*NEWS*OEM SALES SLIPPING FAST @ LEXMARK

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*NEWS*OEM SALES SLIPPING FAST @ LEXMARK

 user 2007-05-31 at 12:06:00 pm Views: 58
  • #18280

    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