After rising for decades, the amount of paper consumed by the average American office worker has declined steadily over the last 10 years, from 143 pounds per year in 1999 to 106 in 2009, according to RISI, a research firm that tracks the forest-products industry. So what's a printer company to do?
If you're Paul Curlander, CEO of Lexmark International, the answer is simple: Help big companies print less. Curlander thinks Lexmark's future lies in selling fewer printers with higher profit margins, then earning a steady stream of revenue by managing those printers for the companies that buy them. Lexmark tells its customers that it can bring their printing costs down by 30 percent or more when it takes over the busywork of installing, repairing, and restocking printers.
The strategic shift is part of a necessary overhaul for Lexmark, which became independent in 1991 when it was spun off by IBM (IBM). The Lexington (Ky.)-based company abandoned the low-margin consumer inkjet printer market in 2007. As Lexmark switched gears, it shut factories in Mexico and consolidated those operations in the Philippines. Sales declined 27 percent, from a 2004 peak of $5.3 billion to $3.9 billion in 2009.
Lexmark's managed print-services division helps companies wring out inefficiencies by raising the worker-to-printer ratio. In most companies, two people share one small printer. It's more cost-efficient if seven people share a larger printer, Curlander says. Placing printers farther away from workers is another cost-cutting tactic because it discourages unnecessary print jobs.
Beverage bottler Coca-Cola Enterprises (CCE) says it saved $11 million over five years with the help of Lexmark, which swapped out 6,000 printers and fax machines from 16 different vendors, for 3,800 new machines, including expensive laser printers, almost all made by Lexmark. The company is now expanding its managed print-services division, and in the last nine months has completed 14 deals with large companies including regional bank BB&T, engine manufacturer Cummins, pharmacy giant CVS, and investment bank JPMorgan Chase (JPM). In May, Lexmark landed a five-year, $127 million contract to manage office printers for the Social Security Administration.
The company doesn't break out services revenue in its earnings reports. Angela Boyd, an analyst with research firm IDC, estimates that in the first quarter of 2010, Lexmark's printer sales grew roughly five times faster than the market as a whole.
In May, Lexmark paid $280 million for Perceptive Software, a Shawnee (Kan.) company that makes applications to manage and share digital documents. Curlander says the Perceptive acquisition dovetails nicely with Lexmark's strategy to help companies reduce the number of printed pages they generate. "We've always been in the workflow business," he says. "It used to be that all business documents were paper. Now they're digital, and you need software to manage it."
Lexmark is focusing its sales efforts in sectors where print demand is still climbing, such as finance and health care. "We're very narrowly focused on laser printers and on specific industries," Curlander says. "We don't try to be everywhere." That concentration is paying off: Analysts expect Lexmark's revenue to rise to $4.2 billion this year, and shares are up 100 percent over the last 12 months. Says IDC's Boyd: "Lexmark is a company that would rather be quietly growing off in a corner, until one day its competitors wake up and say, 'Holy cow.' "
The bottom line: Lexmark has abandoned low-margin inkjets in favor of selling more profitable laser printers and managing them for enterprises.