Aftermarket Imaging Supplies Business Overview 2012: Opportunities & Challenges
Global/US Consumables Market Overview • Total global consumables market - $78B Ink and Toner • Toner is $48B, projected to grow to $53B by 2015 (Color accounts for all of this growth) • Color toner is $21B and will grow to $26B by 2015 and surpass mono by 2015 in revenue (for HP devices) • US market represents approximately 1/3 global volume - $26B Total - $16B in toner ($7B in color and $9B in mono) •AM share is approximately 25% in mono, 7% in color or less than $500M in revenue in the US! • Printer placements will grow by 2-3% until 2015 but will not reach 2006 levels. • 2011 – US 42M printers placed in 2011, approximately 17M from HP • 2012 – 40M forecast • Ink decline accounts for dropoff • Lexmark and Kodak exit business Confidential
Macro Trends and AM Opportunity • Print volumes are down approximately 3-4%. For AM this is OK since we have less than 20% share and we have 7% on the fastest growing segment. • Print volumes are down the most significantly in the SOHO/consumer market where photo printing is almost completely migrated to social media sites. (Ink) • In the office, print volume is slightly down but more “high value” pages are being printed with higher coverage and color. • MPS somewhat contributes to less pages with cost controls, fleet optimization, and duplexing. •
MFPs are still growth segment at 4-5% and are responsible for roll up of single function devises
• AM growth opportunities • • • • • •
Printer placement slowdown equates to higher AM share • MPS/refurbs exacerbate trend Economic insecurity equates to higher AM share Greening of economy equates to higher AM share OEM price increases at worst possible time for cash strapped business equates to AM opportunity Color penetration equates to great opportunities (another 7% share in the US only means $800M US color growth opportunity) 42M new printers equals 42M new potential conversion opportunities! Confidential
Macro Trends
Hardware and consumables trends are positive •
Installed base continues to age equating to higher aftermarket penetration and core availability
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Low end technology (segments 1-2) maintain razor/blade strategy and higher end models priced over $200+ create vast price deltas and savings opportunities •
Jan. 2012 HP/Lexmark increases exacerbate this trend
Confidential
What’s in store? OEM competitive pressures •
Marketing programs
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Core collection
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IP and first sale doctrine
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Technology
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Printer proliferation
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Solution sales (MPS/MDS)
Aftermarket challenges •
Cores
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Quality
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IP
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Price erosion •
New molds vs. remans Confidential
What’s in store? Aftermarket opportunities • Color • MPS • New customers/new printers
• Recycling vs. remanufacturing • OEM IP tips scale to reman vs. new compatibles • Right to repair: permissible repair vs. non permissible reconstruction
Confidential
Global Economic Malaise: Aftermarket Opportunity
2009 - 2012 Aftermarket share gain •
Economic insecurity = slowdown in printer placements and belt tightening = increased penetration into 70% OEM share.
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Slowdowns in paper usage and print volume’s the new normal •
For aftermarket slowdowns with 30% of customers we have offset by inorganic growth with 70% we don’t.
Confidential
Global Economy
2011-2012 – OEM’s printer sales down, not as pronounced as ‘09 • Base still aging = legacy printers 40-50% aftermarket share. • MPS refurbs reintroduce legacy printers into base. • 2012 OEM price increases bolster our value proposition.
Confidential
Challenges • OEM Core collection/availability issues • OEM collection efforts taking millions of cores from supply stream (320M collected by HP since inception)
• Recycle Vs. Remanufacture • Dealer incentive collection not profit center; part of business • User education • No cores = no choice “A toner cartridge that is re-used twice is between ten and twenty percent's better, from an environmental point of view, than a toner cartridge that is sent to HP’s recycling program” 2002 LCA study by University of Kalmar, Sweden
Confidential
OEM Litigation Against the Aftermarket • Three main cases and implications facing the aftermarket: • Canon vs. Ninestar, Clover and its affiliates and resellers • Lexmark vs. Ninestar, Print Rite and its resellers • In general, OEM and legit aftermarket are aligned in fighting unfair competition • Lexmark vs. 34 US remanufacturer – 1st sale
• Why now? • Strategy behind timing and open ended litigation: it’s about gears, not new molds, or is it? • 2009 was a disaster for OEMs • Printer based age allowed us to gain more share • Under producing lost more share • New mold makers in China were too good • OEMs depend on 100% share on consumables for at least 18 months • Printer is sold with little to no profit, recouping revenue on consumables is mandatory. • Companies produce new molds as soon as 3-4 weeks after the release • New compatibles eat into OEM share, not reman share (78A/85A toners) • Nine star released their own entry level mono printer • First Chinese company in the aftermarket to join OEMs
Confidential
OEM Litigation Against the Aftermarket • Possible implications of various litigations • • • •
Market will shift more to remans away from new molds in U.S. 1st sale doctrine comes into play Repair vs. Reconstruction: reuse of Canon gears Dumping price to offset loss of US market • OEM inaction in ROW perpetuates share shift from reman to new molds and price compression • GEOs don’t impact domestic remanufacturers = increases in US reman share
• Intra-market Competition • Reman markets destroyed • Case study; Australia and Brazil now buyers instead of producers • Australia - 1,000+ reman companies in 2004, today less than 200 • Brazil – E-waste laws favor new molds • US wholesale prices & online (China source products)
2612A 09 - $9.95 10 - $8.50 11 - $6.95 12 – 5.95
CB540 09 - $19.50 10 - $17.00 11 - $16.00 12 - $13.00 Confidential
MPS Challenges • How to assimilate the price delta in the shift from new molds to remans. •
MPS is designed to create efficiencies and manage a fleet based on reducing overall printing costs • Dealers and OEMs working towards getting users to print less • Migrate to more cost effective, lower CPP devices. • Duplex printing • In 1999 the average office worker used 65kg of paper annually • As of 2010, it has been reduced to 48kg
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MPS in 2011 will focus on the consumable, not software.
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Lower quality consumables erode profits and increase activity based costs
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MPS is a vehicle to put toner on paper • The cartridge is the biggest variable • 80% of CPP is consumable derived • Quality is not a given
• Could’ve been avoided if the market took a market down approach to prices and not a cost up approach. Confidential
MPS Opportunities • MPS to SME? • All copier OEM’s offer “Brand Agnostic” Programs • All are partnered with reman players • In 2005, reman share in enterprise was negligible, today MPS provides inroads.
• OEM/Aftermarket cooperation/MPS • HP acquisition of Printelligent and Xerox acquistion of Laser Networks • HP signals a shift to “Brand Agnostics” • Does this mean multi brand hardware and OEM and non OEM consumables?
• How / if it changes aftermarket stance
Confidential
MPS Opportunities (cont.) • Aftermarket / MPS success spurned by: • OEM Partnering • Refurbished boxes • Extended Life Cartridges • Quality Consumables • New channels • IT/Vars etc.
• Distribution Partnerships • Distribution options – J IT • Aggregation • Connectivity
Confidential
Technological Challenges • Ink vs. Toner – Not new, 20 years in the making – Fast/70+ ppm Memjet and HP Office Jet XL – Ink/Lower CPP than segment 1 & 2 laser but… • Ink revenue decline since 2006 Lexmark and Kodak exit ($10+B ↓) • No stats on business inkjet conversion from laser • Entrenched anti-ink bias • Not enough yield = no MPS (can’t compete with 20,000 pages +) • No repair outlets/no aftermarket parts = no MPS • Sold via retail = Soho placement, no dealer uptake Confidential
Technological Challenges (cont.) • Printer proliferation – down revenue = stagnation i.e. – New based on old with upgraded speeds and feeds - M600 = M4555 = 4015 - M400 = 2025 - M401 = 2035 - M551 = 3525 - 1 new engine – M700 replaces 5200 Aftermarket Opportunity • Convertible cores = immediate OEM conversion
Confidential
The Color Opportunity (26 Billion by 2015) Who is the real competitor? • What are they doing to defend? • Marketing propaganda • Third party testing • Quality Logic
• Printer proliferation • Litigation • Custom programs • White Box • Big Deal • Core destruction programs Confidential LG
Who is the real competitor? • Where do they dominate? • Consumer/home user (share estimate 80-85%) • Micro SMB/SOHO (share estimate 75-80%) • SME – small and medium-sized enterprise (estimated share 60-65% on mono laser printers) • Departmental/large business - HP calls Enterprise (share estimate 85%) • Fortune 1000/light production/A3 (share estimate 90-92%) • Color (share estimate 90%)
Confidential LG
Who is the OEM customer? • What have they experienced? • 80’s-90’s – Drill and fill. Poor quality – 50-60% savings • ‘95-’05 – Better industry quality, but growth is stagnant • ‘05-’10 – The Industry changed • Color Challenges • Assumed quality led to growth • Relative stability on monochrome led customers to believe color will prosper as well • Lack of education • Poor component and quality leads to OEM migration • Historical quality issues • Multiple versions of aftermarket toner • Toner control/leaking • Toner adherence to PCR • Environmental issues • Contamination • Matching with multiple OEM configurations • Lack of replacement parts • DVR’s, Dr blades Confidential LG
Outsourcing challenges and new compatibles • The first color new compatibles started to proliferate in 2008 and are now readily available. (Recent litigation might change that) • Color new molds take all of the challenges listed above and magnify them: • New mold tolerances are inferior to Canon plastics and create gapping/alignment issues.
• New components of high quality often aren’t available for dvr’s, dr blades, adder rollers etc… • Long transportation times on water subject to environmental extremes.
Confidential LG
Challenges • Multiple technology platforms to learn; • Chemical/non magnetic (Canon/HP)
• Positive/polymerized (Brother) • Duel component (Fuji Xerox/Dell)
• All present differing challenges and varying levels of raw materials quality. Many such as positive/polymerized are new to the aftermarket even today and quality is still elusive. • Sometimes the best sales decision is the one to NOT sell a given product until it’s really ready!
Confidential LG
Opportunities • Recession • Price compression • Less pages printed • Artificial growth • Increased OEM prices • Increased CPP (over 20 cents per page in segment 1 color) • Digital convergence • Solution based selling – Vendor chooses consumables • Many MPS programs sell OEM color. • The new opportunity? Not with today’s quality levels • Where are we today? • Better, not there yet. • Better raw materials, patents technology • Still too many sources lacking quality infrastructure to manufacture • Those with good quality have this legacy to overcome • Everyone claims leadership • Do it with clear, tangible differentiators Confidential GW
Final Note • 2012 fraught with challenges like any other but… • Opportunity is still there! If we stop internal competition • New printers = new potential customers
• Color share is less than 10% • Tide shifting to remans due to IP settlements • Don’t price too low
• Offer best quality • Offer value Confidential