Lexmark 1Q2014 earnings fall 27 percent

April 23, 2014

lexmark-logoWeaker product revenue and higher operating expenses attributed to first quarter decline.

Market Watch reported on Lexmark’s 27 percent fall in profit during the first quarter of 2014 (1Q2014), with the OEM reporting a profit of $29.3 million (€21.2 million), or 46 cents per share, compared to a profit of $40 million (€29 million), or 62 cents per share, a year earlier.

Lexmark has attributed the decline to weaker product revenue as well as higher operating expenses, with the company “wrestling with a maturing hardware market” and “facing squeezed margins and weaker growth from developed countries” over recent years. However, the article notes that, unlike some OEMs, Lexmark has “worked to stick to its core business and add software around it” rather than diversifying further afield.

Per-share earnings reportedly declined to 92 cents from 95 cents, while revenue fell by 0.8 percent to $877.7 million (€634 million). This differed to the prediction of analysts that earnings would fall to 87 cents per share on $856 million (€618.4 million) in revenue.

Looking ahead to the second quarter of the year, the company has forecasted an adjusted profit of 85 cents to 95 cents per share on a revenue decline of between two and four percent, compared with analyst estimates of 94 cents per share and a revenue decline of four percent.

Lexmark reportedly stated that it expects a “continued negative impact” following its decision to exit its consumer and business inkjet hardware and supplies business in 2012.

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Lexmark introduces new printer series for SMBs

April 4, 2014

Lexmark MS415dn

Lexmark MS415dn

MS310/MS410 series designed to bring “enterprise-level” features to SMBs.

The OEM has announced the release of three new printers offering features designed for small and medium businesses (SMBs); including optional wireless and mobile printing, a higher input capacity and added security features.

The Lexmark MS312dn, MS315dn and MS415dn all boast environmentally friendly features such as energy saving mode and duplex printing, and allow users to control the printing of documents via a 2.4 inch colour LCD panel as well as view device and job status and, in the MS315dn and MS415dn, support “confidential print” for added security.

Mobile printing is an option for both iOS and Android device users via the Lexmark Mobile Printing App; while “remote manageability” enables designated staff to control printer settings from any browser when network-connected; including security settings, device defaults and consumables alerts, allowing for “greater flexibility and control”.

In terms of print speeds, the MS312dn offers output at up to 35ppm, the MS315dn at up to 37ppm and the MS315dn at up to 40ppm.

Marty Canning, Executive Vice President of Lexmark and President of Lexmark’s Imaging Solutions and Services, said: “Small business needs the same speed, reliability and usability found in enterprise-level printers. The Lexmark MS310 and MS410 series offer unexpected features such as confidential print, network security and remote manageability that are designed to keep small business on the leading edge of print technology.”

The printers are priced at $199 (€145), $299 (€218) and $399 (€291) for the MS312dn, MS315dn and MS415dn respectively.

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Static Control wins right to sue Lexmark over false advertising

March 26, 2014

Attorney Joseph Smith (second from left) with Static Control's Dale Lewis, William London, Bill Swartz and Michael Swartz

Attorney Joseph Smith (second from left) with Static Control’s Dale Lewis, William London, Bill Swartz and Michael Swartz

The largest manufacturer of aftermarket imaging systems and components was favoured in a unanimous decision by Supreme Court judges in the false advertising case, giving Static the right to sue Lexmark under the Lanham Act.

The company reported that the unanimous decision, which was passed down yesterday, means that Static Control now “has the right to sue Lexmark on grounds of false advertising” under the Lanham Act, with regards to the OEM’s ‘Prebate’ programme.

The case relates to the first case in 2002, where Lexmark sued Static Control, and was successful in getting counterclaims from Static thrown out. The claims are based, stated Static, on Lexmark “falsely telling remanufacturers that remanufacturing ‘Prebate’ cartridges was illegal”, with the Lanham Act used against Lexmark as it “prohibits false advertising”.

The case went to trial in 2007, where a jury ruled in Static’s favour, and after this trial, Static “successfully convinced” the Sixth Court of Appeals to reinstate its claims for Unfair and Deceptive Trade Practices and false advertising against Lexmark. This was rejected by the trail court, but the Sixth Court reinstated it, and Lexmark then asked the Supreme Court to overrule this in March last year.

The request from the OEM was granted in June 2013, with Static responding soon after, and the Supreme Court proceedings began in December 2013, with Static again reporting from the Court.

Justice Antonin Scalia of the Supreme Court wrote the opinion, which was adopted by all nine justices, and which read: “Static Control adequately alleged proximate causation by alleging that it designed, manufactured, and sold microchips that both (1) were necessary for, and (2) had no other use than, refurbishing Lexmark toner cartridges. It follows from that allegation that any false advertising that reduced the remanufacturers’ business necessarily injured Static Control as well.”

Static Control’s President Bill Swartz commented: “We are extremely pleased the Supreme Court agrees Lexmark should be held accountable for its actions. I only wish Ed, our founder, my father, were here to enjoy this victory with us.”

William London, the company’s General Counsel, added: “The Supreme Court’s unanimous decision should send a strong message to Lexmark. We plan to move forward with our false advertising suit against Lexmark and prove we were damaged by Lexmark’s false advertising.”

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Lexmark’s CFO discusses the OEM’s “reinvention”

February 14, 2014

John Gamble

John Gamble

John Gamble spoke to the Wall Street Journal about the company’s move away from inkjet.

The news outlet published an interview with Gamble, prefacing it with a note that the growth in popularity of smartphones and tablets “meant the decline, and eventual sale, of the consumer inkjet printing business” at Lexmark to Funai Electric in April 2013.

Gamble is said to have “played a key role in reinventing” Lexmark over the past three years through “strategic acquisitions”, and he stated that the OEM “started seeing the consumer print business declining quite some time ago” in 2007, with Lexmark focusing on MPS and enterprise sectors, which “have much better market characteristics”, and MPS in particular offering the ability to “improve effectiveness while minimising costs” for customers.

Describing Lexmark as “becoming a solutions, services and software company that helps customers manage their unstructured information and unmanaged imaging device environment”, Gamble believes that the OEM “can deliver a much more complete” printing solution for companies through MPS, with a heavy investment “internally to enhance our imaging hardware, printers and multifunction printers, and service capabilities”.

Specifically discussing MPS, Gamble stated that “growing our MPS capabilities and revenue is a key part of our strategy, and ensuring our software strategy supports MPS growth is key to our transition”. Lexmark’s acquisition strategy, he added, is now focused on companies that “can expand our content and process technology”, with the biggest lesson learned at the OEM being that its transition “takes a lot of endurance” and an ability to be “well-focused on the strategic goal”.

Gamble went on: “All of the decision you make, even the small ones, need to stay highly-focused on the transition to a solutions, services and software company. We’ve made sure every organisation within Lexmark had a strategy to transition at the same time. [The biggest obstacle] is just a lot of work and therefore maintaining focus across the organisation. It is something that takes a lot of sustained effort on a very detailed level.

“Can we go fast enough? There are tremendous opportunities and we need to move as fast as possible.”

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Funai Electric to open facility in Lexington after buying Lexmark inkjet technology

January 31, 2014

Lexmark's campus in Lexington, Kentucky

Lexmark’s campus in Lexington, Kentucky

The Japanese company will employ 50 people after acquiring the inkjet side of the OEM’s business last year.

Lane Report reported on the move by Funai Electric to the Lexmark campus in Lexington, which will see the company employ up to 50 staff with an average salary of $100,000 (€73,751). The company based at the site will be called Funai Lexington Technology Corporation, and will be a subsidiary of the global technology company.

The company purchased Lexmark’s inkjet technology assets in April last year, and the site will “support research and development in the inkjet and microfluidic technologies”, with an investment said to be worth around $4.2 million (€3.097 million) to the state of Kentucky.

In return, the Kentucky Economic Development Finance Authority “preliminarily” approved tax incentives for Funai worth around $1.2 million (€885,021) through its Kentucky Business Investment programme, a performance-based incentive that allows companies to “keep a portion of [their] investment over the term of the agreement through corporate income tax credit and wage assessments”.

Kentucky Governer Stever Beshear stated: “This is a prime example of an innovative company teaming up with an innovative and high-tech workforce. Kentucky’s reputation for employing educated and skilled workers is gaining the attention of companies around the world. We are very excited to welcome Funai to the commonwealth, and we look forward to seeing Funai Lexington Technology Corp. grow into a global leader.”

Kiyoshi Chinzei, Officer and General Manager of Funai Electrics’ Office Solution Business Unit, added: “Funai Lexington Technology Corp. is a critical development resource for the Funai Electric Company Limited. This new company will continue research and development in the inkjet and microfluidic technologies.

“We expect this company will lead great success for us to be one of global leaders in the new business opportunities. We are pleased with the technology resources available in Lexington and the support of the Commonwealth of Kentucky.”

In turn, Bob Quick, President and CEO of Commerce Lexington Inc. noted: “Lexington is excited to welcome Funai Lexington Technology Corp. to our technology community. Lexington was recently ranked in the top 25 high-tech hotspots in America, and Funai’s decision to locate in our city is a testament to our educated workforce, low cost of doing business and innovative spirit.”

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Lexmark reports quarterly and yearly results

January 29, 2014

The OEM saw revenue growth even excluding the company’s exit from inkjet printing.

Paul Rooke, Lexmark CEO

Paul Rooke, Lexmark CEO

Lexmark’s results saw revenue growth of four percent in 4Q2013, which goes up to 11 percent excluding the OEM’s exit from the inkjet business, with its MPS revenue increasing by a substantial 22 percent in the quarter and 16 percent over the year.

The company’s Imaging Solutions and Services (ISS) business, including laser printers, saw revenue grow one percent to $939 million (€686.5 million), and excluding the inkjet exit, grew eight percent compared to last year. Its MPS business in turn saw a growth of 22 percent in revenue to $208 million (€152 million), whilst non-MPS revenue grew four percent to $631 million (€461.3 million).

In terms of hardware and supplies, revenue grew in both by three percent and one percent respectively, with totals of $228 million (€166.6 million) and $661 million (€483.2 million) respectively. Hardware revenue, excluding inkjet exit, grew seven percent, whilst supplies grew eight percent.

Revenue from the inkjet exit meanwhile declined by 32 percent to $100 million (€73.1 million), representing 10 percent of total revenue, and is “expected to decline as a percentage of total revenue as the trailing inkjet supplies revenue from the remaining install base of inkjet printers naturally decreases over time”.

Lexmark also revealed results for the whole year, noting that ISS revenue declined five percent to $3.444 billion (€2.517 billion), and excluding inkjet revenue grew by one percent. The MPS business grew 16 percent to a revenue of $722 million (€564.4 million), and inkjet exit revenue for the year fell by 37 percent, representing 11 percent of the total company revenue for the year.

Hardware revenue for the year fell eight percent to $763 million (€557.8 million), whilst supplies revenue fell six percent to $2.484 billion (€1.816 billion), with the former declining two percent and the latter growing by two percent excluding the inkjet exit. The company predicts that revenue in the first quarter of 2014 will increase, but expects a “continued negative impact from the decision to exit inkjet”, with total revenue thought to decline by three to five percent.

Paul Rooke, Lexmark Chairman and CEO, stated: “In the fourth quarter, Lexmark delivered strong revenue and earnings growth, and generated operating cash flow of more than $200 million (€146.2 million). Perceptive Software’s profitability increased again year to year, and once again Perceptive Software and Managed Print Services revenue each grew at a double-digit rate and now together represent 28 percent of our total revenue.

“The synergies we have created with our unique imaging and software solutions resonate well with our customers as we help them solve their unstructured information challenges. Lexmark is increasing value for our shareholders by utilising the company’s long history of free cash flow generation to return capital and accelerate our transformation to a higher-value solutions portfolio.”

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Static Control and Lexmark appeal case to restart in US Supreme Court

December 3, 2013

USSupremeCourtThe appeal from Lexmark in June 2013 is to begin in the Supreme Court, with oral arguments to be heard from both sides. 

Forbes has previewed the case in the Supreme Court ahead of its restart in the USA, coming after the announcement in June that Lexmark had won the right to appeal against the false advertising ruling in Static Control’s favour.

Forbes notes that the case “addresses who can sue for violations of the federal false advertising statute, a question that has baffled courts around the country”, and adds that the case has “potentially […] important implications for the quantity of future false advertising litigation and the robustness of market place competition, making it a case worth watching”.

The site notes that “this case easily could go sideways” due to the court potentially offering a “fractured set of opinions without a clear consensus” as well as going in a number of different directions with any particular ruling. In terms of implications, the Forbes writer stated that he is “troubled by Lexmark’s efforts to restrict competition”, and notes that whilst Prebate “seemingly benefits consumers” with a price cut, it “also prevents the development of a used cartridge market”.

The article also asks “if Static Control lacks the legal tools to keep Lexmark honest, will anyone else challenge Lexmark’s marketing statements?”, as Static has been able to “invest a decade’s worth of litigations costs” in the case, a “heavier investment than many remanufacturers would be willing to make”. Adding to this, Forbes states that the ruling “could have substantial implications for competition” in the cartridge market, as well as “affect how new entrants can use false advertising litigation”.

Lexmark had sought a review in January this year, and was granted certiorari by the Supreme Court in June to appeal against the ruling deeming that Static Control had standing to make false advertising claims against the OEM, which the components manufacturer claimed had falsely told its customers that Static Control infringed its patents.

The false advertising claims were raised during the patent infringement case between the two companies regarding the sale of microchips for laser printers and toner cartridges, which began in 2002 when Lexmark sued Static Control for selling replicate microchips to competitors of Lexmark after the OEM developed a microchip that prevented printers from using non-Lexmark toner cartridges.

Courthouse News had reported that “by 2004, a federal judge in Lexington, Ky., consolidated Lexmark’s suit with a declaratory judgment action that Static Control had filed” and that a federal judge had “barred Static Control from asserting counterclaims under federal and state antitrust and false advertising laws”.

However, Static Control were found to have not infringed Lexmark patents, with the court advising that Lexmark had “misused its patents”. It was later concluded on appeal by both parties that “Static Control should have been allowed to pursue its claims for violation of the Lanham Act and various state laws”, and in August 2012 it was ruled that Static Control’s antitrust claims were dismissed.

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Lexmark third quarter results announced

October 23, 2013

LexmarkMPS revenue sees record growth of 18 percent and acquisitions strengthen software solutions in 3Q13.

Lexmark has announced its third quarter results, with the company seeing a revenue growth of five percent when excluding its inkjet exit and a record 18 percent growth in MPS revenue. GAAP revenue meanwhile was recorded at $890 million (€647 million), including $5 million (€3.6 million) of acquisition-related adjustments; with the company acquiring two software solutions providers – Germany-based Saperion for $72 million (€52.3 million) and PACSGEAR for $54 million (€39.25 million).

However, non-GAAP revenue declined three percent year-on-year to $896 million (€651.3 million), but grew five percent when excluding the on-going decline in Inkjet Exit revenue, with Lexmark exiting the inkjet segment last year. GAAP earnings per share in 3Q13 were $0.45 (€0.33) compared to $0.00 per share in 3Q12; while 3Q13 non-GAAP earnings were $0.95 (€0.69) per share compared to $0.94 (€0.68) in 3Q12.

In terms of segments, Imaging Solutions and Services (ISS) saw revenue decline five percent year-on-year to $837 million (€608.4 million), although this was a growth of three percent when excluding the Inkjet Exit revenue. Lexmark’s MPS segment meanwhile reached a record of $184 million (€133.7 million) in revenue; and Perceptive Software saw revenue grow 38 percent to $54 million, or $59 million (€42.8 million) when excluding acquisition-related adjustments.

Non-MPS revenue on the other hand declined one percent to $569 million (€413.6 million); and Inkjet Exit revenue decline 44 percent to $84 million (€61 million), representing nine percent of the company’s total revenue. Lexmark said that it expects this to decline as a percentage of total revenue as the trailing inkjet supplies revenue from the remaining installed base of inkjet printers decreases over time.

Reporting on product revenue, Lexmark said that hardware revenue declined 11 percent year-on-year to $182 million (€132.3 million), with supplies revenue also declining by four percent to reach a total of $606 million (€440.5 million). It was the opposite case for the OEM’s software and “other” revenue, which grew 21 percent year-on-year to $102 million (€74 million).

The company’s software solutions presence was strengthened by the two acquisitions, which enabled Lexmark to increase its enterprise content management (ECM) presence in Europe and further strengthen its capabilities of providing the platform, products and solutions to help healthcare customers manage their information challenges.

Commenting on the results, Paul Rooke, Chairman and CEO of Lexmark, said: “In the third quarter, Lexmark continued solid execution of our strategy of transforming to an end-to-end solutions provider, and delivered revenue that exceeded our July guidance range, EPS at the top of the range and also strong free cash flow. Perceptive Software’s profitability increased significantly compared to last year and once again both managed print services and Perceptive Software revenue grew at a double-digit rate, reflecting the imaging and software synergies we’re creating.

“Lexmark’s value proposition is unique and squarely focused on helping our customers solve their unstructured information challenges, enabling us to lead in this large and expanding market.”

He added that the company “is continuing to increase shareholder value through acquisitions and organic investments that are accelerating our transition to a higher value solutions portfolio, and through the on-going capital return of more than 50 percent of free cash flow”.

Looking ahead, Lexmark expects 4Q13 revenue (excluding Inkjet Exit revenue) to be flat to up to two percent year-on-year, with the company predicting a continued negative impact from its decision to exit inkjet. Total revenue meanwhile is expected to decline by between three and five percent.

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Static Control launches toner and chips for Lexmark machines

October 15, 2013

Lexmark's MS310DN machine

Lexmark’s MS310DN machine

The largest manufacturer of aftermarket imaging systems and components has produced toner and chips for use in over 200 Lexmark and Dell toner cartridges.

The toner and chips are designed for use in Lexmark’s MS and MX cartridges, which are used in the OEM’s MS and MX machines as well as a range of Dell printers. The toner, under Static Control’s Odyssey brand, is “formulated and manufactured to be compatible with the OEM toner” as well as having “the correct transfer efficiency, eliminating mixing issues and overfilling of the waste bin”.

Static Control added that the toner compatibility “is especially important in these printers, as toner from the previous cycle mixes with toner from the next cartridge”. In turn, the company stated that the cartridge cores used in these printers “can be remanufactured for use in a wide range of printers and page yields”, and all that is required is the “correct toner fill weight and chip”. The manufacturer has also produced over 200 replacement chips for these cartridges, which are “engineered, designed and manufactured in-house” and offer an “IP-safe solution for remanufacturers”.

Erwin Pijpers, Senior Vice President of Sales for Static Control, stated: “Static Control has a long, established track record of protecting our customers from IP issues. We take careful consideration of IP throughout our research, engineering and manufacturing processes.”

For more information, visit www.scc-inc.com or www.scceurope.co.uk.

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Lexmark resurrects patent infringement case against aftermarket companies

October 4, 2013

Images from the document comparing infringing models with originals (Credit: USDCSO)

Images from the document comparing infringing models with originals (Credit: USDCSO)

The OEM’s case against 29 companies from across the global industry refers to patents relating to a range of toner cartridges, which it argues defendants have either remanufactured or cloned with “blatant” duplication of its patents.

The case, which has been brought by the United States District Court Southern District of Ohio (Cincinnati Division), refers back to an older case from the OEM that resulted in a General Exclusion Order (GEO) being issued by the United States International Trade Commission (USITC). The case referred to the “unlawful importation […] the sale for importation and/or the sale within the United States after importation” of a number of infringing remanufactured and cloned aftermarket cartridges.

This case saw a GEO issued in September 2011, with Cease and Desist Orders prohibiting the original defendants from “importing, making, advertising, distributing” and transferring the cartridges and components, due to them being covered by Lexmark’s patents. Permanent Injunction Orders have also been made against the original defendants, and the new developments in the case refer to Lexmark’s ongoing investigation into existing and new defendants.

Among the defendants named in the new document are:

  • Blue Trading LLC
  • Core Servicios Informaticos S.I.
  • Direct Billing International Inc. d/b/a Office Supply Outfitters
  • ECOI US Supplies, Inc.
  • Eco Service China Ltd.
  • Enviro Green Technologies
  • Exprint International, Inc.
  • FBA Holding, Inc. d/b/a Core Recovery Company, Unitone Imaging Supply, Unitone Imaging Group, Martek Supply Source, Imcopex America, Velox Systems, Inc., International Digital Solutions
  • Fuller International Corporation
  • Green Imaging Supplies, Inc.
  • Green Project, Inc.
  • IJSS, Inc. d/b/a TonerZone.com and Ink Jet Superstore
  • Impression Products, Inc.
  • Interseroh Product Cycle GmbH
  • K & W International Development, Inc. d/b/a K&W Imaging Inc.
  • LD Products, Inc. d/b/a 4inkjets.com, Monstertoner.com, Inkcartridges.com, Inkcartridge.com, 123inkjets.com
  • MBC Trading, Inc.
  • N & L Global Co. d/b/a N & L Global Corporation
  • NGS S.A.
  • Onlinetechstores.com, Inc. d/b/a Supplierswholesalers.com
  • Prinko Image Co. (USA), Inc.
  • Printronic Corporation
  • Recyca BVBA
  • Refiltoner
  • Shanghai Orink Infotech International Co., Ltd.
  • Standard Image USA, Inc. d/b/a Imaging Standard Inc.
  • Tech Optics Inc.
  • Tesen Development (Hong Kong) Co., Ltd.
  • Wal Group LLC
  • XSE Group, Inc. d/b/a Image Star
  • Zhuhai Richeng Development Co., Ltd.

Referring in detail to an extensive list of toner cartridges manufactured by Lexmark, including a wide range for which it has assisted in the manufacture or design of (that are not Lexmark cartridges), the OEM notes in turn a range of patents for toner cartridges and components that cover it in the USA. These 24 patents are those that the OEM states defendants have previously “expressly agreed” to the validity and enforceability of.

The focus of the patent infringement suit appears to be the remanufacture and cloning of a range of Lexmark E, X and T toner cartridges, and Lexmark outlines its case with images of its original, “genuine” models next to the infringing models, noting that the cloned cartridges are “mere copies” of its originals that “blatantly duplicate” the components used, whilst in addition the remanufactured cartridges said to infringe the patents are “in all relevant respects, identical to Lexmark’s patented toner cartridges.

“In other words, the remanufactured versions continue to practice Lexmark’s patents just as when those cartridges were originally manufactured and sold by Lexmark”. The OEM has even produced a table presenting the respective patents and which cartridges infringe which patents, with a numbered guide relating to the specific defendants it claims have infringed each of the patents.

The OEM noted that its “investigation and discovery” of the “unauthorised remanufacture” of the cartridges still continues, adding that it may yet “identify additional defendants”. It went on to note that two defendants previously named, Tech Optics and Wal Group LLC, had broken an agreement previously made with the OEM to disclose all its accused cartridges, and the case in its entirety is set to be heard before a jury, with Lexmark demanding full compensation for legal costs and damages.

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