2016 State of the Imaging Industry, Highlights and Trends

The intent of this write-up is to provide an overview or top level look at highlights of the office printing market in 2016 and market trends and opportunities looking forward. A much more detailed report will be available from Photizo by the end of January 2017.

As we approach the end of 2016, from a purely financial perspective, it has been another very tough year for printer manufacturers where most print manufacturers have seen declines in both revenue and operating margins from their latest quarter compared to the same quarter a year ago. The magnitude and reason for the declines varies by printer manufacturer but the primary reason is that overall office printer hardware shipments are declining. This decline in printer hardware shipments results in a decline in installed base which unfortunately impacts the supplies revenue and profits.  When supplies revenue accounts for 60%+ of revenue and a higher % of profits, any decline supplies business can be catastrophic.

Figure 1 below shows changes to revenue and operating profit from the latest released quarter to the same quarter a year earlier. Note that revenues have declines 8-14% depending on the printer manufacturer but operating profits have declined 6-66% again depending on the printer manufacturer while Xerox has performed the best because of some specific actions they have taken which will be discussed later in this document.

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Figure 1

Note: Yen/USD ~102.4, Canon numbers do not include Inkjet numbers which would add $733M revenue to the latest quarter.

Okay, so what can a printer manufacturer do?  First, everyone needs to acknowledge that hardware shipments and print volumes will continue to decline (although there are segments that are increasing, i.e., color MFPs, business inkjets) and there is not a lot we can do about that.  So, in order for printer manufacturers to grow revenue and profits, they must either take share from a competitor or go outside the traditional office printer market to seek incremental revenue and profits. Business as usual or status quo is not going to cut it in today’s environment.

The following are some steps that printer manufacturers can take to minimize impacts of a declining traditional office printer business:

  1. Right size based on the reality of the imaging industry whereby print shipment volumes and page volumes will continue to decline and focus on reversing the downward trend in revenue and operating margin
  2. Look for opportunities “outside the office print box” i.e. commercial print, label printing, printing directly durable goods other than paper. Hopefully incremental revenue and profit from these non-office print markets will more than offset the declines in the traditional office print business.
  3. Protect service and supplies business – for example, only 9% of Xerox’s office supplies business is exposed to aftermarket supplies competition
  4. Invest in electronic document/workflow technology to create new revenue streams, this includes developing new business models to capture recurring revenue from workflow
  5. Build multi-year contracted MPS business – Xerox averages 4 year MPS contracts contributing to 75% of their total business being annuity business.
  6. Multi-vendor support is a requirement – not an option. Customers no longer support the ‘rip and replace strategy’ and at a minimum, want a gradual transition to one vendor handling the entire fleet – regardless of the brand
  7. The game is shifting from winning new business, to making your current business more profitable by making it efficient. Operational efficiency is a requirement – table stakes – for the new business reality where margins are under greater pressure than ever.

What are some key imaging technology trends that Photizo sees looking forward?

  1. PWA technologies (HP PageWide, Memjet) will continue to gain market share from laser printers due to the huge price/performance advantage
  2. Look for increase focus on developing products using a common design architecture based on cost to support, ease of developing software applications, MPS friendly etc. rather than just on individual model price/performance
  3. 3D printing hit’s the mainstream – moves from the design center to the factory floor as price points fall by more than 50% and speed improves by 2X to 3X. HP is depending on this market to offset declines in their traditional print business.
  4. Investment in e-document workflows to offset declines in revenue and profits associated with office print.
  5. Printer manufacturers should continue to invest in technologies allowing them to penetrate markets outside of traditional office print – while realizing few industries have the rich margins which have traditionally been associated with the imaging industry (and particularly supplies).

What were the big stories for 2016?   Certainly the biggest stories have involved the big Company splits and major acquisitions. The split up of Xerox and HP, the acquisition of Samsung’s printer business by HP, and the acquisition of Lexmark’s printer business by APEX were the most significant events in 2016 which will have long term impacts on the imaging industry looking forward.

2016 may well go down as the ‘watershed’ year where the industry began rapid transformation. Certainly too much transformation to completely cover in a NewsByte! Look for more detail in our upcoming report – 2016 in Review.

 

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