Internation Data Corp. (IDC) said the color inkjet printer market grew 21 percent to 19.3 million units during the quarter. The continued fast growth of the color inkjet printer market--and consequently, the highly profitable business of selling ink cartridges--underscores the growing eagerness on the part of companies such as Xerox and Lexmark to make moves to try to unseat Hewlett-Packard as the market leader.
Xerox, Sharp and Fuji Xerox said earlier this week they will spend approximately $2 billion over the next five years on research, manufacturing and marketing on products in an effort to grab a major share of the inkjet market. Starting this summer, Xerox claims it will bring to market new printing technologies developed and made by alliance members that will speed inkjet printing by up to 50 percent while reducing the overall cost of printing.
HP, for its part, said it isn't worried about the alliance challenging its position in the home and small-office inkjet market.
"Its an attractive market because of its size and growth," said Bob Engel, business manager for HP's consumer printing and imaging products. "In terms of what we are reading, we don't see anything (that they are bringing to the table) that is unique or new, for that matter," he said.
Meanwhile, Lexmark's agreement to manufacture printers for Compaq is paying off. Lexmark increased shipments 78 percent over year-ago numbers, and when Compaq-branded printers are included, Lexmark was second only to HP in market share for the fourth quarter, according to the IDC report. Canon would be second, excluding those shipments; meanwhile, Epson fell to fourth place.
"Lexmark obviously enjoys the increasing market share of both its OEM (original equipment manufacturing) and branded products, and both (Compaq and Lexmark) will profit from the annuity stream of consumables," IDC analyst Weilli Su said in the report.
Revenue from "consumables" such as ink cartridges is surging from interest in the Internet and digital photography. Printing a photo uses as much as 10 times more ink as printing a letter, according to HP executives, and that is translating into profits for HP and others in the color inkjet business.
Additionally, color printers sometimes have three or four separate cartridges that need to be replaced instead of the single black ink cartridge found in older printers. HP garners a large portion of its profits from printing and imaging products, according to some estimates.
Because color inkjet supplies are so profitable, Su said that companies such as Dell and Gateway will probably look to offer their own branded printers. Also, more companies will look to distribute computers through deals such as the one in which Ford will offer computers to its workers for a nominal fee. Such deals could bring in new streams of recurring revenue-in the form of inkjet cartridge sales, for instance-even though little money is made on the sale of the PC itself.
Even though Lexmark has done well by its deal with Compaq, HP is still at the top of the heap in terms of worldwide shipments. HP shipped about 43 percent of all inkjet printers worldwide, versus 24 percent for its nearest competitor, Epson, according to 1999 worldwide shipment numbers from research firm Dataquest. The $11.5 billion market expanded around 30 percent compared with 1998 results, according to Dataquest.