Lexmark Downgrades Q4 Forecast, Cuts 375 Jobs

In October, Lexmark projected that there would be a low to mid-teens percentage reduction.

The printer giant also announced a restructuring that will include eliminating 375 jobs. The reorganization is a continuation of a reduction in the company's general and administrative expenses, as well as supply chain and sales support.

With other belt-tightening measures, Lexmark said it expects to save roughly $40 million when the reorganization is completed at the end of the year.

The company blamed the fourth quarter downward guidance on lower laser and inkjet hardware unit sales and currency rate shifts during the same period.

Lexmark said that approximately two-thirds of the revenue shortfall was in hardware. Hardware revenue fell about 29 percent year-to-year in the quarter with declines in both laser and inkjet hardware.

Laser and inkjet unit sales were less than expected, the company said, with laser units declining 8 percent year-to-year and inkjet units sinking 43 percent year-to-year.

During the fourth quarter, Lexmark increased supplies pricing in all geographies because of the "relative strengthening of the dollar," said chairman and CEO Paul Curlander, in a conference call. But the company still experienced "significant negative impact on supplies revenue" in the quarter due to the currency shifts.

"As normally happens with supplies price increases, we saw channel buy-ahead," Curlander said. "The combination of the channel buy-ahead and the weakness in end-user demand resulted in an increase in supply channel inventory, which we expect to be worked off over the next quarter or two."

Curlander called the situation a "disruption" in the channel, and said that the shrinkage of channel inventory will become a "much bigger factor in Q1."

When questioned by analysts regarding concerns about channel finished goods inventory on the laser or the inkjet side, Curlander said that the company is looking at the situation "right now."

"We're a little ahead of our normal schedule and we haven't looked at all of the inventory situations around the world," he said. "I would expect to see some excess inventory in some channels on the hardware side. We've already talked about supplies where we know there's significant inventory sitting in the channel."

Curlander was also asked about competitors on the supplies pricing front.

"We're certainly seeing competitors raise supplies prices," he said. "I'm not sure I would say we're seeing people raise supplies prices more than what Lexmark is doing but certainly we're seeing people respond to the shift in currency."

Curlander added that Lexmark is watching its competition "very closely" to see if there will be opportunities to increase supplies pricing.

"In terms of what our anticipation is, we're very focused on being harmonized on our pricing around the world for a lot of different reasons," Curlander said, although he did not elaborate.

Wall Street believes that Lexmark's woes mean market share for its rivals.

"While a negative data point on the industry, we think weakness at Lexmark is a long term positive for HP, Xerox, Epson and Canon as we believe stronger players will take share of Lexmark's $4 billion revenue stream," said Sharon Cross of Cross Research, in a client note.

Lexmark announces fourth quarter 2008 financial results on Jan. 27.