South Africans currently using Lexmark inkjet printers will not suddenly find themselves running out of ink, or with devices that cannot be repaired.
Once one of the world's top inkjet players, Lexmark this month sold out of the market by disposing of its unprofitable inkjet business to its original equipment manufacturer, for $100 million - some R909 million - as it moves towards becoming a services company.
Lexmark SA MD Mark Hiller says there will be no change as far as end-users who own Lexmark inkjets are concerned. He adds that ink will be available until there is no further demand, and five-year warranties will be honoured.
About half-a-decade ago, Lexmark was a serious contender in the inkjet market and was SA's top-selling manufacturer in the sector. However, it lost its way and never regained market share.
Last week, it wrapped up a strategy it started about six months ago and sold 1 500 inkjet patents, its inkjet-related research and development assets and tools, all outstanding shares and a manufacturing unit, as well as other inkjet-related technologies and assets to Japanese consumer electronics company Funai Electric.
Funai will manufacture Lexmark's aftermarket inkjet supplies, while Lexmark will continue to support its installed base of customers in the sale of aftermarket inkjet supplies, and will continue to provide customer technical and warranty support, notes a statement.
The move marks the end of Lexmark's inkjet business, although Funai is set to launch new inkjet hardware and supplies under its own brands. Through the deal, which should close in the first half of the year, Funai will acquire the capabilities to develop, manufacture and sell inkjet hardware as well as inkjet supplies.
Funai president and CEO Tomonori Hayashi says the deal "provides us with a crucial and tremendous opportunity to enhance our office solution business". According to IDC, inkjets accounted for 64% of the total hardcopy peripherals market in the last quarter of last year, with 19.8 million units shipped, a 14% year-on-year decline.
"This transaction essentially completes our exit from the ownership of inkjet-related assets, although we will continue to support our existing customer base with the sale of inkjet supplies," says Paul Rooke, Lexmark chairman and CEO. He adds that Lexmark is transitioning into an end-to-end solutions provider.
Doing badly
Independent analyst Paul Booth says Lexmark was, around five years ago, one of the biggest players and - for a time - held the top spot in SA. He adds, however, that the market is difficult as the profit is not in the devices, which are sold at a loss, but in consumables.
Booth notes that refilling technology is costing players in terms of revenue and profit. He says Lexmark has, as a result, ditched the consumer market to focus on services and laser technology.
According to IDC, Lexmark is not currently in the top five printing companies, based on its latest tracker. Last year, a total of 113.5 million devices were shipped, with HP leading the market with sales of 44.2 million and 38.9% of the market.
Zacks Equity Research notes the inkjet business is not profitable, and Lexmark's move is in line with the restructuring plan it announced in August last year. The exit from the inkjet business should save Lexmark about $85 million this year, ramping up to $95 million by 2015.
Lexmark also announced plans to shut down its inkjet supplies manufacturing facility in Cebu, Philippines, by 2015, trimming staff by 1 700. Zacks notes Lexmark will record a pre-tax severance charge of $30 million in 2013 and $10 million in 2014 and 2015 each.
"As part of its restructuring initiatives, Lexmark planned to abandon its consumer-based inkjet hardware (printers) business, which failed to generate profits for the past few quarters. Instead, the company intended to focus more on the high-margin imaging and software solutions business," notes Zacks.
Funai has manufactured inkjet hardware for Lexmark since 1997. It has established a strategy to develop and grow its inkjet printer business by introducing its own inkjet printers and supplies into the market. "With the inkjet patents, state-of-the-art manufacturing facilities and comprehensive R&D capabilities, Funai will be able to accelerate the expansion of its inkjet business."
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