Poor results push Lexmark’s plans ahead of schedule

Disappointing second-quarter earnings has forced Lexmark to ratchet up its focus on new wireless inkjets and the company will also look to improve product costs along with the overall affordability of its printing solutions to help drive sales.

During a conference call with media and analysts last week, Lexmark International, Inc. announced its second-quarter results ending June 30. Paul Curlander, chairman and CEO of Lexmark, said the overall results for this quarter were disappointing since revenue declined two per cent compared to last year, from $1.229 billion to $1.208 billion respectively. In the business segment, revenue grew three per cent for the year, while the consumer segment decreased by eight per cent year to year. In an effort to turn things around, the company has created a wireless printing plan in hopes that this new initiative will increase revenue, especially in the consumer market space.

“This is not the quarter we’ve expected,” Curlander said. “The consumer market segment is experiencing several problems. As we look ahead, we see the potential for continued erosion in inkjet end-user demand. We believe the shortfall in inkjet supplies revenue is due primarily to less than expected end-user demand. In the consumer market segment, we’re in a difficult position now.”

Brad Hughes, a senior research analyst at IDC, said at the end of 2006, revenue dropped in the inkjet world with consumers and in the MFP world with businesses.

“The value of inkjet MFPs shipped was down six per cent, while the value of hardware shipped to the commercial market was down 18 per cent,” he said.

Hughes added that while Lexmark is still a big player in the retail market place, he notes the company has pulled back on their offerings of laser devices on retail store shelves.

“To place devices on retail shelves is a very expensive proposition,” Hughes said. “Lexmark Canada obviously made the business decision that to compete in that channel was not worth it.”

Paul Patterson, manager of marketing and communications at Lexmark Canada Inc., refuted this statement.

“Lexmark has not exited Canadian retail,” he said. “In fact, we have launched some new wireless inkjet products that have been well received.”

Lexmark said the shortfalls in the consumer market segment at the end of the second-quarter was due to several factors such as, a greater than expected decline in inkjet supplies revenue, a decreased average of unit revenue of inkjet hardware because of aggressive pricing, higher than anticipated inkjet product costs and higher than expected inkjet hardware unit sales.

“We’re seeing a continuing decline in our inkjet supplies and OEM unit sales,” Curlander said. “We need to grow our branded unit sales, but this has become more expensive that what we had anticipated it to be. We need to drive forward our new initiative in wireless home printing and continue to invest in future products, technology and brand development.”

While Lexmark believes bringing in wireless printing solutions to the market is a smart move, Hughes does not remain as optimistic.

“Lexmark may be the first to announce this initiative,” Hughes said, “but our research finds that being on the leading edge doesn’t necessarily guarantee sales. What it really comes down to is reliability and price. “It’s important to have a good name and quality product. While it’s a nice convenient feature in order to limit the number of wires strung about your house, it’s not something the world has been pining for. Maybe Lexmark is being too forward looking with their wireless solutions.”

Hughes suggests Lexmark become more competitive by means of functionality and quality. He cited Brother as a major competitor saying the majority of its inkjets also feature fax capabilities. With many smaller businesses in Canada, Hughes thinks more of a focus should be placed on these features from a Lexmark’s standpoint.

However, what was gathered from the conference call, Lexmark has other plans as they move into the future.

“We need to improve the affordability of our inkjet unit sales and find a better balance between unit sales and price,” Curlander said. “Our focus will also be on our wireless initiative as we go forward in time. We believe we’re introducing a significant and compelling new area of opportunity in the inkjet market here.”

While CDN attempted to contact a representative from Lexmark’s Lexington, Ky. headquarters, no one could be reached for comment.

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Jim Love, Chief Content Officer, IT World Canada

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Maxine Cheung
Maxine Cheung
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