Tuesday, February 24, 2009

The Word is Out: Print Less, Save More

The Wall Street Journal reported what some consider the next big imaging trend, what others consider a statement of the glaringly obvious:  managed print service (MPS) offerings are becoming increasingly significant as part of the overall portfolio of most imaging companies.

Read the entire article here.

For decades, the imaging industry (especially the copier/MFP segment) thrived on the premise that hardware and print volume are the keys to success. Get and maintain the installs (the famous "MIF" - machines in field), and make sure they are well fed with toner. While the vendors hope to earn a bit if possible on the hardware, they want to ensure that they earn a lot on the consumables by encouraging their clients print / copy a lot. That was then, but a "new now" is emerging: the dual trends of economic pressures and increased capabilities for print output transparency are encouraging much better managed print fleets and workflows. Against all apparent logic, imaging companies are now encouraging their users to print less. Are these companies suicidal, or at the very least masochistic? Not at all, they are just seizing the trend and looking for a bigger piece of a smaller pie.
The imaging industry has historically done very well due to three trends:

1)  Oversell capacity
2)  Avoid transparency
3)  Lock in the customer

Add special bonus business areas like color and high volume print production, and you have a stable and extremely attractive business model. 

But now there are signs that this world will be changing:

- Economic pressures are forcing user organizations to take a closer look at printing costs, especially redundant printouts and color output.
- Improved analysis and management tools are now commonly available to allow a quick and easy view into actual printing patterns.  Even the most simple utilities deliver impressive depth and detail.
- End user awareness is increasing as managed print services are launched and promoted by numerous vendors and their channel partners.
- Competitive pressures create a spiral of activity.  Those vendors without a well developed MPS program will be at an increasing disadvantage as competitive offerings multiply.

Any trend to actively promote reduced printing seems self-destructive for imaging vendors. But the strategy does have an advantage in promoting an attractive approach to gain the attention of the customer. And if you win the comprehensive deal, you can actually end up with more print volume by channeling more prints to your models - a bigger piece of a smaller pie.

As a forward strategy, some vendors recognize and embrace this trend. Lexmark has introduced the shockingly direct phrase "Print Less, Save More" to express this sentiment. Coming from a printer company, that definitely attracts attention.

One point missing in the equation is the possibility of including third party consumables to lock in even more savings. OEMs will logically not support this approach, but dealers will not be so critical. Those dealers can reach cost-per-page values that are otherwise unattainable, which is as attractive an argument is strong enough to earn close consideration.

Thursday, February 19, 2009

HP - Looking for the Balance

Most readers will be aware of the results announced yesterday during the HP earnings call. Without going into the numbers that are well represented in the public domain, there are a few notes and comments to add to complete the picture. CEO Mark Hurd heaped praise on the services business area, which to their credit performed well relative to the other business areas and to the market in general. He even singled out services as the "other" attractive annuity business with healthy and steady margins.  
Missing the chance for a balanced statement, the original annuity business (IPG) was not even praised faintly, but rather criticized for inadequate execution, especially inventory management. Hardware revenues were hit especially hard, but supplies compensated to a large extent, which is what is supposed to happen. Altogether, IPG operating profits of 18.5% exceeded those of every other business group. 

That said, the supplies trend was similar to the rest of the imaging industry, namely disappointing. With hardware sales hurting with double-digit declines, the hoped/expected steadiness of the consumables revenue was soft and turned negative, albeit at a more modest single-digit rate. Despite price increases which raise unit ASPs and encourage forward buying in some contract models, IPG supplies revenue was still down 7%. The overall swing in supplies revenue (more than -15% Q/Q) is concerning and the exact causes still need to be clarified.

While Hurd has his point regarding execution and the necessity to improve the supply chain, it is also true that the IPG business model is still robust, especially at higher volumes. Without earning an explicit mention, one interesting datapoint we spotted was the impressive 25% increase in Indigo page volume. This growth is lower than other years but still an indication of the returns that can be achieved in other underserved segments. Which could beg the question what the company could do to take better advantage of those mid- and higher-volume opportunities. A statement or strategy in that direction would have been helpful.

Monday, February 9, 2009

Lyra Symposium - the Wide Open Field of Wide Format

This will be the last comment from the Lyra Imaging Symposium (it was, after all, a week "or so" ago): while there are signs of maturity in many corners of the imaging industry, one area that is refreshingly fresh is the wide format space.
Rak Kumar, VP at EFI and General Manager of their VUTEk printing division, presented an excellent history of the wide format segment. And Dave Rocheleau from Lyra also provided a very good overview of recent segment developments and current business drivers. But in addition to the wealth of technology and historical information, the most crucial message participants could take away was that this product and business segment is still quite diverse and has yet to peak. A number of complementary / competing output technologies and formats, application areas and vendors are still in various stages of emergence, with hints of consolidation hanging heavy in the Rancho Mirage air. 

There is no truly dominant technology, with at least three or possibly four in the active running to support various applications and price points. The output systems are unquestionably the result of considerable investment, and success is dependent on an intricate mix of hardware, ink formulations, media support, print controllers and of course the appropriate sales channels to get these beasts to market.

It is obvious that small companies will not be able to invest and succeed in all areas, but in such a fragmented market they can certainly survive (at least for now) by concentrating on selected markets and applications. More importantly, though, Symposium participants could sense the immense opportunities that larger mainstream companies perceive as they look for new, complementary and more profitable imaging market segments to pursue. Just as one example, EFI has started to find their way in this segment, and maybe just in time: in the past year, for the first time in their history, the controller product area did not deliver the majority of their revenue. It might not be quite so vital for other mainstream vendors to develop another leg for their business to stand on, but there is certainly plenty of money to be made. Other vendors of note are already dabbling in the wide format arena, and we can expect that the action and competition will only heat up in this area.

Sunday, February 8, 2009

Kodak - Repercussions of a "Bipolar Disorder"

Following the recent Kodak Investor Meeting, some confusion emerged regarding the future prospects of their electrophotographic product group (Nexpress and Digimaster). Much of the session's  discussion revolved around what CEO Antonio Perez called "buckets" of activity, and depending on which bucket a product group was associated with you could sometimes infer what the fate of that product group would be. But sometimes not . . .

A small number of product groups (three, to be exact) will receive the highest level of management attention and resources to develop future business as members of the core investment bucket. The selected product groups are a somewhat eclectic mix: Enterprise Solutions (workflow applications), inkjet production systems (Stream technology) and consumer inkjet products.

Another bucket was cash generation, implying established and profitable product groups to be exploited, essentially cash cows to be milked with moderately low maintenance.

The electrophotographic group was not selected for either of these groups, each of which has more obvious implications for the respective business areas. Instead, the Nexpress and Digimaster products were placed in a dubious third bucket called transformation.  This bucket contains a number of activity sub-buckets ranging from disposing of the business immediately to investigating the best way to generate short-term cash (sounds pretty similar) to repositioning the product group. 

What repositioning means depends on what product group is under consideration as well as presumably who you ask and how various alternative strategies are playing out. This may include joint ventures, partnerships, licensing or niche strategies.  Of course, if these partnership or other goals are not achieved, one would hardly have an alternative other than to consider disposing of the other product groups as well.  

But Kodak management did not want to make that explicit statement for the electrophotographic products, instead emphasizing their business value and the anticipation that these product areas will be supported and expanded in the future. Noble, except for the fact that if they really stand by a product line, then (by their own definition) they would place it the core investment bucket. Which did not happen for Nexpress and Digimaster.

Saturday, February 7, 2009

Lyra Symposium - the HP Inkjet Rant

Another impression from the Lyra Imaging Symposium: HP is determined, obviously with their own best interests in mind, to promote what they view as the best hope for the future of the printing and imaging industry. While different technologies and product groups will logically be targeted at (hopefully) the most appropriate user groups, the pitch always depends on the product group association of the pitchmaster.

The topic in this case, ink jet technology, probably did not surprise too many participants. The partisanship of the presentation as well as the lack of strategic balance did, however, strike a number of attendees as notable. Glen Hopkins, VP/GM of Printing Technologies, was definitely focusing on "a bit" less than the full picture in his presentation describing the emerging battlefield for small and medium businesses.

Talking up inkjet and more than implicitly talking down laser, Hopkins addressed each of the perceived weaknesses of inkjet, obviously trying to make that technology more palatable to the general office user. Aside from the point that this particular audience is not really the group that needs to be persuaded, the lack of balance in the presentation revealed a hint of desperation in the strategy to move inkjet upmarket.

The discussion itself was right to the point, addressing the key historical problem areas of inkjet in the office: product reliability, image quality, speed, cost, and the infamous "laser bias." Notwithstanding the fact that inkjet speeds and feeds have definitely improved, along with numerous other key product metrics (along with parallel developments on the laser side), vendors do still have to deal with a well documented bias in the office for laser and against inkjet. Justified or not, it is a fact to deal with if you want to break that portion of the market open. And justified or not, the laser vendors will continue to leverage and exploit those prejudices to ensure that there is no quick shift of sentiments.

And in the final instance, the market, not the marketers, will decide. According to the presentation, inkjet technology is ready for mainstream business prime time. In the HP world, presumably they feel they can win either way on this emerging battlefied. But that thesis could have been formulated in a more strategically coherent fashion. And since there is nothing inevitable about this development, we will continue to track movements in this space closely.

Tuesday, February 3, 2009

Lyra Symposium - a Green Tipping Point?

One of the most entertaining sessions at the Lyra Imaging Syposium was the podium discussion regarding environmental issues. We have heard a lot over the years about the "year of . . . (whatever)," and certainly one or several of these recent placeholders have included green themes. But the issue will not go away, and judging by the knowledge and supreme confidence displayed by the panelists, they are on a roll. These companies represent viable (and profitable) alternatives to the captive razor-and-blades model.

The imaging industry has a lot going in its favor. Due to the annuity factor, fast-developing technology components and overall pervasiveness of printing, the business model works and will continue to deliver healthy profits. But this green trend is worth watching especially now, and especially for those companies who are in (too?) deep with hard copy to the detriment of other software/workflow/services balancing efforts.

Points to watch for:
- Generational attitude and behavior shifts regarding printing
- Meshing of cost-saving and environmental factors
- Increased capabilities to deliver cost transparency and control
- Improvements in performance, availability and awareness of third party supplies offerings
- And, most importantly, how the OEMs and their partners are re-shaping their business to address and leverage these shifts to their favor.

Current earnings announcements are indicating downturns in print output and usage. While blaming the economy, even those companies with exemplary field data (eg, Xerox) admit that they do not really know how much of the change is due to new usage patterns. We will be tracking these developments closely.

Monday, February 2, 2009

Statistics, Damned Statistics, and . . .

Lexmark:  their earnings call was no more of a surprise than many others. Given their background and the state of the economy, it hardly comes as a shock (in fact, the  announcement hardly raised an eyebrow) that their Q4 net earnings dropped to zero. While there are certainly variations to be expected, it seems that a lot of companies will follow the same pattern: revenue for the quarter and for the year will be off modestly, Q4 earnings will be abysmal, and full year earnings will be down substantially but still well in positive territory. Which is actually a testimonial to the resiliency of the industry and possibly even a sign of a (relatively) quick recovery.
It was slightly entertaining to hear their spin on cash generation. Lexmark management proudly stated that they generated more than $450M for the seventh year in a row. Well, congratulations and everybody always appreciates positive cash generation, especially in the magnitude of hundreds of millions of dollars. But why such an odd cut point? Well, because it works. You could look at the same figures and state (correctly) that this is the first time since 2001 that they produced less than $500M. So maybe we are actually witnessing a progressive decline that needs to be addressed? 
The logic of reducing focus on consumer/ink jet products was obviously to concentrate on higher value product categories, either business ink jet (contradiction in terms?) or laser products. Ink jet hardware revenue did do the right thing (so to say) by dropping dramatically. Laser hardware did not respond enough to compensate, though, and delivered disappointing negative results. Supplies revenue was certainly bolstered by the shift in product mix (and some channel filling triggered by price increases), but overall the results were down in this category as well. Both of these results were definitely not part of the plan . . .

Bloggers' Row, Continued

The Lyra Imaging Symposium 2009 was informative and entertaining as ever (who would have thought that a discussion on green themes could be a real highlight?!), but timing did turn into an issue with more than a handful of discussions and earnings calls happening simultaneously that pushed the promised blog coverage into the background.
Luckily, the others along "bloggers' row" covered the event in real time, and my intention is to add some observations and highlights this week as a follow up. Might even be a better approach to glean the best impressions and maximize value for readers, he muses with a slightly self-justifying tone . . . 
Anyhow, heads up for a mixture of comments and quips from the Lyra event as well as the most recent earnings.