The Significance of Supplies to Office Printer Manufacturers
We all know that printer supplies are important to office printer manufacturers and we are reminded of the razor/razor blade analogy, but do we know how significant the office supplies revenue and profit really are to printer manufacturers?
We can look at some data points that will give us some perspective. First, let’s look at HP based on FY16 ending in Oct 31, 2016 (Figure 1). HP breaks out their printer revenue into three buckets, Supplies, Consumer Hardware, and Commercial Hardware. If we remove the Commercial Hardware, HP Supplies (ink/toner cartridges and media) account for 90% of HP’s total office printer and supplies revenue while actual hardware accounts for only 10%! This certainly shows the significance of an annuity business based on an installed base even though it is shrinking. Do other printer manufacturers have this same business model? Well yes but perhaps not as dramatic, since, as most of us are aware, HP has taken many actions to protect their ink and toner cartridge business and they are aggressively selling their own branded media. Photizo estimates that of the 90% supplies revenue, approximately 65% is cartridge revenue and 25% is media. Photizo also expects that the operating profit percent contribution from supplies will be even higher than 90%.
According to Photizo’s 2016 Hardware and Office Supplies Forecasts, the worldwide breakdown of printer revenues is as shown in Figure 2.
|Component % of 2016 Office Printing Revenue|
|Office Printer Hardware||20.1%|
As you can see, office printer hardware revenue accounts for about 20% while supplies revenue accounts for about 80%, and again, the percentage of operating profit contribution from supplies would even be higher. HP is doing a better job than most printer manufacturers in protecting their office supplies business and they do have a good media revenue stream. For those manufacturers who don’t participate in a media revenue annuity stream, they will likely have a supplies revenue of about 58%. On January 5, 2017, Photizo published a write-up titled “Office Printer Media – Often Overlooked but Still Very Important”. One key takeaway from this piece which puts things in perspective is that office printer media revenue exceeds that of office printer hardware!
So, what is our message to printer manufacturers? Printer manufacturers must do whatever they can to protect their supplies revenue and profit annuities since any declines could be catastrophic to the bottom line.
To learn more about how Photizo can help you protect and even grow your supplies business, please contact Ron Iversen, Vice President Market Intelligence at firstname.lastname@example.org, (805) 630-4096 and ask about our 2016 Office Supplies Advisory Service.