*NEWS*LEXMARK’s INKJET PRINTER QUANDARY

[Anonymous]

Lexmark’s Inkjet Printer Quandary
Lexmark International Inc. is in a quandary.
At
a time when sales of inkjet supplies are slowing and Lexmark is
aggressively pricing its inkjet printers, the company is facing a
full-court press from the likes of Hewlett-Packard Co. on the corporate
side.With expectations that inkjet printer cartridge sales will keep
falling, Lexington, Ky.-based Lexmark may be forced to make changes to
protect its share of the business market and improve performance with
consumers. That could include growing its sales force, overhauling
marketing or exiting the inkjet printer market altogether. It may also
require coming out with more multifunction products at the same time
cash flow is slowing.”Lexmark needs to go after the enterprise market
in a more deliberate way,” said Don Dixon, an analyst at Gartner. “They
need to broaden their product portfolio to more multifunction printers
and hire a bunch more sales people.”

Officials at Lexmark declined to comment, citing a so-called quiet period ahead of earnings.
Lexmark’s
woes in the inkjet printer market stem partially from an industrywide
slowdown. For years, printer makers like Lexmark would make money not
from the printers but from the after-market sales of supplies such as
ink. While selling ink had been a lucrative business, third-party
vendors have stepped in and undercut the market. Both Rochester,
N.Y.-based Eastman Kodak Co. and Palo Alto, Calif.-based H-P responded
by introducing new technology that further pressures prices.The dropoff
in inkjet supplies sales and aggressive inkjet printer pricing prompted
Lexmark to warn investors last week ahead of the announcement of its
second quarter earnings results.

Even though Lexmark has seen a
30 percent year-over-year increase in branded inkjet printer sales, it
hasn’t improved gross margins.”The key fundamental question/risk
remains whether Lexmark is trapped in the low end of the inkjet market
and how much it will cost (in terms of discounting and promotions) to
ensure appropriate unit growth,” Sanford Bernstein analyst Toni
Sacconaghi said in a recent research report.What’s more, some analysts
say Lexmark is losing shelf space at retailers to H-P and Kodak, which
have been quick to churn out new products. Analysts hope Lexmark will
announce products for consumers and business customers ahead of the
fall shopping period, with a greater focus on printers than can scan,
copy and print.Gartner’s Dixon said Lexmark’s product line is not as
broad as H-P’s.On the corporate side, where Lexmark enjoys brisk
business, selling largely to the health-care and financial markets, the
company is finding itself in defensive mode against H-P, which hired
away Bruce Dahlgren, a Lexmark marketing executive who analysts said
left a big void at Lexmark.Lexmark shares traded Friday at $45.64,
significantly off the 52-week high of $74.68, reached last December.
Although the shares took a hit on the warning earlier this month, the
stock has been able to trade a bit higher than its 52-week low of
$43.50, set July 9, thanks in part to leveraged buyout talk and a
valuation that’s much lower than some peers.

[Author]

July 27, 2007 at 2:29 PM