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AnonymousInactiveWhy Aren’t Consumers Buying Lexmark?
NEW YORK – What’s wrong with Lexmark?
For
its third quarter, ended Sept. 30, revenue at the Lexington, Ky.-based
printer maker fell 4%, year-on-year, to $1.22 billion. Not so good. But
look at profits, and things get really ugly. On a per-share basis,
Lexmark’s profits fell nearly 50% from a year ago. Not surprisingly
Lexmark has been taking it in the shares, currently trading at around
$41, off $50, or 55% from its 52-week high of $90.50.
And while the
printer market is indeed maturing, things at competitors are a heck of
a lot better. For instance, rival Hewlett-Packard , which dominates the
U.S. market with a 49% share, according to InfoTrends/CAP Ventures,
somehow managed to grow its printing and imaging group by 5% in its
third quarter.
Lexmark CEO Paul Curlander blames slower consumer
demand, but the real reason may be more fundamental: lack of innovation
in a cutthroat consumer business. “We’ve been more reactive than
proactive,” Curlander admitted to analysts earlier this week.
Analysts
are more blunt. “Lexmark needs to come out with new products, sooner
rather than later,” said FTN Midwest Research analyst Bill Fearnley.
Although
Lexmark is increasing its R&D spending–it’s spent about $252
million over the last three quarters–that’s still just a fraction of
the $1 billion spent annually by HP.
Lexmark’s aging tech and
limited product line is hurting it where it counts–retail. While
Staples and Circuit City , both strong Lexmark vendors in the U.S.,
declined to comment on their handling of the company’s printers, visits
to both chains in New York City found no Lexmark laser-jet printers on
the sales floor–while there were extensive offerings of HP products.“Anytime
you see retailers carrying less of a particular brand, one of the
leading reasons is because of less consumer demand,” said
InfoTrends/CAP Ventures analyst Robert Palmer.
Another issue: Dell .
Since 2003, Dell has been bundling Lexmark printers–albeit under the
Dell brand–with its new PCs. That was great news for Lexmark, at least
for a while. But since ink-jet printers are a razor and razor-blade
business model (meaning that the profits are in selling the replacement
ink-cartridges, not the printers themselves), Dell doesn’t care if it
sells Lexmark’s printers at a loss. Dell can make up the loss–and a
lot more–by marking up the ink-cartridges.
“Dell wants a piece of
the replacement ink market, and they can afford to sell the printers at
a loss,” said MTN Midwest Research’s Fearnley. “Lexmark has to get the
units out there and sell the ink.”
While there isn’t much Lexmark
can do, at least in the short term, about Dell, it can try to reignite
consumer excitement in its own brand. And the company is trying.
Curlander said Lexmark is plotting an aggressive advertising campaign
this fall. And the company recently announced a new family of $500 or
less monochrome and color laser printers aimed at small and
medium-sized businesses. These printers are not particularly
innovative, but it’s a sign to investors that the company is learning
from its mistakes.
It better start learning faster. Curlander
himself admitted that Lexmark was expecting similar revenue loss next
quarter, adding lamely, “But things are not getting worse.”
“Lexmark has to run as fast as it can to catch up,” Fearnley said. -
AuthorOctober 31, 2005 at 10:23 AM
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