on a conference call with
analysts Wednesday.

The No. 2 computer
maker and No. 1 printer maker late Wednesday posted a rise in quarterly profit
of less than 1 percent, helped by a 10 percent revenue gain.

But profit margins
narrowed in its imaging and printing business, the source of two-thirds of HP’s
operating profit, amid strong pricing pressure from rivals including Dell Inc.
and Lexmark International Inc.

Analysts said HP is
likely to focus its considerable resources on sales of printers that also scan,
fax and copy — called all-in-ones — a segment in which Lexmark has done well
in recent years.

“The news is bad
for Lexmark,” said analyst Shannon Cross of Cross Research. “There has been
growth at the sub-$100 level and HP has started putting products out there, but
there is the need to take prices down to compete more effectively.”

As a result of a 13
percent decline in HP’s consumer printer hardware revenue, versus a 16 percent
rise by Lexmark in its most recent quarter, HP may also give additional
incentives to retailers, offer rebates or boost the number of HP representatives
roaming stores to woo consumers.

Shares of Lexmark
fell $3.05, or about 3.7 percent, to $79.00 in late afternoon trade in the New
York Stock Exchange. HP shares slipped 13 cents to $20.93, and Dell eased 6
cents to $40.54 on the Nasdaq.

Analysts said it’s
too soon to tell whether HP’s move will be countered by Lexmark and by Dell,
which sells Lexmark inkjet printers under the Dell brand. Pricing action could
also come from other players including Epson or Canon, which have said they
intend to take U.S. share in photo printers.

“HP is going to go
out to make more of a statement, just to get it into customers’ minds that Dell
is not the ultimate low-price selection — ‘come to us and see what we can do
for you,”‘ said Jennifer Thorwart, an analyst at research firm IDC.

The increasing
availability of recycled printer cartridges could also further hamper margins at
both HP and Lexmark, but analysts said the devices don’t yet pose a major
threat.

HP’s decision to be
even more aggressive with rivals comes only a week after the departure of
Fiorina, who analysts say was fiercely protective of the printer unit and was
not a fan of toying with prices and the likelihood of thinner
margins.

“(Fiorina) is not
there and they have a little more flexibility in how they approach competition
in the market,” Cross said. “There was always the thought that she was milking
the printer business for profits to support the rest of their
business.”

CSFB analyst Andrew
McCullough called the looming printer price war a chink in HP’s armor, and he
reiterated his neutral rating on the stock.

“Given our
continued belief that HP remains competitively challenged between Dell and
IBM…some sort of structural change will be required to unlock incremental
shareholder value,” he said in a client note.

In the
just-reported quarter, HP’s Imaging and Printing Group accounted for 67 percent,
or $932 million, of HP’s total operating profit of $1.39 billion.

“Management’s
mandate to regain share in IPG places undue pressure on HP’s Enterprise and PC
businesses to close the presumed profitability gap,” McCullough said.

Analysts and
investors have called for HP either to spin off its lucrative printing business,
leaving behind its PC, computer server, computer services and software
businesses, or sell its PC business, or some other
combination

[Author]

February 23, 2005 at 9:54 AM