Japan Desktop Ink Briefing

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JapanDesktop Ink Briefing
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Desktop Ink JetCartridge Market
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Desktop OEM SuppliesIn Their Words

• HP 2006 Annual Report
• Even if HP is able to maintain or increase
  market share for a particular inkjet product,
  revenue could decline because the inkjet
  product is in a maturing industry.
• Revenue and margins also could decline due to
  increased competition from the aftermarket.
  Companies have developed and marketed new
  compatible cartridges for HPs products,
  particularly in jurisdictions where adequate IP
  protection may not exist.
• Canon 2007 Annual Report
• Despite a decline in demand for single-function
  inkjet models and severe price competition in
  the market, sales in value terms increased along
  with unit sales.

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Desktop OEM Supplies In Their Words

• Lexmark 2006 Annual Report
• Lexmark expects that as it competes with larger
  competitors, the Companys increased market
  presence may attract more frequent challenge,
  both legal and commercial.
• Lexmark sees the possibility that new entrants
  into the market could also impact the Companys
  growth and market share.
• As the installed base of laser and inkjet
  products grows and matures, the Company expects
  competitive supplies activity to increase.
• Epson 2007 Annual Report
• With the exception of Asia, sales volumes of
  inkjet printers in FY 2006 were down in all
  regions. The market situation remained severe as
  competitors claimed market share by launching new
  low-priced models and rolled out aggressive sales
  campaigns.
• In FY 2006, we strategically reduced the
  number of inkjet printers sold, mostly cutting
  models that generate low print volume.

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Installed Base by Region

• Mature North American market to shrink
• Emerging markets in Asia Pacific and Latin
  America
• to spur growth
• EMEA to remain
• largest region
• for installations

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Cartridge Shipments by Region

• Higher cartridge usage to drive volumes in North
  America and EMEA
• Surge in installations
• to cause shipment
• increase in Latin
• America and Asia
• Pacific

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Cartridge Revenue by Region

• Despite growing volumes, North American cartridge
  revenue is estimated to decrease
• Asia Pacific and Latin
• America expected
• to grow quickly but
• vendor and laser
• competition will
• make an impact

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Installed Base by Vendor

• Canon brand and technology to give advantage
• Dell and Lexmark to focus on higher-margin
  products
• Epson to phase out
• most low-end
• products
• Other Vendors,
• including Kodak, to
• capture 2 percent
• share
• HP also to gain share
• with broad portfolio
• and regional presence

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OEM Cartridge Shipments by Vendor

• Healthy OEM volume growth due to
• Modest growth in pages
• Lower-average
• cartridge page yield
• Shift to fixed print
• head and
• single-color
• cartridges
• Canon to surpass
• Epson in cartridges
• Kodak and others to
• gain share at Lexmarks
• expense

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OEM Cartridge Shipments by Color Type

• Single-color volumes to be expanded by Canon,
  Epson, and HP
• Integrated and tricolor
• to continue growth
• in low-end models
• Black to remain
• largest sub-segment
• in terms of volume

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Average OEM Cartridge Price

• OEM cartridge price-points continue to fall (does
  not necessarily cause lower cost-per-page)
• Most vendors now offer
• low-price, low-yield
• cartridges
• Canon only company
• to have increasing
• average prices
• Cartridge prices
• expected to stabilize
• beyond 2010

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OEM Cartridge Revenue by Vendor

• Canon and HP forecasted to capture most of
  revenue growth
• Dell and Lexmark
• expected to
• have shrinking
• revenues
• Epson to place more
• focus on other
• ink jet segments

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Cartridge Shipments by Source

• OEMs to gain 2 percent market share versus
  third-party and counterfeit sources
• Patent litigation
• Cartridge chip security
• Anti-aftermarket
• marketing efforts
• OEM cartridge
• return programs
• Lower cartridge
• price-points

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Ink Cartridge Price Elasticity

• Majority of OEM users heavily influenced by
  cartridge price differential (according to Lyra
  primary research)
• Cartridge price is
• independent of actual
• cost of printing
• (cost per page)
• A major reason third-
• party cartridges have
• become popular

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HP Ink Cartridge Price TrendsNorth America

• HP standard cartridge prices have fallen
  through new product introductions
• HPs response to
• Consumer behavior
• Improved manufacturing
• costs
• Aftermarket pricing
• pressure

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Epson TimelineIntellectual Property Protection
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Aftermarket Cartridge Shipmentsby Vendor

• Canon and Epson competitive strategies slow
  growth of compatible and counterfeit cartridges
• New HP ink tanks
• vulnerable to
• aftermarket
• Aftermarket to find
• little volume
• opportunity for Dell,
• Lexmark, and Kodak
• products at this
• time

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Aftermarket Cartridge Shipmentsby Region

• Intellectual property protection and OEM market
  power to constrain third-parties in North America
  and EMEA
• Asia Pacific and Latin
• American aftermarket
• growth
• Price-sensitivity
• Limited patent
• enforcement
• Fragmented supply-
• chain

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Photo Value Packs Revenueby Vendor

• Photo value packs (contain ink and photo paper)
  popularity is increasing HP is driving most
  growth
• Consumer advantages
• Discount on supplies
• Matched ink and
• paper
• Estimated cost per
• photo
• OEM advantages
• Promotes branded
• ink and paper
• Ensures quality and
• reliability

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Ink Cartridge SKU Fragmentation

• Aftermarket must keep pace with SKU fragmentation
• More OEM products on shelves (i.e., Dell and
  Kodak)
• Standard (low) and high-capacity options
• Regionalization of cartridges (e.g., four HP
  zones)
• Multiple updates to QA/security chips
• North American example
• 58 SKUs accounted for 80 percent
• of demand in 2006
• In 2005, top 80 percent included
• 43 SKUs
• Increasing empties prices (scarcity)
• may severely reduce margins
• for cartridge remanufacturers

Zone 1
Zone 2
Zone 4
Zone 3
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Cartridge Revenue by Source

• Overall revenue growth expected to slow
• OEMs to gain 2 percent revenue market share
• Aftermarket revenue to
• be flat through 2011
• Refill kit and refill
• service segment to
• expand about 100
• million

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Desktop Ink JetBulk Ink Market
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Average Ink Volume per Cartridge

• Total desktop ink demand has been adversely
  impacted by greater ink jet platform efficiencies
• Print head, driver,
• ink, and media
• technology
• improvements lowers
• ink volume per page
• Result is that average
• ink per cartridge is
• decreasing

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Desktop Ink Shipments by Source

• Total desktop ink shipments expected to be flat
  due to increased printer system efficiencies
• Aftermarket ink volumes
• to shrink due to
• OEM competition

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Desktop Ink Wholesale Revenueby Source

• Total wholesale ink revenue to be flat due to
  stable prices
• Aftermarket ink revenue
• to decline significantly
• due to market share
• losses

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Desktop Ink Shipments by Type

• Desktop ink volumes to shift towards
  pigment-based formulations
• Drivers include
• Pigment dispersion
• advancements
• Aftermarket using
• pigmented black
• Decreasing demand
• of legacy dye-based
• SKUs
• Growing prevalence
• of color pigment ink

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Color Desktop Ink Shipments by Type

• Color pigment ink volumes expected to nearly
  triple between 2006 and 2011, yet dyes remain
  majority
• All OEMs offer pigment-
• based color inks
• Business-oriented
• ink jets predicted
• to increase use
• of color pigment

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Desktop Ink Wholesale Revenueby Type

• Pigment-based inks have a wholesale revenue
  premium over dye-based inks
• Revenue to shift from
• dye- to pigment-
• based inks

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HP Print 2.0 Campaign

• HPs 300 million marketing campaign
• Objective to link printing to Internet content
• Internet news, blogs, etc. printed through HP
  Tabblo tool
• Social networking, value added photofinishing
  through HP Snapfish
• Web-based portals for office environments and
  graphic arts professionals
• Vyomesh (VJ) Joshi shifting focus from
• printers to printing
• HP executives paid based on page volumes

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Ink Jet in the Office
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Home Photography as an Ink Jet Driver

• Home photo prints eclipsed by retail, online
  photo printing
• Ink jet vendors must look for other opportunities

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Ink Jet Looks Outside of the Home

• Home printing accounts for less than 5 percent of
  digitally printed pages

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Demands of an Office Ink Jet Printer

• Basics of office hardware
• High print speed (in laser terms)
• Durable print engine (robust duty cycle)
• Reliable paper feed (large print jobs)
• Networking capability (sharing among computers)
• High-capacity paper tray (few interventions)
• Basics of office inks
• Laser quality output (bold, high-durability
  inks)
• Low intervention rate (high-yield cartridges)
• Low total cost of ownership(low-price inks)

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Office Ink Jet Products of Today

• Latest examples of office ink jet printers
• Canon Pixma MX700
• Epson Stylus C120
• HP Officejet Pro K5400, Edgeline CM8060/8050 MFP
• Lexmark X7550
• Ricoh Gelsprinter Aficio GX5050N, Aficio 615C
• Xerox Phaser 8560, Phaser 8860
• Latest examples of office ink jet inks
• Epson DuraBrite Ultra
• Kodak Kodacolor Inks
• HP Vivera Office, HP Edgeline Inks
• Lexmark Evercolor 2
• Ricoh GelJet Viscous Ink
• Xerox Solid Ink

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Ink Jet versus Laser Advantages

• Todays office ink jet products
• Higher print resolution
• Simpler print engine assembly
• Greater media flexibility
• More power-efficient
• Lower total cost of operation
  (in some cases)
• Tomorrows office ink jet products
• Higher print-speedhardware-cost ratio
• Fewer consumables, easier maintenance
• Greater product versatility
• More environmentally friendly
• Much lower total cost of operation

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Color Printing Costs SOHO
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Color Printing Costs SOHO
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Color Printing Costs SOHO
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Color Printing Costs SMB
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Color Printing Costs SMB
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Color Printing Costs SMB
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Color Printing Costs Enterprise

• At list price, HP Edgeline pages cost less than 1
  cent for monochrome and 3 cents for color

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Ink Jet Faces Tough Competition
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Differentiating Color Printer Vendors

• Beyond technology, OEMs will be distinguished by
• Product designeasy to use and look at
• Channel partnersreach, integrate, and support
• Marketing powereducate, demonstrate, and
  influence
• Green business modelreduce e-waste
• Profitabilitybalance hardware and
  supplies margins
• Driving office ink jet will require
• End-user acceptance and experience
• Greater in-house color printing
• New business modelsa rethinking of
  razor and blades

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Laser Wins in the Near Term

• Laser marking revenue projected to expand 60
  percent between 2006 and 2011 versus 6 percent
  for ink jet

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What if Ink Jet Wins in the Long-Term?
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