* To take $160 mln related charge, mostly in 2012
* Ending inkjet development globally, to cut 1,700 jobs
* Plans to sell about 1,000 inkjet related patents
* Goldman Sachs advising on injket sale
* Shares jump 14 percent
By Sruthi Ramakrishnan
Aug 28 Printer maker Lexmark International Inc
said it will stop making inkjet printers and focus on
its more profitable imaging and software businesses, sending its
shares up as much as 20 percent.
Lexmark, never a big player in inkjet printers, said it
would continue to sell laser printers as it beefs up its print
services business, for which it has made several acquisitions
over the last couple of years.
The company said it planned to sell about 1,000
inkjet-related patents and would cut 1,700 jobs, or 13 percent
of its workforce. A company spokesman said Lexmark was being
advised by Goldman Sachs to explore the sale of inkjet-related
technology, which includes about 1,000 patents worldwide.
Most printer makers are struggling with falling sales as
printing has been a target of corporate cost cutting and
personal computing moves to tablets and smartphones.
As well, falling laser printer prices have cut into sales of
inkjet printers, which traditionally have cost less to buy but
can be expensive to buy ink for.
The overall inkjet market declined nearly 13 percent in the
second quarter, according to research firm IDC.
"Lexmark's 'rip the band-aid off' approach, while creating
greater near-term revenue headwinds than a more gradual wind
down, should result in a cleaner slate sooner from which to
grow," Wells Fargo analyst Maynard Um wrote in a note.
Lexmark expects revenue from inkjet hardware and supplies,
which accounted for 21 percent of revenue last year, to drop to
about 10 percent in 2013, as it continues to supply ink and
support existing printers.
HP, Canon Inc and Epson Corp
together account for about 90 percent of inkjet sales worldwide.
Lexmark said it was quitting the inkjet business because of
aggressive market pricing and the investment required to
maintain a sustainable acceptable return.
Revenue from the company's legacy inkjet hardware business
declined 66 percent in the first half of 2012, forcing the
company to cut its full-year forecast.
"We plan to continue using part of the free cash flow to
accelerate growth in the software business through
acquisitions," Chief Executive Paul Rooke said on a conference
Lexmark bought Perceptive Software in 2010, which provides
software and services used to manage documents, imaging, and
It then bought Brainware Inc, ISYS Search Software and Nolij
Corp earlier this year and added them to the Perceptive unit.
Perceptive has until now just broken even but is Rooke said
it was expected to start turning a profit from 2013.
The software business accounted for nearly 5 percent of
second-quarter revenue, up from about 2 percent a year earlier.
Lexmark had already laid off 625 employees related to
manufacturing of consumer ink supplies in January, part of a
broader pattern of problems in the printer industry.
Rival Xerox Corp cut its full-year profit outlook in
July while Canon trimmed its operating profit forecast as the
companies braced for tough economic conditions in Europe.
Printing and imaging sales at HP fell 3 percent in the third
Lexmark said it would take a pre-tax charge of $160 million
related to the restructuring, with $110 million incurred in 2012
and the remainder in the next three years.
It will close its Cebu, Philippines-based inkjet plant by
The company, which expects annual savings of $95 million
once the restructuring is complete, also said it would buy back
an additional $100 million of its shares in the second half of
Shares of Lexmark, which had about 13,300 employees
worldwide at the end of last year, leapt to a six-week high of
$22.75 before easing back to close at $21.62 on the NYSE.