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 user 2005-02-23 at 9:54:00 am Views: 77
  • #10470

    vows to get aggressive on printer pricing


    YORK – Hewlett-Packard Co. has fired the first salvo in what may turn out to be
    a price war over consumer inkjet printers, a move made easier by last week’s
    ouster of Chief Executive Carly Fiorina, analysts said Thursday.

    “We are not
    satisfied with our consumer hardware performance in the first quarter, and we
    will take aggressive action to correct this in the coming quarter,” said Vyomesh
    Joshi, who runs both HP’s printer and PC businesses on a conference call with
    analysts Wednesday.

    The No. 2 computer
    maker and No. 1 printer maker late Wednesday posted a rise in quarterly profit
    of less than 1 percent, helped by a 10 percent revenue gain.

    But profit margins
    narrowed in its imaging and printing business, the source of two-thirds of HP’s
    operating profit, amid strong pricing pressure from rivals including Dell Inc.
    and Lexmark International Inc.

    Analysts said HP is
    likely to focus its considerable resources on sales of printers that also scan,
    fax and copy — called all-in-ones — a segment in which Lexmark has done well
    in recent years.

    “The news is bad
    for Lexmark,” said analyst Shannon Cross of Cross Research. “There has been
    growth at the sub-$100 level and HP has started putting products out there, but
    there is the need to take prices down to compete more effectively.”

    As a result of a 13
    percent decline in HP’s consumer printer hardware revenue, versus a 16 percent
    rise by Lexmark in its most recent quarter, HP may also give additional
    incentives to retailers, offer rebates or boost the number of HP representatives
    roaming stores to woo consumers.

    Shares of Lexmark
    fell $3.05, or about 3.7 percent, to $79.00 in late afternoon trade in the New
    York Stock Exchange. HP shares slipped 13 cents to $20.93, and Dell eased 6
    cents to $40.54 on the Nasdaq.

    Analysts said it’s
    too soon to tell whether HP’s move will be countered by Lexmark and by Dell,
    which sells Lexmark inkjet printers under the Dell brand. Pricing action could
    also come from other players including Epson or Canon, which have said they
    intend to take U.S. share in photo printers.

    “HP is going to go
    out to make more of a statement, just to get it into customers’ minds that Dell
    is not the ultimate low-price selection — ‘come to us and see what we can do
    for you,”‘ said Jennifer Thorwart, an analyst at research firm IDC.

    The increasing
    availability of recycled printer cartridges could also further hamper margins at
    both HP and Lexmark, but analysts said the devices don’t yet pose a major

    HP’s decision to be
    even more aggressive with rivals comes only a week after the departure of
    Fiorina, who analysts say was fiercely protective of the printer unit and was
    not a fan of toying with prices and the likelihood of thinner

    “(Fiorina) is not
    there and they have a little more flexibility in how they approach competition
    in the market,” Cross said. “There was always the thought that she was milking
    the printer business for profits to support the rest of their

    CSFB analyst Andrew
    McCullough called the looming printer price war a chink in HP’s armor, and he
    reiterated his neutral rating on the stock.

    “Given our
    continued belief that HP remains competitively challenged between Dell and
    IBM…some sort of structural change will be required to unlock incremental
    shareholder value,” he said in a client note.

    In the
    just-reported quarter, HP’s Imaging and Printing Group accounted for 67 percent,
    or $932 million, of HP’s total operating profit of $1.39 billion.

    mandate to regain share in IPG places undue pressure on HP’s Enterprise and PC
    businesses to close the presumed profitability gap,” McCullough said.

    Analysts and
    investors have called for HP either to spin off its lucrative printing business,
    leaving behind its PC, computer server, computer services and software
    businesses, or sell its PC business, or some other