Connecting the dots

Fleur Doidge asks whether Lexmark is dotty to exit the inkjet market or leading the pack

Lexmark caused some surprise in late August when it announced a major worldwide restructure that would axe its inkjet division and shed 1,700 staff. Inkjet continues to be a popular printing technology; quarterly research from market watcher Context in December singled out all-in-one (AIO) inkjet printers as the leading category in EMEA, accounting for 68.1 per cent of the market. In the UK, AIO inkjet printer sales rose 9.6 per cent quarter on quarter.

Was the Lexmark move misguided? The US-based manufacturer has indicated it was less about the technology's viability than about focusing on the most profitable areas overall -- and every reseller knows sales volumes in themselves do not necessarily translate into profits.

Other leading vendors -- HP, Epson, Brother and Canon -- apparently remain committed to inkjet. However, Context's figures also revealed that total sales of inkjet devices have nevertheless been on the slide, and may even hint at chances of a more precipitous collapse to follow that is not simply about ongoing economic turmoil.

"AIO inkjet printers, the leading category accounting for 68.1 per cent of printers sold in EMEA, saw unit sales drop 2.1 per cent in Q3 2011 compared to the same period last year, with the largest decline of 20 per cent in central and eastern Europe," Context wrote in its quarterly analysis. "Sales of AIO lasers, however, grew 22.7 per cent in the quarter, while copier-based MFP sales grew 19.5 per cent."

Reading the fine print

Lexmark's own overall sales have been declining. Context's Q3 2011 study indicates that the vendor sold only 2.1 per cent of the total number of printers sold globally, down from 3.1 per cent in the year-ago quarter. Most of the growth figures when it comes to sales of office printers recently have been for laser.

James Kight, managing director of Cheshire reseller Printerland, says that in his growing business about 90 per cent of sales are related to laser printers, laser consumables and managed print solutions (MPS). Inkjet remains a "massive area" for sales - but not for Printerland, which nevertheless includes inkjet in order to offer a complete portfolio. Some people prefer inkjet technology, for a variety of reasons, yet it is laser and managed print where the margins still exist to be made, he says.

"We do a lot of inkjet but it is a smaller part of our business. We do Epson, Kodak -- all the manufacturers -- and we do B2B mainly. I think what Lexmark is doing is quite interesting. Clearly it is not following what we do, but it does resemble our business model," says Kight. "Inkjet was not profitable for Lexmark - that is the bottom line."

Businesses, notes Kight, consider cost and reliability as the crucial selling points in printer purchases. Inkjet has suffered from image problems concerning cost and reliability, especially in the not-too-distant past, and meanwhile laser printers have become more cost effective and user friendly. There are smaller A3 lasers today that have the office footprint of a typical A4 machine several years ago, he explains.

Lexmark's lasers, says Kight, are good machines and will continue to drive sales for Printerland. Meanwhile, inkjet re-manufacturing has expanded, and other manufacturers such as Kodak have worked hard to bring down the cost of inkjet consumables, to as low as £12 for colour ink in some cases, and while that certainly appeals to the end user, it further reduces reseller margin, he adds.

"The market has changed," says Kight. "And when they [Lexmark] announced the restructure, their share price went straight up by about 15 per cent."

But Peter Knight, managing director of Lancashire VAR Printerbase, describes the Lexmark decision to withdraw from inkjet at this time as "a bit odd in some ways". He says there are plenty of growth opportunities for the channel in inkjet; even if growth is not as strong as you would like, if the kit is still selling, it is still selling. He points out that the industry is littered with examples of big vendors giving up on a category too early - to the disappointment, often, of a range of customers.

"Inkjet hardware is probably 30 per cent of our business, and it has gone up. We are primarily B2B but we still have a lot of end-user customers opting for inkjet, especially with some of the new machines," he says. "Our Brother MFD inkjets have been a big success for us."

Epson's WorkForce inkjet range and the Lexmark Pro services range has also been proving popular. Knight says it is possible that Lexmark may have seen improvements in its inkjet sales over time, going by the feedback Printerbase gets from its customers.

"The messaging on inkjet is now finally getting through to end users. The reputation was that they were very expensive to run - which they were," he says. "But inkjet today can be as economical to run as a laser and you also do not have the power drain that you can with laser."

He suggests that Lexmark may have suffered in part from the "Tesco" phenomenon, where end users would buy a low-priced inkjet for £30 or so and discover it is either not fit for purpose or requires another £30 to be spent on ink. As a result, some customers had taken a dim view of inkjet generally, when they may simply have tried to over-economise.

"We will certainly continue to work with Lexmark on the laser side. They have good machines, and we have a good relationship with Lexmark. Their lasers have a very good reputation in the market," agrees Knight.

Tony Burnett, group sales director at print specialist Altodigital, says it, like Printerland, is a Lexmark partner but very much focused on its lasers, which he says are a strong product backed up by quality document management and solutions. Inkjet is only a fraction of what Altodigital does, he confirms.

"I feel the inkjet business is mainly consumer business - that is what we were seeing. Inkjet has its advantages, but business customers favour laser in terms of durability," Burnett says.

He points out that print volumes are rising, despite the long-running "paperless office" predictions, and as a result Altodigital's business customers are primarily looking for consolidation of the print fleet into fewer, larger machines with more functionality. Also, managed print and document management offerings are becoming ever more key to the VAR's sales.

"A lot of our business is corporate, and when you get into a corporate environment, the aim will be to reduce the number of printers," he says.

Colour me profitable

Altodigital signed Lexmark about six months ago, so it is early days, but the firm definitely sees ongoing strength in the brand and opportunities for sales growth, Burnett adds.

"They are strong in A4 and they are very strong in solutions," he concludes.

Neil Colquhoun, business sales director at Epson UK, agrees that inkjet is certainly going from strength to strength, even if only in certain ways or markets. However, for Epson, Lexmark's decision to withdraw from inkjet will reduce competition for its own inkjets.

"Although there are many analysts reporting that the inkjet market is shrinking, Epson plans to grow its business," he says.

He notes the Lexmark move was about business consolidation. On the other hand, Epson's micro-piezo inkjets are targeted at a range of markets, including consumer, as well as pro photography, CAD, photo proofing, digital signage and various industrial applications. But there is also still room for inkjet in some offices, he insists.

He says Epson's colour laser sales have levelled out over the past 12 months, although they remain healthy. However, its WorkForce Pro business inkjets, launched in August 2011, have seen sales rise monthly. Although it refuses to release actual figures, Epson claims these now outperform its colour laser sales by a factor of four to one.

"We are putting a lot of investment into inkjet. The key value proposition we have is that it is faster than colour laser, [and requires] 80 per cent of the energy consumption than colour laser, at 50 per cent less cost. That takes us into a lot of vertical markets: small businesses, healthcare, education and retail," Colquhoun says.

Xerox, another major vendor remaining committed to inkjet, focuses the technology on production and professional markets, promoting its own solid ink devices to the general office and business market for preference.

Market leader HP was also asked for comment on inkjet in the wake of Lexmark's exit announcement, and responded with a statement. "HP is not able to comment on this [the inkjet market] at the moment," it wrote.