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 user 2007-02-14 at 11:08:00 am Views: 56
  • #17510

    Lexmark and Kodak aren’t so cozy now
    once were allies, calling themselves “a winning combination for digital
    photography.”But the story of Lexmark International’s relationship
    through the years with Eastman Kodak added a new, less cheerful chapter
    last week when the photography giant entered the inkjet printer
    market.Touting that it would be “changing the rules” of the inkjet
    industry, Kodak officials said the company’s lineup of all-in-one
    printers will use ink cartridges priced up to 50 percent cheaper than
    the competition’s. Ink is traditionally a high-profit margin item for
    companies such as Lexmark, which follow the industry norm of selling
    hardware for low margins or none at all.The “revolutionary”
    announcement, as Kodak called it, had observers buzzing throughout the
    week on which of the industry’s major players would have the most to
    lose.Many pointed to Lexmark, saying it could lose shelf space at
    retailers and would face more fierce competition in the lucrative
    inkjet all-in-one segment it has focused on recently.The
    Lexington-based company declined to comment on the move for most of the
    week, but it broke its silence Friday.”There is nothing revolutionary
    in the Kodak announcement,” said spokesman Tim Fitzpatrick.

    Kodak’s offerings
    Kodak executives unveiled the company’s inkjet intentions last week, it
    was a formal announcement of the world’s worst-kept secret.Kodak had
    hinted at entering the inkjet fray for a few years. Expectations
    mounted after it hired current CEO Antonio Perez, who once led HP’s
    inkjet business, as president in 2003.The foray into inkjet is an
    evolution from its current portfolio of 4×6-inch photo printers.”Our
    snapshot printers are great printers if you have one, two, five prints
    … ,” Philip Faraci, president of Kodak’s Consumer Digital Imaging
    Group, told analysts Thursday. “The thing about inkjet is it’s the
    space where you not only can print great photographs but you can also
    print documents.”Kodak’s initial lineup consists of three all-in-ones
    – the Kodak EasyShare 5100, 5300 and 5500 — priced at $149.99,
    $199.99 and $299.99, respectively.Bob Ohlweiler, marketing director for
    Kodak’s worldwide inkjet business, called the pricing “competitive,”
    but, unlike competitors, Kodak expects to make a profit.”We don’t want
    to subsidize the printers,” Perez told analysts.In general, the
    industry follows a razor-and-blades model. Companies discount a printer
    (the razor), sometimes even giving it away, in order to build up a base
    of customers who then purchase highly profitable ink cartridges (the
    blades) over time.But Kodak plans to drop the cartridge prices (while
    still profiting on them), selling a $9.99 black ink cartridge and a
    $14.99 five-ink color cartridge.The company also plans to offer a paper
    and ink pack that promises 4×6 digital photos for “as little as 10
    cents per print,” the company said.The 5100 and 5300 will be launched
    in March exclusively at Best Buy and then expand to other retailers.
    The 5500 ships in May. At Thursday’s conference, executives declined to
    name other retail partners.

    A faded photo-print alliance
    Kodak’s printers will now sit alongside Lexmark’s on shelves, it wasn’t
    that long ago that the two shared a box.In 1999, the companies launched
    the Kodak Personal Picture Maker by Lexmark, which printed 4×6 prints,
    as well as using standard paper.Later that year, the companies
    announced a development and marketing relationship for photo inkjet

    Now they’re direct competitors.
    worse, some point out, is that Kodak is focusing on the all-in-one
    product segment (copy, scan and sometimes fax functions). It’s a
    segment whose users generally print more, and it’s an area that Lexmark
    has refocused its inkjet business on over the last year and a half.It’s
    also home to users looking for “photo quality, lower-cost ink and
    things like that,” said Larry Jamieson of industry tracker Lyra
    Research.”That’s kind of exactly where Lexmark would need to go and now
    you’ve got Kodak, which has got a really good brand name,” he
    said.”Given Kodak’s name, consumers might come in and ask for a Kodak
    product, which isn’t always the case for Lexmark,” said Tom Carpenter,
    a vice president and senior equity analyst at Hilliard Lyons in
    Louisville.And with a new competitor comes competition for space on
    retailers’ shelves.”It’s possible that any one of those guys that are
    there would lose one or two slots,” Jamieson said, adding that
    sometimes companies will have fewer products to fill those slots
    anyway, particularly as vendors look to exit some of the low-end
    single-function inkjet market.Fitzpatrick said Lexmark has not been
    told it will be losing space at Best Buy, where Kodak’s printers will
    be launched.

    Competing strategies
    question remaining is whether consumers will take to Kodak’s
    proposition of trading upfront hardware discounts for cheaper
    supplies.Despite the higher price tags, the company’s printers are not
    revolutionary compared to competitors’ models, Jamieson said, though
    they do offer some value-added features such as Bluetooth capability,
    which could allow users to wirelessly print a photo from a camera.For
    consumers who print a lot, though, the supplies’ savings can be
    compelling, he said.Fitzpatrick said that Lexmark’s customers already
    enjoy ink savings and “have many options from Lexmark that are designed
    to fit their particular printing needs,” such as high-yield cartridges
    or multi-packs.”Ultimately it appears that what Kodak wants to do is
    replace a pay-as-you-go model with a prepaid model in which you pay a
    substantial premium and put more money in their pocket more quickly
    whether you use more ink or not,” he said. “So the only certainty about
    this model is you will pay more upfront.”There is room in the market
    for the two competing strategies, said Carpenter, whose firm or its
    affiliates beneficially owned at least 1 percent of Lexmark’s stock as
    of Dec. 31.”It will be interesting to see if the existing players
    maintain the business model that’s made them profitable or if they’ll
    make some tweaks in response to Kodak’s move … ,” he said. “It’d be
    surprising if they made wholesale pricing changes on cartridges.”One
    analyst asked Kodak officials whether they would eventually drop
    hardware prices and conform to the industry model if their plan
    failed.Kodak’s Faraci replied that “if I weren’t getting as much
    traction as I want … I might go down on my ink price rather than
    going down in hardware pricing and actually get more aggressive there
    since I still make very high margins.”The high margins on the
    reduced-price cartridges stem from Kodak’s decision to build printheads
    into the hardware rather than the cartridge, unlike HP, Lexmark and
    others.Ultimately, it will be years before Kodak’s success can be
    measured, but “it was important for Kodak to get into the market no
    later than they are now,” Jamieson said.”They still have an extremely
    strong name in photography. They needed to get in at this point before
    people started to forget who Kodak was.