Lexmark International has exited the inkjet printer business and is laying off 1,700 people as part of a restructuring plan to improve profitability.
Lexmark's restructuring will result in job cuts mainly tied to the inkjet business, including 1,100 manufacturing positions, the company said in a statement Tuesday. As part of the restructuring plan, the company is shutting down an inkjet supplies manufacturing facility in the Philippines by the end of 2015, and will eliminate other inkjet development assets by the end of 2013.
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While the company will stop offering inkjet printers, it will continue to provide support, services, and supplies for its inkjet installed base, said Marty Canning, Lexmark executive vice president and president of imaging solutions and services. Supplies will continue to be available through the channel and the company's website, and Lexmark will fulfill warranties.
Lexmark will now exit the consumer business and focus on enterprise products, including higher-margin products such as multifunction printers, managed print services, content management and other software products, Canning said. Lexmark is also working with advisers to explore the sale of its inkjet-related technology.
Inkjet printers are a low-margin business, and while supplies can bring in revenue, it is not sustainable, said Crawford Del Prete, executive vice president of worldwide research at IDC.
"This is an indication that Lexmark will drive higher price points for devices," Del Prete said.
Devices like multifunction printers and laser printers are either higher margin or bring additional revenue through value-added services such as imaging and content management.
"It's very much indicative of when the markets are not necessarily growing to fuel long-term sustainability, you have to focus on higher-margin business," Del Prete said.
The company was also pitted against established competitors like Hewlett-Packard, Canon, Xerox, and others, which can sustain an inkjet business because of higher volumes, Del Prete said.
Companies have adding more features to inkjet printers, such as the capability to print directly from mobile devices, or running applications on printers that print special documents like children's books. But as printer prices drop, the consumer printing businesses of Lexmark's rivals have also been suffering. HP earlier this month reported that revenue for the Imaging and Printing Group in its fiscal third quarter declined by 3 percent compared to the same quarter the last year. HP's commercial hardware revenue and unit shipments were up 4 percent, but the consumer hardware revenue and unit shipments declined by 13 percent and 23 percent respectively.
Lexmark may be known for its printers, but the company has been serving enterprises for a long time, and the company's software strategy is key to fueling growth in the enterprise market, Canning said.
The company wants to extend its imaging and content management capabilities from just scanning and capturing data, to making sense of data once it's captured, and moving documents effectively to databases and ERP (enterprise resource planning) systems. To that extent, the company will continue to develop its "intelligent capture" tools and also build its software strategy around structured and unstructured data, Canning said.
But Canning also recognized there's a tough road ahead with competition from the likes of HP and Xerox, which lead the imaging, printing and document management services businesses. The company will look into relevant acquisitions and partner with companies to compete effectively, Canning said.