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Lexmark-Dell Partnership:A Cautionary Tale?
Lexmark didn’t have a great day. The Kentucky-based printer stalwart and perennial bridesmaid to Hewlett-Packard reported that first quarter sales were down 1 percent from this same quarter last year, decreasing from $1.28 billion to $1.26 billion. Worse yet, the company said that revenues for the second quarter also are expected to be down year on year by low- to mid-single digits. This news set of a sharp decline in Lexmark’s stock price for the day, with shares dropping by $5.66.Yes, the company attributed its lackluster showing to several factors, including smaller profit margins due to its aggressive price cutting on lower-end inkjet printers and a subsequent drop in inkjet supply sales. But perhaps the more ominous culprit is the weak OEM market — and for Lexmark, that means Dell more than any other OEM partner.Check this tidbit from Lexmark’s 2006 annual report:
Lexmark also sells its products through numerous alliances and OEM arrangements, including Dell, IBM and Lenovo. During 2006, 2005 and 2004, one customer, Dell, accounted for $744 million or approximately 15 percent, $782 million or approximately 15 percent, and $570 million or approximately 11 percent of the company’s total revenue, respectively. Sales to Dell are included in both the business and consumer segments.Fifteen percent means Lexmark’s fortunes are tied pretty tightly to Dell’s own. Printer sales go hand in hand with PC sales — especially on the consumer side, where Lexmark suffered the biggest drop in sales — and it’s no big secret how Dell has been sucking wind in the PC market of late.Which has me wondering … how many other technology vendors have cast their lot with Dell in one OEM deal or another? HP for notebooks? Samsung for monitors? If Dell’s performance goes south in any number of categories, it’s bound to trip up many of those manufacturers. And what might that mean to its channel partners ultimately?To be fair to Lexmark, the company released a raft of new higher-end products today and is in the midst of growing its portfolio of MFP and color laser printers to move with current trends in the market. These transitions take time.But might it also be time to think about diversifying its OEM relationships — or at least relying a bit less on Dell?Lexmark Hurt by Drop in Printer Sales
Lexmark International, hurt by declines in laser and inkjet computer printer sales, posted a quarterly profit yesterday that missed Wall Street estimates. Its shares fell nearly 9 percent.The company said that unit sales of inkjet printers fell 10 percent and laser printers were off 6 percent. Sales of replacement supplies like ink were flat.Under pressure to improve its results, Lexmark said last year that it would reduce sales of unprofitable inkjet printers, a move that some analysts said would reduce the number of its printers on the market and cut sales of supplies, which reap a much larger profit than hardware.Lexmark said net income for the quarter rose to $92.4 million, or 95 cents a share, from $86.2 million, or 78 cents a share, a year earlier. Excluding one-time costs for revamping, profit was 96 cents a share, missing the average $1.03 forecast by analysts, according to Reuters estimates.Revenue fell 1 percent, to $1.261 billion, in line with the $1.26 billion forecast by Wall Street, according to Reuters estimates.
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