Ikon To Join The Analog-To-Digital Ranks

The Malvern, Pa.-based company—which resells products by vendors such as Canon and Ricoh and also manufactures its own line of high-end document hardware—saw its top line in professional services in the United States grow by 23 percent and its on-site managed services by 4 percent during its first fiscal 2006 quarter ended Dec. 31.

However, its overall revenue in services dropped by 2 percent, which CEO Matthew Espe said was at least partially the result of the analog-to-digital transition. Ikon customers that are part of the analog document hardware installed base have lower page counts than those in the digital hardware installed base. Page counts drive service cycles.

“It really is as much a function of the analog being off as much as anything else,” Espe told analysts during a conference call to discuss Ikon&'s earnings for its most recent fiscal quarter. “That&'s why we focused on new equipment [installations] in the quarter. We want to drive the conversion to digital and digital copies.”

“We expect to be largely out of the analog business by 2007,” Espe said. Overall, Ikon reported sales of $1.04 billion for its first fiscal quarter, a drop from the $1.08 billion it turned in for the same quarter a year earlier. At the same time, though, Ikon&'s profit jumped to $27.6 million from the $19.7 million it reported for its first fiscal 2005 quarter.

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Matthew Troy, an analyst for Citigroup Smith Barney, New York, said in a research note that it appears Ikon will have a tough time with revenue in the near-term, but that a new product cycle could be a boost.

“From a product perspective, we look for Ricoh to refresh a portion of their product lineup in spring 2006, and Canon to launch several mid- to high-end devices later this year,”

Troy wrote. He also noted “strong market uptake” for Ikon&'s own co-branded hardware, including the Konica Minolta/Ikon CPP 500 and Business Pro 500c. However, he did say Ikon could face stiff competition from Xerox and its current product line.