Lexmark Restructuring Lexmark International is a printer company with inkjet, laser, and technology divisions

Subject:BusinessPrice: Bought3

Share With

Lexmark Restructuring Lexmark International is a printer company with inkjet, laser, and technology divisions. It is an international company with a huge international presence. The history of Lexmark begins with another company, IBM. The information products division of IBM was sold in a downsizing and it became Lexmark ("Lex" stands for "lexicon" and "mark" stands for "marks on paper"). This small piece of IBM was headed by Marvin Mann who began an aggressive campaign to make Lexmark the undisputed leader in innovative printing solutions. (3)

Lexmark is a company of firsts. Throughout their history they have driven innovation. “Lexmark was the first company to offer an inkjet printer for under $100 and were also the first to promote a 4800 x 1200 dpi and a 3600 x1200 dpi resolution. Keeping on the trend of "firsts" they were also the first company to make a photo printer that could work on its own as a standalone model.”(4)

The firsts were made possibly by expanding into different international markets to take advantage of low priced labor among other outsourcing benefits. “Lexmark operates manufacturing control centers in Lexington, Kentucky; Shenzhen, China; and Geneva, Switzerland; and has manufacturing sites in Boulder, Colorado; Juarez and Chihuahua, Mexico; and Lapu-Lapu City, Philippines.”(5) Lexmark International is rightfully named given its obvious involvement in several countries. However, despite many challenges abroad a massive restructuring is the main focus of the company today.

Lexmark is planning to discontinue all of its inkjet hardware, development and manufacturing by the end of 2015. The decision has come at a time that consumer printing is at an all-time low. Inkjet hardware, development and manufacturing has been a corner stone of Lexmark in the past. However, with today’s consumer printing climate it simply does not make sense fiscally for Lexmark to move forward with the inkjet platform in any of its current forms.(5)

The hardware, referring to the physical printer, is sold at a net profit loss. In theory, this loss is recuperated by selling secondary needs such as ink cartridges. However, with less and less printing being done by the home consumer it is unjustifiable to sell negative margin hardware without ever regaining the losses. Pertaining to the inkjet platform, Lexmark has been steadily losing market share and profits since the year 2000 . The simple fact is people are not printing enough for Lexmark to continue down the inkjet path or even home consumer printing solutions. With the move to discontinue inkjet printers Lexmark is making a more broad statement for its future. Lexmark will be exiting the consumer printer market altogether. The decision to drop the inkjet printer division is simply the first major move toward this end game and move toward focusing on high margin products.(2)(6)

The effects of this decision on Lexmark are immense; on both the international and domestic front. Approximately 1,700 employees worldwide will be laid off during this particular restructuring plan. “Lexmark's Philippines-based inkjet supplies manufacturing facility will be shuttered by the end of 2015.”(1) These are major moves that come with major savings for Lexmark as a whole. By the end of 2013 $85 million dollars is expected to be saved solely by limiting inkjet development. An additional $ 95 million dollars is expected to be saved annually starting in 2015. These savings projections do not include revenue generation from the selling of Lexmark’s extensive inkjet patent portfolio. (1)

Paul Rooke, Lexmark chairman and chief executive officer spoke about the decision to discontinue the inkjet line. "Today's announcement represents difficult decisions, which are necessary to drive improved profitability and significant savings. Our investments are focused on higher value imaging and software solutions, and we believe the synergies between imaging and the emerging software elements of our business will continue to drive growth across the organization. As we move forward, we remain confident in our strategy, competitiveness and ability to create value for shareholders."(5)

This statement by Paul Rooke says many things about Lexmark International as a whole. The inkjet platform has served them well for many years but as technology has changed so must Lexmark. For this reason Lexmark is beginning to purchase technology companies to focus on business printing solutions; a much higher margin strategy. With inkjet printers no longer a focus and drain on Lexmark’s profit margin and corporate culture, dedication to pushing the edge of laser printing and business solutions has been renewed.

As the inkjet platform is phased out of Lexmark’s line of printers, technology is replacing it. Perceptive Software is a business unit of Lexmark International. This unit of Lexmark “builds process and content management software that closes the information gaps that exist throughout every organization” (8) The future of Lexmark is far more reaching than just laser printing solutions. This competitive move they are making utilizes many strengths of the already in place company. “Powered by the financial strength and global reach of Lexmark International, Perceptive Software offers a complete set of process and content management software technology, including, Business process management, enterprise content management, intelligent data capture, enterprise and federated search, integration technology. Powerful tools used alone, but when combined with Perceptive’s keen understanding of your people, processes and applications, they become transformational solutions to your biggest business challenges.” (8) It is obvious to see that Perceptive Software is becoming a big player in the world of business solutions and Lexmark is again on the cutting edge of not just printing solutions but business solutions as a whole.

Lexmark and perceptive software have been busy. Purchasing several different technology companies like Pallas Athena, ISYS Search Software, Brainware and Nolij. These acquisitions by Lexmark and their new focus on business performance management solutions are repositioning the company. Not only are they known for high quality printers, in the eyes of small and very large businesses Lexmark is positioning as a total solutions company for other companies who are looking to run faster and more efficient. Because of the new direction Lexmark stock prices have risen 17% since the exit of the inkjet market. The overall health of the company is improving. (10)(9)

Despite early numbers looking good for Lexmark’s new direction there are massive hurdles yet to overcome, especially in the business process management and IT solutions sector of the market. One of their biggest challenges globally will be global competition. Achievo Corporation, Aegis Limited, Affinity Express, and Aditya Birla Minacs Worldwide Limited are companies with well-known names worldwide for IT and efficiency solutions. Competing with these names in the global market is key for Lexmark. Ousting these companies out of well entrenched markets will be very difficult for Lexmark to do. A key to the success of Lexmark and Perceptive software is to take the emerging markets. Emerging markets is where Perceptive software will be able to combine business process management IT solutions and printing solutions. It is a very specialized skill set that every business needs and they are the first company to combine and be specialized and innovative on every one of these fronts. (9)

The effectiveness of Lexmark’s printing and software solutions have been proven effective several times. AEG is an excellent example of the effectiveness of Lexmark Perceptive software. AEG manages stadiums including the YUM center in Louisville. They process 250,000 invoices every year. Before Perceptive Software was hired by AEG it took AEG 42 to 45 days to process each one of those invoices. Not to mention postage fees the company was incurring they were missing out on payment period discounts and racking up late fees. Perceptive software came in and built a new invoice system catering directly to the specialized needs of AEG. The Lexmark and Perceptive Software solution consisted of scanning the invoices making them available everywhere on the AEG network and cut the payment period down to 14 days. (6)(7)

Lexmark’s focus on business is pushing the company forward. The focus on higher margin business solutions in both the areas of Perceptive software and laser printing is moving the company in an incredibly profitable direction. Without the weight of inkjet hardware, development and manufacturing that has been dragging Lexmark down since 2000 they are becoming a very lean and focused company. Lexmark has recently rolled out 42 new laser printers demonstrating the importance of printing to this company. Lexmark’s CEO Paul Rooke says it best, “For any technology company to survive, you have to stay flexible and listen well. If you get tied to your past, that can be a real problem for your future.” Lexmark’s actions prove they are committed to moving the company forward and are dedicated to the new direction they have chosen to take.