Printer Market

Date: Feb 21, 2005
Contributor: Dona Gutowski

Printer market jammed

Lexmark's in a tight spot with Dell adding other suppliers and HP buckling down: but is it a buy?

The desktop printer business, of course, is all about selling the ink cartridges. The lowly cartridge essentially has printed money over the years for HP, Lexmark, and more recently, Dell.

Last week, however, we saw some new machinations in the market that may present risk-friendly investors with a buying opportunity -- if you can look beyond the short term news and peer out at longer trends.

Lexmark, the long-time second fiddle to HP in the printer market, got hammered last week by two negative, unrelated, stories.

The first was a downgrade by astute Needham and Co. analyst Charles Wolf.

He called attention to the fact that Dell -- which rebadges Lexmark printers -- was moving to other printer makers much quicker than he had anticipated. With Lexmark getting a smaller percentage of its key partner's sales, the blush was off the rose.

Then Hewlett-Packard executives made very clear last week they intended to make a push for market share in printers. Anyone who follows markets knows that "gunning for market share" means "we're dropping prices." HP's move -- should it happen -- pretty much forces Lexmark's hand.

"Theoretically, Lexmark could maintain prices and cede share," says Wolf. "But they're unlikely to do that. If they cede share their installed base won't grow, so the all-important cartridge revenue won't grow. If HP does price aggressively, Lexmark will be forced to meet their pricing."




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