Lexmark's Transformation Focused On Software, Services

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Software integration, enterprise content management and business process management will all define Lexmark's future, as will the channel, which Lexmark is keen to develop as an integrated entity focused on how to make customers' printing, imaging and business processes smarter, simpler and more cost-effective.

Those were some of the key takeaways from a Lexmark event in New York Wednesday, where Lexmark's top managers updated media on the company's evolving market strategy.

Much like Xerox, HP, Ricoh and other major printing and imaging competitors, Lexmark is going through a strategic transformation as its legacy hardware businesses gives way to an increasing interest by customers in smart printing and fleet management, managed document services, business process technologies and software sales.

Lexmark is also going through a corporate transformation this year, which marks its twentieth anniversary since being created following a spin-off from IBM in 1991. Paul Curlander, Lexmark's CEO for 12 years, retired this past spring, succeeded by Paul Rooke, who like Curlander has been with the company since the beginning.

In the past 18 months, Lexmark has made two acquisitions that the company is banking will aid in its transformations. FIrst, for $280 million in May 2010, was Perceptive Software, a specialist in enterprise content management software. The second, for $50.2 million this fall, was Pallas Athena, a Dutch company specializing in business process management, document output management and process mining software.

Those focuses, with which Lexmark intends to built a software-focused solution provider channel as well as strengthen its legacy printer reseller, VAR and systems integrator channels with new capabilities, are what set Lexmark's strategy apart from its rivals', Rooke said.

"The way to think about it is we're adding to our toolbucket of technologies, as you've seen with business process management and enterprise content management, to help customers become more efficient," said Rooke in an interview with CRN. "We're not in there asking them to outsource their business to us. We think we can add far more value by being the provider for them of combinations of solutions, as opposed to just outsourcing."

It hasn't been an easy road. Lexmark in October reported third quarter revenue of $1.035 billion, above Wall Street predictions of $1 billion, but missed on profit estimates, with the expectation that fourth quarter revenue to be down mid-single digits. During its Q3 earnings report, Rooke mentioned the floods in Thailand and the macroeconomic climate as "headwinds" but also emphasized how Lexmark's emerging software focus is creating market expansion and cross-sell opportunities. Lexmark is also leaving unprofitable businesses behind; it confirmed it will exit the consumer inkjet printing business by the end of this year.

From the channel perspective, the challenge now is to get Lexmark's VAR partners on board with the shift, which means less emphasis on traditional hardware sales and break/fix repair services, and more emphasis on software implementation and selling customers on managed services, business process management and ECM.

"I'm a strong believer that in just a few years, partners will feel as strong a demand for these things as we feel for developing them now," said Marty Canning, Lexmark vice president and president, Printing Solutions and Services. "Lexmark is trying to change the game, and we're looking for partners who want to come with us."

NEXT: Lexmark In Transition

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