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AnonymousInactiveColor-laser economics
Pressures in printer marketplace squeeze consumers, producers alike
The
consensus at one time was that a laser printer proved profitable on its
sale alone.But because of fierce competition for customers, some color
laser printers are becoming like much of their inkjet brethren — think
those $20 inkjets — which long ago gave up hopes of initial
profitability and pinned their prospects to selling multiple
profit-laden ink cartridges over time.And why not? The cost to replace
the four toner cartridges in some color lasers equals, and sometimes
exceeds, the cost of the printers.But the problem lies with customers
who don’t print enough, leaving companies like Lexington’s Lexmark
International aiming for the high-volume customers in a high-growth
product segment that, as one analyst says, includes the newest wave of
disposable printers.Sticker shock
A disposable printer is one that costs less than its replacement supplies, such as toner.Such
printers are prevalent in the inkjet business, where consumers are
sometimes given a printer for free or can buy low-end single-function
inkjets — no scanning, copying or faxing features — for easily less
than $50.But manufacturers of laser printers had resisted that
race-to-the-bottom price competition until recent years. The price
slashing became commonplace in the color laser segment because of the
replacement toner’s lucrative revenue potential.”Color laser utilizes
four times the consumables that monolaser does because they have cyan,
magenta, yellow and black,” said analyst Philip Grote of Current
Analysis. “So you’re using basically four times the toner, which means
more revenue.”Consider the costs for Hewlett-Packard’s Color LaserJet
1600, priced at $299 on HP’s Web site. A replacement set of the
cartridges: $323.97.And although it would seem unconventional for
customers to unplug their current laser printers and buy new ones, it
can happen in small office and home office settings, Grote said.Those
customers might not have computer networks, so it’s simpler to just
unpack and plug in the new printer, and stow the older one, he
said.Many companies ship new color lasers with starter cartridges that
are filled with less toner than replacement cartridges, though, so a
new printer’s cartridges wouldn’t necessarily print the same number of
pages as replacement cartridges.Larry Jamieson of Lyra Research said he
remains skeptical that customers would buy an entirely new printer,
pointing out that supply purchases are often staggered. But he noted,
as Grote did, that customers become more judicious in how much they
print because of the cartridge sticker shock.The high prices can also
dissuade customers from purchasing a color laser in the first place,
Jamieson added.Grote said sticker shock was common with different types
of Lexmark printers in past years.But the company’s newest color laser
printer lines have “really stepped up the game,” he said, emphasizing
that the company’s higher-yield cartridges help reduce the overall cost
of printing.Unprofitable hardware
So
why do companies mark down their laser hardware prices to the point
that sticker shock’s a very real phenomenon? In a word: growth.
The
color laser segment is one of the fastest-growing product segments in
the printer industry. In 2005, the market for color lasers grew almost
50 percent, according to market research firm IDC. In the first half of
2006, it’s grown almost 30 percent.Monolasers, by comparison, grew 20
percent in 2005, and 15 percent in the first six months of this
year.Color lasers remain only a small part of the laser market, though.
They accounted for 13 percent of total laser units in 2005, according
to IDC. But they are expected to be 22 percent of laser units in 2010,
a Lexmark executive said at a recent analyst conference.Part of that
growth is driven by their affordability. Prices have fallen
dramatically, as they have for all printers.The lower prices make
low-end color lasers available to a larger base of customers, including
small and medium-size businesses, who might not have been able to
justify the expense years ago. And with more customers come higher
revenue expectations.By 2010, color lasers are expected to account for
22 percent of the laser units sold, but 53 percent of the revenue in
the market, Lexmark Executive Vice President Paul Rooke said during the
company’s recent Analyst Day event.So printer companies, Grote said,
raced to enlarge their installed base of printers among customers —
primarily businesses — by slashing prices, especially on lower-end
products.”As soon as the printer is installed in the office, you’ve
planted your Trojan horse. Then nobody is watching the printing costs,”
Grote said.To get that initial buy, however, low-end color laser
printers are generally thought to be sold at a loss.”Clearly, people
are being very aggressive on price, taking losses up front, they’re
hoping to make it back over the life of the product in the supplies,”
said Lexmark CEO Paul Curlander during a recent conference call with
analysts.”It’s pretty clear that the color laser business has become
like the inkjet business,” he said.The idea of selling a printer at a
loss is not new.Jamieson said a past Lyra Research study estimates that
printer manufacturers lose about $30 on each inkjet printer sold for
$150 or less.At $200 price tags, the companies are still “losing a
bit,” he said.Traditionally, laser printers were sold at a profit. But
competitive pricing has led Lyra to suggest that low-end monochrome
lasers priced below $200 are probably sold at a loss by their
manufacturers.And Jamieson said any color laser sold for less than $500
and “maybe even higher than that” is probably below cost.Frequent printers
The upfront losses necessitate that companies find heavy users of printers to meet profit expectations.Jamieson
said that besides large enterprises, a good color laser customer can be
a small or medium-size business like a marketing company, or even
churches and real estate firms that want to release color
brochures.These small and medium-size businesses are becoming a
battleground in the printer industry with companies offering more
affordable products.”The difficulty is that as the market goes down, as
more vendors come around, it drags people down,” Jamieson said.It can
drag the prices so low that the printers become affordable for
individual consumers who might not print enough copies to meet
manufacturers’ hopes, he said.Jamieson said Lexmark has shown
“admirable restraint” in avoiding those steep price cuts, choosing to
target high-usage customers.Emphasizing the importance of high-usage
customers has become a recent mantra for Lexmark executives when
discussing the color laser segment.”It’s not so much about the market
share and the units, per se, it’s the pages,” Curlander told analysts.Comparing printer, toner prices
HP Color LaserJet 1600
Suggested printer price: $299
Replacement toner: $323.97Lexmark C500n
Suggested printer price: $349
Replacement toner: $385.35Dell Laser 3010cn
Suggested printer price: $299
Replacement toner: $25 -
AuthorNovember 29, 2006 at 2:13 PM
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