“Lex” marks the spot…
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Lexmark, Inc. (NYSE: LXK) has just announced their exit from the inkjet printer industry. The company is now focusing on developing its more profitable software, managed-print services, and laser-printing operations. Lexmark is seeking to curtail expenses by laying off about 13% of its workforce and close down facilities in the Philippines. Lexmark wants to get out of an already sticky situation that is unfolding in the printer industry.
The Lexington, Kentucky based company’s move to get out the inkjet market isn’t surprising, considering the state of the printing sector. Federico De Silva, an analyst at Gartner Inc, explains: “It’s symptomatic of an industry that’s under a lot of pressure. It’s sort of the culmination of [Lexmark’s] strategy, to exit inkjet altogether. People are printing less and less, and not just in the consumer space.”
Investors were upbeat over the developments at Lexmark as the company’s stocks climbed 16% in one day of trading to $22.05, but the stock is still down more than 33% since the beginning of the year.
Lexmark’s selling of assets and laying off workers may turn it into a takeover possibility from competitors such as Xerox Corp. (NYSE: XRX) or Dell Inc. (NASDAQ: DELL). Lexmark might soon be billing itself for some sort of acquisition, as they keep getting smaller and smaller.
Xerox, if it took over the reins of Lexmark, would gain access to more customers as it transitions to services and high-end printing. Dell already sources laser units from Lexmark, making it another potential buyer.
All three companies are keeping any potential plans for a buyout under the proverbial hat. Kenneth Ericson, a spokesman for Norwalk, Connecticut-based Xerox, declined to comment on the potential buyout. David Frink, a spokesman for Round Rock, Texas-based Dell, said the company doesn’t make remarks on speculation. Jerry Grasso, a Lexmark spokesman, also refused to comment on the situation.
The digital revolution has been driving new innovation and technology, often at the expense of older companies. Dell recently reported poor earnings as computer sales have dried up, while Hewlett-Packard (NYSE: HPQ), the world's top PC maker, followed suit with equally poor earnings. Earlier this month, Hewlett-Packard reported a 15% decline in consumer hardware revenue in the last quarter, with a 15% decline in printer units. HP is similar to Lexmark in that the company is stuck in a rut and its stock has been descending into a pit of despair. HP’s stock continues to decline, currently hovering around $16.91 per share, down from a February 2012 high of $29.89 per share.
Canon (NYSE: CAJ), another major player in the printer and copier market, as well as Xerox have cut their earnings forecasts this year. As is typical, they blamed events beyond their control, such as fiscal uncertainty and weaker business spending in Europe. Regardless, imaging and printing technologies drive these companies, and as paper printing continues to decline, printing companies will continue to struggle. Xerox, Lexmark and Canon stock all are down significantly in 2012 vs. a 12% rally for the S&P 500 Index. All three stocks have a five-year return of negative 40% or worse.
However, there is hope for these companies. Lexmark, Xerox and Canon are involved in sectors other than the dying printer sector. Canon and Xerox are still very profitable, and have seen their revenue and profits actually improve since the dark depths of the recession.
Years ago, Xerox started to see the not-so-pretty picture with regards to the printer business, and has been pushing itself as a business services outsourcing firm. Canon has tried to capitalize on digital cameras for consumers and medical imaging technologies to replace its office and printer business.
So, has Lexmark’s exit from manufacturing inkjet printers made it a good investment? As of now, the company is in a rebuilding stage and is struggling to make ends meet. As previously mentioned, Lexmark’s stock is down 33% since the beginning of the year. Long-term, Lexmark is destined for possible strong performance in its software services and laser-printing operations, if it isn’t bought out by another company by that time. But short-term, Lexmark has a long way to go. Lexmark is desperately trying to establish a relevant image in this new era. As the digital revolution marches on, the death of paper printing may well be marked by this spot in history.
EvanBuck has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.