Arik Hesseldahl

Recent Posts by Arik Hesseldahl

HP Sails Into Perfect Storm for Printers

Pop quiz: When was the last time you bought a printer? Or an ink cartridge? Or a package of printer paper? Of course, the answer is going to vary from one situation to another, but chances are you’re using a printer a lot less often than you used to.

It’s not hard to see evidence of that wider trend in the results of several companies in the printer and printer supplies business. In a research note out today, analyst Chris Whitmore of Deutsche Bank Securities looked at sales trends over the last 10 quarters at printer companies including Canon, Epson, Lexmark, Xerox and Hewlett-Packard and found that combined sales for equipment and supplies were down 6 percent year on year.

Additionally, sales of printing equipment during the last year have declined similarly, which is a bad sign for sales of supplies as they tend to lag sales of hardware by nine to 12 months and are more often than not the profit-making end of the business. Another indicator, sales of printer paper (specifically A3 and A4 paper) fell 6 percent in the second quarter to levels that are 20 percent below their historical peak in 2006.

Whitmore’s conclusion: The use of printed pages is on what appears to be a permanent decline that could only accelerate as tablets like the iPad and others like it get more popular. “Simply put, the content that was once printed for distribution or portability is now simply being distributed or shared electronically,” he writes.

All of the companies in Whitmore’s survey have already reported their earnings this quarter, except for one: Hewlett-Packard, and it reports its quarterly results on Aug. 22. When we last heard from HP, revenues in its imaging and printing group had decreased by nearly 9 percent, or more than $1 billion, for the six-month period ending April 30, down to $12.4 billion. Leading that decline was a 6 percent drop in sales of supplies, which may not seem important until you realize that sales of supplies have historically amounted to about $17 billion a year, or more than two-thirds of HP’s $25.7 billion revenue in the printer business.

It’s not the first time this trend has been so apparent: HP’s printer fortunes looked very stormy indeed ahead of another earnings report earlier this year.

This decline was at least one of the reasons that HP CEO Meg Whitman combined the company’s printer business unit with the personal computer unit under Executive Vice President Todd Bradley. Selling printers and PCs together, the thinking goes, creates an opportunity to save on costs that are otherwise duplicated.

But there may be other more fundamental changes coming to the way the printer business operates. In an interview with AllThingsD in June, Bradley hinted at such changes, especially around ink products, and indicated the company might reconsider cutting some money-losing printer models on the low end.

No one expects HP’s quarterly results to be particularly good. In fact, the consensus view of analysts surveyed by Thomson Financial calls for it to report overall sales that declined by about 3 percent year on year.

And the future doesn’t look any brighter, especially as the decline in printing extends into the workplace. Companies like Xerox and Lexmark have tried to minimize the damage by turning printing into part of a wider document and work-flow management service. But these services may fall victim to tightening corporate IT budgets. As Whitmore puts it: “From an enterprise standpoint, printing is increasingly a cost to be managed lower rather than area of spend or investment. Although many enterprise print vendors are competing via managed print services engagements, this trend speaks to the discretionary nature of spending on printing. As such, we suspect it will be the most vulnerable to future spending cuts.”

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