by Ron Iversen, VP Market Intelligence, Virtulytix
Most of you know that the printing market is declining and will continue to decline as fewer and fewer printed pages are being replaced by electronic documents. This has an impact not only on new printer shipments but more importantly on the printer installed base which is what drives consumable and maintenance revenues. Why is this significant? Well, because consumables represent about 65% of total print revenue and a higher percentage of profits to printer manufacturers and this is why printer manufacturers spend huge amounts of money in legal fees defending their printer cartridge patents.
If you look at printer manufacturer revenues and operating profit trends since the beginning of 2014, there are some similar patterns. First, despite the fact that the industry has been declining over this period, printer revenues have only slightly declined, but operating profit percentage has declined, which is why most printer manufacturers have transformation plans in place to reduce costs. Also, for manufacturers that have other businesses in addition to printing, the printing business typically generates much higher operating profit percentage than their other businesses and this is driven by the high profits from consumables. For example, in HP’s latest quarter, their Personal Systems (PC’s etc.) revenue was $8.76B vs. the Printing revenue of $5.4B but the percentage operating profit was 3.8% and 16.0% respectively.
So, given all of this, what are printer manufacturers doing? First, they are all trying to minimize the decline of their shipments by refreshing their product lines and trying to gain market share from other manufacturers. HP is trying to protect their leading A4 format printer market share and are aggressively trying to increase their share of the A3 format printer market share with introductions of new A3 Pagewide inkjet printers and A3 laser printers as a result of their acquisition of Samsung printer business. Most of the other printer manufacturers have refreshed their product lines over the last 12 months and are trying to gain market share in segments where they have a low market share. For example, HP is trying to increase their share of the A3 format printer market, Xerox is trying to increase their share of the A4 format printer market, and Epson is trying to grab a large share of the low end monochrome laser printer market with their Eco-tank business inkjet printers.
As mentioned earlier, all manufacturers are doing whatever they can to protect their consumables business. Printer manufacturers are aggressively trying to protect their cartridge patents using the legal system. They are trying to make it more difficult for aftermarket suppliers to develop compatible cartridges. HP, through a firmware upgrade, made some printers inoperable when using cartridges that were not original HP cartridges but the courts ruled against HP on doing this. Epson’s Eco-tank printers ship with two years of ink priced at a premium so Epson captures higher margins upfront and they protect their supplies business for at least two years. A brilliant move by Epson.
So, what else can printer manufacturers do to minimize continued declines in their existing printing business? They can pursue growth opportunities outside their traditional business, some manufacturers are well on their way with their pivot strategies. HP and Xerox are pursuing the 3D printing market with the idea of being a part of an expected revolutionary change in manufacturing. Other printer manufacturers are pursuing opportunities outside of traditional office printers such as label printing, ID card printing, and wide format printing. For example, recently Canon USA announced a line of label and ID card printers, Oki Data acquired Seiko Instruments, Inc (SII) to get into the wide format printer market, and Konica Minolta acquired Muratec USA giving them access to a high-speed label printing product line.
Lastly, I predict that there will be continued consolidation in the industry following HP’s acquisition of Samsung Konica Minolta’s acquisition of Muratec, Apex’s acquisition of Lexmark, Oki Data’s acquisition of SII, and FoxConn’s acquisition of Sharp. There are about 14 printer manufacturers today (down from double this amount in the 1980’s) which, in my opinion, is still too many for a market that is declining. The printer manufacturers that will survive will be those that consider their printer business as being strategic (i.e. HP), those that that have a printing business that represents a majority of their revenues and profits, and those that are able to transform and adapt their businesses to a shrinking market.