*NEWS*LOW-END INKJET COMPETITON HEATS UP

[Anonymous]

Photo MFPs Take the High Road as Low-End Competition Heats Up

May  , 2005

Photo-enabled inkjet MFPs are one of the hottest revenue growth segments in the printer market, with sales projected to grow upwards of 20% in 2005. Manufacturers have used creative promotions featuring sub-$150 MFPs bundled with digital cameras, notebooks, and PCs to offer consumers effective price points that are as low as $0. Market share and volume are the key determinants as printer manufacturers seek to lock in consumers with low price points so they can reap the benefits that come with the highly profitable downstream revenues associated with inkjet printing supplies. The problem is that the low-end inkjet MFP space is getting crowded. MFP manufacturers looking to gain market share and differentiate product lines are forced to look to the high end of the inkjet market for future revenue growth opportunities in 2005 and beyond. The low-end MFP space was once dominated by Lexmark, whose bland, sub-$150 models were big hits with budget-constrained families and students. The bad news for Lexmark is that photo-enabled printers have increased in popularity and come down in price to levels that are competitive with Lexmark’s standard inkjet machines. Lexmark does not have a photo-friendly brand name and was slow to jump on the photo bandwagon. Photo-enabled MFPs are now available for under $150 in the retail channel and only consumers with the most extreme budget constraints will opt for generic inkjet MFPs because the price difference is only $20. Epson and HP have attacked the market with their respective $99 CX4600 and sub-$100 PSC models, targeting consumers with creative promotions that offer up photo MFPs for next to nothing. Newcomers to the low end of the inkjet MFP space include Canon and Brother. Canon has just released its first sub-$100 inkjet MFP model, the MP130. It has a futuristic form factor that looks like something out of Star Trek. Brother, the silent assassin in the shadows, appears ready to steal share at the low end of the SOHO market. Brother is not strong in photo printing, but it offers office models with fax functionality and networking at bargain prices. With all this congestion at the low end, moving upmarket to focus on higher-end models seems like an obvious choice. The potential of this segment is highlighted by the success of HP’s PSC 2610 ($259), which has consistently been a top-selling MFP in terms of revenues since the holidays. Recently, manufacturers have taken two different routes to market MFPs with higher-end functionality: they have developed models that converge office and photo features, and designed high-end photo models that cater to hardcore photo enthusiasts. HP has focused on the former, producing products that combine office and photo functionality. HP has accomplished this by adding photo features like memory card slots, six-color printing and PictBridge connectivity to its OfficeJet line of office MFPs and by supplementing its PSC line of photo MFPs with fax and built-in networking capabilities. The photo enthusiast strategy has been employed by inkjet MFP manufacturers to appeal to the growing legions of high-end amateur digital photographers. These machines are full of fancy features that include standard five- and six-color ink systems, film adaptors for scanners, image correction and photo enhancement software, CD printing, and compatibility with CD-R drives. The two key players in this arena are Canon and Epson, which shouldn’t surprise anyone given their strong reputations in digital photography. The outlier at the high end is Lexmark, whose limited SKUs don’t give it a clean-cut retail strategy. Lexmark seems best suited for the office-photo conversion route as it does not have a strong brand name in digital imaging. How does Lexmark foster growth of higher-end inkjet MFPs? By continuing to rely on OEM partner Dell, which has advantages in consumer branding and low-cost, direct distribution. The graph below shows high-end photo inkjet revenue share in retail from November of 2004 to April of this year. The big winner? HP–without a doubt. HP has leveraged its brand name, promotional muscle and office-photo convergence strategy to dominate the market. Epson’s revenue share has fallen off over the past few months, and it appears that Epson’s fancy features may not be enough to sustain high-end market share growth throughout the year. Lexmark suffers from the aforementioned SKU issues and Canon needs to increase its MFP shelf presence in the consumer electronics retail channel. Looking forward, the impact Kodak’s 2006 entrance into the inkjet market will have on the market, and specifically the retail space needs to be examined. Much has already been made of Kodak’s potential inkjet OEM relationship with Dell, but what will be interesting to see is where Kodak positions itself in retail. Kodak does not currently produce an MFP, but it will certainly have to if it wants to effectively compete in the inkjet arena. If Kodak comes to market with inkjet MFPs, what will this mean to the high end of the inkjet MFP space? New CEO Antonio Perez knows enough about HP to stay away from it in the SOHO space. Kodak’s best shot is targeting the inkjet photo market, where it will need no introduction to digital photo enthusiasts. Epson and Canon will need to prepare themselves to duke it out with a photo giant that has every bit the “photo quality” brand image that they do. As for HP, it will see increased price competition and take some hits down low, but it will keep on rollin’ at the high end with a convergence strategy that hasn’t been seriously challenged.

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May 30, 2005 at 10:28 AM