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 user 2006-12-15 at 12:18:00 pm Views: 56
  • #17058

    Color-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.