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OEM Business Slipping Faster At Lexmark, CEO Says
Sales
of printers to other vendors, once considered by many to be a a road to
future success for Lexmark, is now dragging down the company’s business
so much that it’s overshadowing gains in other parts of the business,
Chairman and CEO Paul Curlander said Tuesday.After Lexmark reported
lackluster sales and profit for its first quarter, financial analysts
questioned Curlander about the Lexington, Ky., company’s current
stumbling blocks.”What’s going on is the progress we’re making on the
branded side is being covered up by the decline we’re seeing on the OEM
side,” Curlander said, noting that he couldn’t talk about any specific
OEM customers. “The reality is that OEM as a whole — it was a weak
2006 with hardware declines. What’s frustrating is we’re coming into
2007, and we’re seeing those declines continue and actually
increase.”For the past several quarters, when major falloffs in its OEM
business began to surface, Lexmark has been working feverishly to boost
its branded products and heighten investment in the channel. That has
worked as solution providers, for the most part, have given a thumbs-up
and that portion of Lexmark’s sales continues to show strength.
The
company is also broadening its product line. Along with the earnings
announcement, Lexmark unveiled a series of new color laser
multifunction printers and single-function printers.”As we look to the
second quarter, we think that will be even weaker than [what] we saw in
the first quarter,” Curlander said, adding that OEM business can be
cyclical.Lexmark’s largest OEM customer is Round Rock, Texas-based
Dell, which has been seeing declining sales and profits and has been
trying to stop its own bleeding. Last year, Dell accounted for 15
percent of Lexmark’s overall revenue, but that number declined by $38
million to $744 million from the year earlier.More than a year ago,
Dell executives said their initial strategy of practically giving away
printers, or selling low-end printers at a loss to gain market share
quickly, led to sales of printers to customers that didn’t really use
them. That deprived Dell of lucrative after-market consumables sales
and upsells, causing the PC giant to rethink its printer.strategy.Lexmark
and Dell entered into their OEM agreement in 2002. Lexmark has also
maintained an OEM relationship with IBM, which plans to exit the
printer business.After Lexmark’s earnings announcement, the stock
market punished the company’s shares, sending them down by almost 10
percent to $56.11. Goldman Sachs analyst Laura Conigliaro, who recently
raised her rating on Dell and suggested that company could be on track
for a turnaround, issued a report after Lexmark’s earnings and repeated
her “sell” rating.”Lexmark’s March quarter results were disappointing,
pointing to the need for continued reinvestment in sales and marketing
and product development and, therefore, keeping the pressure on
operating margins,” Conigliaro said in the report
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