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. 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. 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 call. 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. Shares of Lexmark, which had about 13,300 employees world-wide at the end of last year, leapt to a six week high of $22.75 before easing back to $21.62 in mid-day trade on the NYSE.
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