Yes, the company attributed its lackluster showing to several factors, including smaller profit margins due to its aggressive price cutting on lower-end inkjet printers and a subsequent drop in inkjet supply sales. But perhaps the more ominous culprit is the weak OEM market -- and for Lexmark, that means Dell more than any other OEM partner.
Check this tidbit from Lexmark's 2006 annual report:
Lexmark also sells its products through numerous alliances and OEM arrangements, including Dell, IBM and Lenovo. During 2006, 2005 and 2004, one customer, Dell, accounted for $744 million or approximately 15 percent, $782 million or approximately 15 percent, and $570 million or approximately 11 percent of the company's total revenue, respectively. Sales to Dell are included in both the business and consumer segments.
Fifteen percent means Lexmark's fortunes are tied pretty tightly to Dell's own. Printer sales go hand in hand with PC sales -- especially on the consumer side, where Lexmark suffered the biggest drop in sales -- and it's no big secret how Dell has been sucking wind in the PC market of late.
Which has me wondering ... how many other technology vendors have cast their lot with Dell in one OEM deal or another? HP for notebooks? Samsung for monitors? If Dell's performance goes south in any number of categories, it's bound to trip up many of those manufacturers. And what might that mean to its channel partners ultimately?
To be fair to Lexmark, the company released a raft of new higher-end products today and is in the midst of growing its portfolio of MFP and color laser printers to move with current trends in the market. These transitions take time.
But might it also be time to think about diversifying its OEM relationships -- or at least relying a bit less on Dell?
Write to me at capril@cmp.com.
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