*NEWS*COLOR-LASER ECONOMICS

[Anonymous]

Color-laser economics
Pressures in printer marketplace squeeze consumers, producers alike
The
consensus at one time was that a laser printer proved profitable on its
sale alone.But because of fierce competition for customers, some color
laser printers are becoming like much of their inkjet brethren — think
those $20 inkjets — which long ago gave up hopes of initial
profitability and pinned their prospects to selling multiple
profit-laden ink cartridges over time.And why not? The cost to replace
the four toner cartridges in some color lasers equals, and sometimes
exceeds, the cost of the printers.But the problem lies with customers
who don’t print enough, leaving companies like Lexington’s Lexmark
International aiming for the high-volume customers in a high-growth
product segment that, as one analyst says, includes the newest wave of
disposable printers.

Sticker shock
A
disposable printer is one that costs less than its replacement
supplies, such as toner.Such printers are prevalent in the inkjet
business, where consumers are sometimes given a printer for free or can
buy low-end single-function inkjets — no scanning, copying or faxing
features — for easily less than $50.But manufacturers of laser
printers had resisted that race-to-the-bottom price competition until
recent years. The price slashing became commonplace in the color laser
segment because of the replacement toner’s lucrative revenue
potential.”Color laser utilizes four times the consumables that
monolaser does because they have cyan, magenta, yellow and black,” said
analyst Philip Grote of Current Analysis. “So you’re using basically
four times the toner, which means more revenue.”Consider the costs for
Hewlett-Packard’s Color LaserJet 1600, priced at $299 on HP’s Web site.
A replacement set of the cartridges: $323.97.And although it would seem
unconventional for customers to unplug their current laser printers and
buy new ones, it can happen in small office and home office settings,
Grote said.Those customers might not have computer networks, so it’s
simpler to just unpack and plug in the new printer, and stow the older
one, he said.Many companies ship new color lasers with starter
cartridges that are filled with less toner than replacement cartridges,
though, so a new printer’s cartridges wouldn’t necessarily print the
same number of pages as replacement cartridges.Larry Jamieson of Lyra
Research said he remains skeptical that customers would buy an entirely
new printer, pointing out that supply purchases are often staggered.
But he noted, as Grote did, that customers become more judicious in how
much they print because of the cartridge sticker shock.The high prices
can also dissuade customers from purchasing a color laser in the first
place, Jamieson added.Grote said sticker shock was common with
different types of Lexmark printers in past years.But the company’s
newest color laser printer lines have “really stepped up the game,” he
said, emphasizing that the company’s higher-yield cartridges help
reduce the overall cost of printing.

Unprofitable hardware
So
why do companies mark down their laser hardware prices to the point
that sticker shock’s a very real phenomenon?In a word: growth.The color
laser segment is one of the fastest-growing product segments in the
printer industry. In 2005, the market for color lasers grew almost 50
percent, according to market research firm IDC. In the first half of
2006, it’s grown almost 30 percent.Monolasers, by comparison, grew 20
percent in 2005, and 15 percent in the first six months of this
year.Color lasers remain only a small part of the laser market, though.
They accounted for 13 percent of total laser units in 2005, according
to IDC. But they are expected to be 22 percent of laser units in 2010,
a Lexmark executive said at a recent analyst conference.Part of that
growth is driven by their affordability. Prices have fallen
dramatically, as they have for all printers.The lower prices make
low-end color lasers available to a larger base of customers, including
small and medium-size businesses, who might not have been able to
justify the expense years ago. And with more customers come higher
revenue expectations.By 2010, color lasers are expected to account for
22 percent of the laser units sold, but 53 percent of the revenue in
the market, Lexmark Executive Vice President Paul Rooke said during the
company’s recent Analyst Day event.So printer companies, Grote said,
raced to enlarge their installed base of printers among customers —
primarily businesses — by slashing prices, especially on lower-end
products.”As soon as the printer is installed in the office, you’ve
planted your Trojan horse. Then nobody is watching the printing costs,”
Grote said.To get that initial buy, however, low-end color laser
printers are generally thought to be sold at a loss.”Clearly, people
are being very aggressive on price, taking losses up front, they’re
hoping to make it back over the life of the product in the supplies,”
said Lexmark CEO Paul Curlander during a recent conference call with
analysts.”It’s pretty clear that the color laser business has become
like the inkjet business,” he said.The idea of selling a printer at a
loss is not new.Jamieson said a past Lyra Research study estimates that
printer manufacturers lose about $30 on each inkjet printer sold for
$150 or less.At $200 price tags, the companies are still “losing a
bit,” he said.Traditionally, laser printers were sold at a profit. But
competitive pricing has led Lyra to suggest that low-end monochrome
lasers priced below $200 are probably sold at a loss by their
manufacturers.And Jamieson said any color laser sold for less than $500
and “maybe even higher than that” is probably below cost.

Frequent printers
The
upfront losses necessitate that companies find heavy users of printers
to meet profit expectations.Jamieson said that besides large
enterprises, a good color laser customer can be a small or medium-size
business like a marketing company, or even churches and real estate
firms that want to release color brochures.These small and medium-size
businesses are becoming a battleground in the printer industry with
companies offering more affordable products.”The difficulty is that as
the market goes down, as more vendors come around, it drags people
down,” Jamieson said.It can drag the prices so low that the printers
become affordable for individual consumers who might not print enough
copies to meet manufacturers’ hopes, he said.Jamieson said Lexmark has
shown “admirable restraint” in avoiding those steep price cuts,
choosing to target high-usage customers.Emphasizing the importance of
high-usage customers has become a recent mantra for Lexmark executives
when discussing the color laser segment.”It’s not so much about the
market share and the units, per se, it’s the pages,” Curlander told
analysts.

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December 15, 2006 at 12:19 PM