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 user 2007-07-27 at 2:29:00 pm Views: 102
  • #18471

    Lexmark’s Inkjet Printer Quandary
    Lexmark International Inc. is in a quandary.
    a time when sales of inkjet supplies are slowing and Lexmark is
    aggressively pricing its inkjet printers, the company is facing a
    full-court press from the likes of Hewlett-Packard Co. on the corporate
    side.With expectations that inkjet printer cartridge sales will keep
    falling, Lexington, Ky.-based Lexmark may be forced to make changes to
    protect its share of the business market and improve performance with
    consumers. That could include growing its sales force, overhauling
    marketing or exiting the inkjet printer market altogether. It may also
    require coming out with more multifunction products at the same time
    cash flow is slowing.”Lexmark needs to go after the enterprise market
    in a more deliberate way,” said Don Dixon, an analyst at Gartner. “They
    need to broaden their product portfolio to more multifunction printers
    and hire a bunch more sales people.”

    Officials at Lexmark declined to comment, citing a so-called quiet period ahead of earnings.
    woes in the inkjet printer market stem partially from an industrywide
    slowdown. For years, printer makers like Lexmark would make money not
    from the printers but from the after-market sales of supplies such as
    ink. While selling ink had been a lucrative business, third-party
    vendors have stepped in and undercut the market. Both Rochester,
    N.Y.-based Eastman Kodak Co. and Palo Alto, Calif.-based H-P responded
    by introducing new technology that further pressures prices.The dropoff
    in inkjet supplies sales and aggressive inkjet printer pricing prompted
    Lexmark to warn investors last week ahead of the announcement of its
    second quarter earnings results.

    Even though Lexmark has seen a
    30 percent year-over-year increase in branded inkjet printer sales, it
    hasn’t improved gross margins.”The key fundamental question/risk
    remains whether Lexmark is trapped in the low end of the inkjet market
    and how much it will cost (in terms of discounting and promotions) to
    ensure appropriate unit growth,” Sanford Bernstein analyst Toni
    Sacconaghi said in a recent research report.What’s more, some analysts
    say Lexmark is losing shelf space at retailers to H-P and Kodak, which
    have been quick to churn out new products. Analysts hope Lexmark will
    announce products for consumers and business customers ahead of the
    fall shopping period, with a greater focus on printers than can scan,
    copy and print.Gartner’s Dixon said Lexmark’s product line is not as
    broad as H-P’s.On the corporate side, where Lexmark enjoys brisk
    business, selling largely to the health-care and financial markets, the
    company is finding itself in defensive mode against H-P, which hired
    away Bruce Dahlgren, a Lexmark marketing executive who analysts said
    left a big void at Lexmark.Lexmark shares traded Friday at $45.64,
    significantly off the 52-week high of $74.68, reached last December.
    Although the shares took a hit on the warning earlier this month, the
    stock has been able to trade a bit higher than its 52-week low of
    $43.50, set July 9, thanks in part to leveraged buyout talk and a
    valuation that’s much lower than some peers.