Lexmark Disappoints with Q2 Earnings Drop

The second largest printer maker says decreased cartridge sales and increased competition from HP and Kodak are to blame.

Lexmark International announced that its financial results for the second quarter will be lower than expected, declining about 2 percent year over year, with similar results expected in the third quarter as well.

The Lexington, Ky., company said that the drop in earnings is due to decreased revenue in ink-jet supplies, the cutting of prices on hardware and increased competition in the ink-jet printer market.

According to Lexmark officials, the company erred by focusing on making and selling more expensive ink-jet devices and laser printers, rather than the low-end ink-jets that drive profits through the sale of ink-jet cartridges.

"Printer vendor profits come from supplies, so the more pages that are printed, the greater the manufacturer opportunity for profit," said Susan Lyon, research director of Hardcopy Peripherals and Document Solutions at Framingham, Mass., technology research firm IDC.

Lexmark, the second biggest U.S. printer maker, also reported that it had predicted a net income of at least 82 cents but instead found that its net income fell to 64 cents to 69 cents a share and that the company had also lost sales to Hewlett-Packard, its top competitor.

"Competition from HP is fierce in the ink-jet consumer marketplace, where hardware margins for all players are negative to razor thin at best," Lyon said.

Kodak is another printer vendor that is threatening Lexmarks market, with printers that include ink cartridges priced reasonably.

However, Lyon said that it may not be all downhill for Lexmark, as the company can try to grow in other areas.

"In the long run, Lexmark has the capability for growth in managed-service contracts, especially in certain verticals in the U.S.," Lyon said.

Lexmark said that it will have no comment on its second-quarter results or third-quarter predictions until its earnings announcement scheduled for July 24.


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