Lexmark in Midst of Major Change

Date: Tuesday December 4, 2012 08:44:25 am

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Lexmark in Midst of Major Change 
LAYOFFS, ACQUISITIONS INDICATE SHIFTING FOCUS
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 Lexmark International’s decision earlier this year to shutter its inkjet printer operations and lay off 550 Lexington workers might have surprised some, but it was mounting evidence of a business in transition.
 For the past several years, the Lexington-based printer maker has been in the midst of changing strategies and made five key acquisitions since 2010 designed to take the company further from its roots only in printers and more into computer software and services.
 It’s part of a trend of printer companies working to make themselves invaluable to businesses by getting more involved in the flow of information, regardless of whether it ever shows up on a printed page.
 For some of Lexington’s operations that have been rooted more in Lexmark’s past, it meant a painful contraction, but the company’s leaders say it’s a necessity to evolve and stay strong.
 “Difficult decisions need to be made,” said executive vice president Marty Canning. “So we made the decision to walk away from the ink-jet technology.”
 A look back
 Change has been a constant at Lexmark since it was spun off from IBM in 1991.
 CEO Paul Rooke, who has worked for the company since it was a division of “Big Blue ,” recalled how the majority of Lexmark’s first product line was dot-matrix printers.
 “The technologies are going to ebb and flow,” he said, noting how the company expanded into a broadened line of laser printers and then inkjet printers aimed at home consumers.
 The company had success with inkjet for an extended period as it created all-in-one home printers that offered scanning, copying and faxing functions. Demand soared for its cartridges, so much so that it expanded manufacturing in Lexington and built plants in foreign countries.
 The company hasn’t manufactured any products in Lexington since 2004. Instead, operations here have focused on continued research and development, as well as corporate work like marketing and sales.
 In the mid- to late 2000s, the company’s inkjet operations began a steady decline as consumers weren’t buying enough ink to meet profit expectations. Like the business model for razors and blades, inkjet printers were often sold at a loss with the expectation that future ink sales would provide enough profits.
 A few years ago, the company refocused its inkjet printing technology for businesses, which have long been at the core of its laser printer offerings. But executives decided earlier this year that the sales potential in business inkjets wasn’t enough to justify the costs.
 “Laser was clearly a better play for us in serving customers,” Canning said.
 Focused on businesses
 While business-focused inkjets faltered, the company’s other focuses on business customers grew.
 The company has long tailored its laser printers to businesses. It helped pharmacies print on pill bottles. Its products helped retailers print the tags you see on product shelves.
 Over the past decade, the company has focused on managed print services. The concept is exactly like it sounds: Lexmark manages companies’ printing by choosing the most efficient printer setups and shipping more toner as needed.
 Among its customers is American Signature Furniture, which operates more than 125 furniture stores under names such as Value City Furniture.
 “Lexmark helped us bring color printing to our stores,” said Chuck Cook, manager of technical services. “We print most of our signage … in the store now at quite a savings versus going to FedEx or Kinko’s to do that.
 “That’s been a huge help to us.”
 The stores also use printers with scanning functions to handle “anything at the store level that needs to come back to the corporate headquarters as opposed to faxing or mail ing back,” he said.
Adding software
 Over the past few years, Lexmark’s acquisitions of software companies has led it even further into its customers’ business operations.
 The moves began in June 2010, when Lexmark acquired Kansas-based Perceptive Software, which specializes in what is called enterprise content management software.
 Perceptive bills itself as providing “content in context.” It takes information in any number of ways — a scanned document, perhaps, or a typed-in form — and makes it accessible in a company’s workflow.
 Take, for example, AEG, a company that manages stadiums and arenas, as well as stages concerts and live events. Among the venues it manages is the KFC Yum Center in Louisville.
 The company processes roughly 250,000 invoices annually, said Brandon Weiss, senior director of financial systems and process improvement. Before using Perceptive Software, AEG employees would mail paper invoices to various locations for the necessary approvals.
 “We were spending a lot of time and money mailing invoices,” Weiss said, noting it took 42 to 45 days on average to pay them. “The biggest issue in addition to taking a long time was we didn’t even know if an invoice was in house.
 “It was a mess.”
 Not only could the company not take advantage of early-payment discounts, it also found itself paying late fees.
 Now the Perceptive Software system makes scanned copies of the invoices available anywhere.
 “We’re down to 14 days now,” he said. “It’s a big difference. Not only does it reduce our payment times, but our vendors are much happier.”
Additional acquisitions
 Lexmark continued to bolster its software offerings in 2011 with the purchase of Netherlands-based Pallas Athena. Earlier this year, it announced the acquisition of three other firms: Brainware, ISYS Search Software and Nolij.
 The four companies, which are continuing to work from their existing locations, have been folded into Perceptive Software, said Scott Coons, Perceptive’s CEO. Perceptive has kept its headquarters in Shawnee, Kan., a suburb of Kansas City, Mo., and recently broke ground on new offices there.
 Canning said the company has carefully chosen acquisitions that can benefit from Lexmark’s existing operations.
 For instance, while Lex-mark has a host of customers among large companies, those weren’t Perceptive Software’s traditional strong point. Perceptive, meanwhile, was popular among universities, but Lexmark was stronger with grade schools.
 The acquisitions come as many companies are beginning to think more about their environmental footprint with some starting to print less. As the entire printer industry is maturing in terms of pages printed, companies including giant rivals HP and Xerox, both of which have a presence in Lexington, have turned increasingly to software to boost revenue and profits. It allows them to strengthen their hold on customers, who are finding the companies helpful in discovering efficiencies through what the industry refers to as “solutions.”
 Canning equates the software acquisitions to building a bridge.
 “The software and solutions is the future,” he said. “It puts one leg squarely in the imaging marketplace, which is a huge marketplace still, and another leg in the high-growth services and solutions marketplace.
 “What that means to our customers is we can serve them regardless of whether they’re … in a high-page-usage industry or low-page-usage industry. We can save them money through managed print services or we can help them automate their workflows and move it to a digital state.”
 Industry observers have historically said the biggest obstacle for Lexmark is its small size relative to its competitors.
 The loss of inkjet magnifies that, said analyst Shan-non Cross of Cross Research.
 “It clearly makes Lexmark a smaller player, but hopefully it will make them a very focused company,” she said. “In a way it doesn’t change that much because Lexmark wasn’t focused that much on the inkjet side of the business anyway.
 “But it’s tough because they’ll have to cover earnings that they’re losing on the inkjet side with profit from a more maturing color laser business.”
 Cross said her research shows companies are printing less and less. Lexmark executives acknowledge the decline but say they believe it’s temporary.
 “To grow, Lexmark will have to take (market) share, and that’s difficult when you’re fighting against much bigger players,” Cross said.
Lexington going forward
 So where does that leave Lexington operations, which have focused much of the company’s research and development on printer hardware?
 The company recently launched 42 new laser printers that Rooke, Lexmark’s CEO, said shows the importance of the Lexington headquarters.
 “Those all came out of here,” he said. “Obviously we worked with partners, but the core technology came out of Lexington.”
 And the company employs numerous software engineers here who work on printer features that help save time and money for customers. Among the most popular of those is one that doesn’t allow documents to be printed until workers wave identification badges to signify they’re actually at the printer. Say goodbye to printouts that never get picked up.
 Coons said Perceptive Software has “recently taken advantage of a lot of the great software skills here and assigned them to Perceptive-based projects.”
 Rooke emphasized that change is inevitable for the company.
 “As we move into the solutions space, it’s quite exciting, but it won’t stay constant, either,” he said. “The things they will evolve into five, 10 or 15 years down the road will be quite different than what we have even today.
 “For any technology company to survive, you have to stay flexible and listen well. If you get tied to your past, that can be a real problem for your future.”
 Lexington, he said, represents both the past and the future.
 “We’re making some significant investments in the Lexington site here, so we’re not going anywhere,” he said. “We’re trying to update it to our current needs and make it a more attractive place to work.
 “At the same time, we’re making investments elsewhere in Kansas and other sites.”
<hr />
Lexmark’s software acquisitions
 Lexmark has acquired five software companies since 2010. To describe what each specializes in doing, the company offered the following examples of how the software could be utilized by a health care provider.
Perceptive Software: “Everybody’s probably experienced the situation where a doctor refers you somewhere else for a diagnostic test,” said Ken Woodruff, Lexmark’s health care industry director. “It’s like you’re starting over. You have to give them your ID card, insurance card, contact information, medical history, etc.”
 Perceptive’s enterprise content management software allows organizations to capture documents once and then “instantly pull them up” elsewhere, he said. So if the diagnostic provider is part of the same organization, the software lets the documents bridge individual systems to be available elsewhere.
Pallas Athena: Consider the process of how health care providers deal with patient finances.
 “You’ve got many steps in the process and many individuals involved taking care of various parts,” Woodruff said.
 To become more efficient, companies today might manually draw flowcharts showing each point in the workflow. Pallas Athena’s process mining software examines the process electronically and “automatically offers a pictorial view of how that process is working,” he said.
 “You can see each step in the process and where the bottlenecks occur,” he said.
 Also, consider emergency rooms, he said. Other software from Pallas Athena would let hospitals understand wait times and how to reduce them.
 Brainware: The Brainware software, which is now called Perceptive Intelligent Capture, automates what might have been a manual paper-intensive task. Consider the accounts payable department of a health care provider.
 “A typical hospital might be dealing with thousands of bills every month, all coming from many different suppliers,” Woodruff said. “What Perceptive Intelligent Capture is really good at is … automating the process of scanning in invoices and automatically entering data into the system they use to pay the bills.”
 With that work automated, organizations can take advantage of early-payment discounts and avoid late fees.
 ISYS Search: As doctors review your medical history, it’s likely your records are stored in many different systems. And what if your doctor wants to look up the latest medical research on the best treatment for your condition?
 “You may have one system that has all the lab results performed,” Woodruff said. “Another might contain other family history, and another may contain medical research articles.
 “ISYS software, which is now called Perceptive Search, automatically goes out and pulls information that’s relevant from all these different systems and presents these to a user so they can very quickly see a complete picture.”
 In the case of a lab report, it could show you’ve already had a certain test so it’s time to try something different.
Nolij: Nolij’s software is exclusive to higher education, so a health care example isn’t available, Woodruff says. But among the features of its software is automatically matching data and uploading it to student information systems to eliminate data entry. 
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<a href=”http://www.ibtimes.com/press-release/20121203/lexmark-quarterly-business-roundup-915567″>http://www.ibtimes.com/press-release/20121203/lexmark-quarterly-business-roundup-915567</a> 
Lexmark Quarterly Business Roundup
Lexmark’s third quarter financial results were highlighted by solid free cash flow generation and ongoing growth in Perceptive Software and managed print services (MPS). Lexmark offers an attractive dividend yield as it continues solid execution of the company’s capital allocation framework.
<ul type=”disc”>
<li>Lexmark announced financial results for the third quarter of 2012. To access the earnings news release, <a rel=”nofollow” target=”_blank” href=”http://newsroom.lexmark.com/2012-10-23-Lexmark-reports-third-quarter-2012-results”>click here</a>, and for the earnings presentation information, <a rel=”nofollow” target=”_blank” href=”http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTU4MTU5fENoaWxkSUQ9LTF8VHlwZT0z&t=1″>click here</a>. </li>
<li><a rel=”nofollow” target=”_blank” href=”http://newsroom.lexmark.com/2012-10-25-Lexmark-declares-quarterly-dividend”>Lexmark’s Board of Directors declared a quarterly cash dividend</a> of $0.30 per share of Lexmark Class A Common Stock. The dividend is payable on Dec. 14, 2012, to shareholders of record as of the close of business on Nov. 30, 2012. </li>
</ul>
To view the multimedia assets associated with this release, please click: <a rel=”nofollow” target=”_blank” href=”http://www.multivu.com/mnr/48245-lexmark-perceptive-software-quarterly-business-roundup”>http://www.multivu.com/mnr/48245-lexmark-perceptive-software-quarterly-business-roundup</a>
Other Corporate News
In addition to Lexmark pledging its corporate support to further science, technology, engineering and math (STEM) education in the Commonwealth, Lexmark employees volunteered their time and talent throughout the quarter to important corporate social responsibility causes.
<ul type=”disc”>
<li><a rel=”nofollow” target=”_blank” href=”http://www.nature.org/ourinitiatives/regions/northamerica/unitedstates/kentucky/newsroom/tnc-ryder-cup-partnership.xml”>Lexmark teamed with The Nature Conservancy and the Forest Preserve District of Cook County to support the PGA of America with a tree-planting event</a>. Volunteers from these organizations planted a diverse selection of 50 native trees and shrubs in Busse Woods Forest Preserve in an effort to offset the PGA of America’s paper consumption throughout the five-day 39th Ryder Cup golf tournament in September. </li>
<li><a rel=”nofollow” target=”_blank” href=”http://uknow.uky.edu/content/college-education-battelle-launch-kentucky-stemx-network”>Lexmark has provided support to Kentucky’s involvement in the STEMx Network</a>, a national network dedicated to transforming STEM education in the United States and providing K-12 students with the necessary learning to productively join the future STEM workforce. Kentucky STEMx is working to connect stakeholders from across K-12 and higher education, business, government, philanthropy and the community to impact STEM education and workforce development in Kentucky. </li>
<li>Several Lexmark employees shared their personal stories in a new video to support the <a rel=”nofollow” target=”_blank” href=”http://www.itgetsbetter.org/”>It Gets Better Project</a>, which was created in 2010 in the wake of several teen suicides related to bullying. The Gay-Straight Alliance of Lexmark Employees Diversity Network Group led the creation of <a rel=”nofollow” target=”_blank” href=”https://www.youtube.com/watch?v=dCOfTRgiqvs”>Lexmark’s It Gets Better video</a> and premiered it during a celebration at the company’s Lexington, Ky., headquarters on National Coming Out Day. </li>
</ul>
Customer News and Company Recognition
Lexmark has again garnered notable distinctions from Gartner, Inc. by earning Leader positions in two Magic Quadrants, attesting to the company’s knowledge and expertise in the MPS and printer/MFP arenas.
Lexmark and Perceptive Software also announced important contract wins in the quarter for printing technology and software, validating that Lexmark’s value proposition is resonating with customers around the globe.
<ul type=”disc”>
<li><a rel=”nofollow” target=”_blank” href=”http://www.multivu.com/mnr/48243-lexmark-managed-print-services-gartner-mps-magic-quadrant”>Lexmark announced it has been positioned</a> by leading industry analyst firm Gartner, Inc. in the Leaders quadrant of its 2012 “Magic Quadrant: Managed Print Services Worldwide” report1. </li>
<li><a rel=”nofollow” target=”_blank” href=”http://www.multivu.com/mnr/48242-lexmark-leaders-quadrant-2012-mfp-printer-report”>Lexmark has also been positioned</a> by leading industry analyst firm Gartner, Inc. in the Leaders quadrant of its 2012 MFP and Printer Magic Quadrant2. </li>
<li><a rel=”nofollow” target=”_blank” href=”http://newsroom.lexmark.com/2012-10-04-Lexmark-awarded-worldwide-printing-solution-services-agreement-from-Statoil”>Lexmark was awarded a five-year printing solution services agreement from Statoil</a>, a leading energy company within the oil and gas production industry. The contract, valued at approximately $20 million for the initial contract period, makes Lexmark the sole printing solution services provider for Statoil operations worldwide. </li>
<li><a rel=”nofollow” target=”_blank” href=”http://www.perceptivesoftware.com/news/siemens-chooses-perceptive-intelligent-capture-for-accounts-payable-automation-in-global-shared-services”>Siemens, a global powerhouse in electronics and electrical engineering, has selected Perceptive Intelligent Capture</a>, powered by Brainware, for accounts payable automation within the company’s European Shared Services Center in Germany. The customer will implement Perceptive Software’s intelligent data capture platform for the processing of more than 1.5 million invoices annually. </li>
<li><a rel=”nofollow” target=”_blank” href=”http://www.perceptivesoftware.com/news/ing-group-implements-brainware-for-invoice-processing-automation”>Perceptive Software recently announced that ING Group, one of the world’s largest banks with more than $1.6 trillion in assets, has implemented Perceptive Intelligent Capture</a>, powered by Brainware, for the efficient capture and validation of header and line-item data from paper-based documents at the financial institution’s headquarters in Amsterdam, The Netherlands. </li>
<li><a rel=”nofollow” target=”_blank” href=”http://www.perceptivesoftware.com/news/altru-health-system-chooses-perceptive-software-content-and-process-management”>Altru Health System has selected Perceptive Software content and process management solutions</a> to complement its Epic patient registration, health information management and patient finance processes across the entire organization, helping it capture, store, manage and access data within the patient record. </li>
<li>The Human Rights Campaign Foundation has recognized Lexmark’s commitment to equality in the workplace. The foundation’s <a rel=”nofollow” target=”_blank” href=”http://www.hrc.org/corporate-equality-index/#.UKpb1OOe9LO”>2013 Corporate Equality Index</a> ranks Lexmark among the top companies with a perfect score of 100. </li>
<li>Lexmark was recognized for the quality and depth of its patent portfolio by Ocean Tomo, LLC, the leading intellectual capital merchant bank™ firm, through inclusion in the <a rel=”nofollow” target=”_blank” href=”http://www.oceantomo.com/node/404″>Ocean Tomo 300® Patent Index</a>, a diversified listing of the 300 companies that own the most valuable patent portfolios relative to the book value of the company. Lexmark has contributed to the performance of the Ocean Tomo 300® Patent Index in all seven years the index has existed. </li>
</ul>
Products, Software, Solutions and Services News
Lexmark continues to leverage its investment in the Perceptive Software portfolio in combination with smart multifunction products (MFPs) to reduce the complexities of manual processes and heighten performance for its customers. The quarter was highlighted by an array of new product and solution introductions from both Lexmark and Perceptive Software, including the first industry recognition for Lexmark’s new color laser printers and MFPs. 
<ul type=”disc”>
<li>In one of the most significant product launches in the company’s history, <a rel=”nofollow” target=”_blank” href=”http://www.multivu.com/mnr/48241-lexmark-smart-mfps-multifunction-printers”>Lexmark introduced a wide breadth of new laser printers and MFPs</a> built on an enhanced technology platform that delivers productivity-enhancing solutions. </li>
<li><a rel=”nofollow” target=”_blank” href=”http://www.multivu.com/mnr/48244-lexmark-mitigates-security-risks-with-new-solution”>Lexmark announced Lexmark Secure Content Monitor</a>, a security solution that mitigates risk and protects companies and agencies from potential threats to confidential information, profits and productivity by enabling businesses to automatically track and audit sensitive information. </li>
<li><a rel=”nofollow” target=”_blank” href=”http://www.perceptivesoftware.com/news/perceptive-software-releases-its-perceptive-client-for-windows-8″>Perceptive Software released Perceptive Mobile for Windows</a>, available for Windows 8 and Windows RT, Microsoft Corp.’s new version of the Windows operating system. With Perceptive Mobile for Windows, users can participate in business processes, seamlessly view and interact with associated content, update a case, and make informed decisions from their Windows 8 device virtually anywhere. </li>
<li><a rel=”nofollow” target=”_blank” href=”http://www.perceptivesoftware.com/news/perceptive-software-launches-perceptive-eauthorize”>Perceptive Software has launched Perceptive eAuthorize</a>, powered by AssureSign, a leader in the electronic signature market. Perceptive eAuthorize allows any document to be electronically sent to any Perceptive Software user or third party in order to obtain a compliant electronic signature, followed by automatic uploading and storage of the signed document in Perceptive Software’s enterprise content management solution. </li>
<li>Coupled with <a rel=”nofollow” target=”_blank” href=”http://www.multivu.com/mnr/48241-lexmark-smart-mfps-multifunction-printers”>Lexmark’s new laser devices</a>, the company introduced <a rel=”nofollow” target=”_blank” href=”http://www1.lexmark.com/en_US/products/ink-toner/unison/”>Unison toner</a>, a re-architected print system utilizing an advanced toner formulation to deliver consistently outstanding image quality, long-life system reliability and environmentally-sound performance, all within an innovative, shake-free cartridge. </li>
<li>The <a rel=”nofollow” target=”_blank” href=”http://www1.lexmark.com/US/en/view/US-Printers%20&%20MultiFunction/Lexmark-CS510de/catId=cat170005-category&prodId=7580-product”>Lexmark CS310/410/510 Series</a> of color laser printers and <a rel=”nofollow” target=”_blank” href=”http://www1.lexmark.com/US/en/view/US-Printers%20&%20MultiFunction/Lexmark-CX510de/catId=cat170005-category&prodId=7777-product”>Lexmark CX310/410/510 Series</a> of color laser MFPs have been recognized by Better Buys for Business with a 2012 Editor’s Choice award in their color printer and color printer multifunctional categories. </li>
</ul>
Supporting Resources:
<ul type=”disc”>
<li><a rel=”nofollow” target=”_blank” href=”http://newsroom.lexmark.com/2012-10-23-Lexmark-reports-third-quarter-2012-results”>3Q12 Earnings News Release</a></li>
<li><a rel=”nofollow” target=”_blank” href=”http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTU4MTU5fENoaWxkSUQ9LTF8VHlwZT0z&t=1″>3Q12 Earnings Presentation</a></li>
<li><a rel=”nofollow” target=”_blank” href=”https://www.youtube.com/watch?v=fyehTccI4Zc”>Lexmark Smart MFPs Video</a></li>
<li><a rel=”nofollow” target=”_blank” href=”https://www.youtube.com/watch?v=j3aplo2-1hE”>Lexmark Unison Toner Video</a></li>
<li><a rel=”nofollow” target=”_blank” href=”https://www.youtube.com/watch?v=3ycQQSt6mX0″>Lexmark Secure Content Monitor Video</a></li>
</ul>
About Lexmark
Lexmark International, Inc. (NYSE: LXK) provides businesses of all sizes with a broad range of printing and imaging products, software, solutions and services that help customers to print less and save more. Perceptive Software, a Lexmark company, is a leading provider of process and content management software that helps organizations fuel greater operational efficiency. In 2011, Lexmark sold products in more than 170 countries and reported more than $4 billion in revenue.
To learn more about Lexmark, please visit <a rel=”nofollow” target=”_blank” href=”http://www1.lexmark.com/products/”>www.lexmark.com</a>. For more information on Perceptive Software, please visit <a rel=”nofollow” target=”_blank” href=”http://www.perceptivesoftware.com/”>www.perceptivesoftware.com</a>.
For more information on Lexmark, see the <a rel=”nofollow” target=”_blank” href=”http://www.facebook.com/LexmarkNews”>Lexmark Facebook page</a> and follow us on <a rel=”nofollow” target=”_blank” href=”http://twitter.com/lexmarknews”>Twitter</a>.
For more information about Perceptive Software, please visit the company’s <a rel=”nofollow” target=”_blank” href=”http://www.facebook.com/perceptivesw”>Facebook</a> and <a rel=”nofollow” target=”_blank” href=”http://twitter.com/perceptivesw”>Twitter</a> profiles.
Lexmark and Lexmark with diamond design are trademarks of Lexmark International, Inc., registered in the U.S. and/or other countries. All other trademarks are the property of their respective owners.
All prices, features, specifications and capabilities are subject to change without notice.
1 Gartner, Inc., Magic Quadrant for Managed Print Services, Worldwide, Ken Weilerstein, Cecile Drew, Yulan Li, October 25, 2012.
2 Gartner, Inc., Magic Quadrant for MFPs and Printers, Worldwide, Sharon McNee, Federico De Silva, October 24, 2012.
SOURCE Lexmark International, Inc.
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December 4, 2012 at 8:44 AM

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