Who would have thought?

The sign of a good index is when it acts and provides information like a microcosm of the real world. Select a good representative set of companies, avoid the messiness of identifying and tracking the long tail of the last x% of the entire universe. Consolidated, the group serves as a mirror and a magnifying glass for the selected industry. Individually, you can still track and compare the results, strengths and weaknesses of specific companies.

Woodford Group and our partners/predecessors Photizo Group have been tracking and analyzing the operating results of key companies in the imaging industry for 19 quarters now. These companies make up well over 90% of the industry, and one amazing discovery point is how stable this market is. Considering the range of technology breakthroughs and economic swings over the past 5 years, the Imaging Industry Margin Index demonstrates in numbers what we have stated previously: the imaging industry always seems to find a way to maintain earnings momentum.

The imaging industry as a whole is a bit unglamorous, not as attractive as many other tech products and trends.  But in fact it delivers mission-critical products and services throughout the business and private worlds, in various and ever-changing forms. The annuity-based business model, accompanied by new applications and services, delivers consistent returns for those companies best equipped with the right focus on key success factors, namely product portfolios as well as execution and financial management skills.

The Imaging Industry Margin Index is in fact a lagging indicator, examining recent events to discern a trend. But considering the fact that a recession has been pronounced to be in effect since December 2007, the results are significant: the resilience of the imaging industry is evident.  A modest dip is present and not surprising, but there is no dive.  The index has dipped lower in other quarters, and the overall trend is stable and positive.  

If we look into the index in more detail, there are naturally a few stinkers.  But while a few companies definitely put a drag on the overall result, we see these as examples of internal misalignment as opposed to economy-related issues. We can return to the trio of success levers of product portfolio, execution and financial management: the poor results of those companies who were hurting can be traced to some (or all) of those factors. Economic pressure certainly serves to expose underlying weaknesses, and recent earnings calls were indicative of the true influences: as much as some companies tended to blame the external economic or market influences, other companies demonstrated their mastery of the key levers. Even in the context of the current economic difficulties, their results (and those of the industry as a whole) showed a surprising steadiness.

Who would have thought?