Lexmark is Banking on the Enterprise Market

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Lexmark (NYSE:LXK) has continuously lost market share in the laser printer market due to slowing printer hardware industry and increased competition from market leader HP (NYSE:HPQ) and other players Xerox (NYSE:XRX), Canon ( CAJ ), and Kyocera (NYSE:KYO). Moreover, increased digital consumption of information through mobile devices like e-readers and tablets has reduced the usage of paper. This trend of digital content consumption may adversely affect Lexmark's printer & cartridges sales. While we estimate Lexmark's laser printer market share will gradually rise to 4% by the end of our forecast period, Trefis members predict a slightly higher share of 4.6%, translating into just under 10% upside to our LXK stock price estimate.

The company is focusing on two key areas: work group color lasers and enterprise content management (ECM) solutions, and this could improve its market position.

Growth in Digital Content Consumption

Growth in digital communication in the form of email, PDFs and digital forms over the years is one of the key reasons for slowing printer demand. Greater availability of wireless broadband Internet, shared network printers, and mobile computing has made it easier for groups to share printers and put additional downward pressure on demand for printers and prices.

With the recent surge in demand for tablets, e-readers and smartphones, users can access documents, anytime, anywhere, which will also reduce demand for printers and more importantly for cartridges that provide recurring revenues for players like Lexmark. (See Are Tablets Bad News for Lexmark? )

Lexmark's Key Focus Areas

Lexmark mainly targets enterprises through its laser printer business and saw market share growth in 2010 due to its focus on laser printers for branded work groups among businesses, and this will continue to be a key growth segment for the company.

The company benefits from increasing penetration into high-end work group printers given the higher margin nature of this business. Lexmark is also focusing on providing end-to-end content management solution, through its Perceptive Software acquisition, which will help users capture, manage and access key information within their businesses. During the first quarter of 2011, it released "My e-Task", a bundled solution that gives users the flexibility to access and print from any enabled multi-function printer (MFP) on their company's global network.

We believe that despite market share concerns, we maintain our Trefis price estimate of $36.70 for Lexmark's stock . This is about 20% above the current market price.

Our complete analysis for Lexmark's stock is here .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

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