This Month's Spectrum Summary:

(The following is an excerpt from the November 2005 issue of Spectrum, a proprietary monthly briefing published exclusively for the clients of I.T. Strategies, Inc. © 2005)

VISITS WITH THREE U.S. GIANTS
Xerox, HP and Kodak Air Strategies-
We Overview Pain Points, Responses, Prospects

This month, for our big picture overview, we delve into the prospects for three giant U.S. printing vendors-Xerox, HP and Kodak. Each is seen faced with its own daunting struggle and how each copes will impact the whole industry. Meeting with us today, Marco Boer shares his reflections after attending analyst gatherings sponsored by each, coincidentally all in quick succession.

Looking first at Xerox, we review its assets which include strength in both the high and low ends of the laser printer world. Converting monochrome users to color and retaining its lead in transaction statement and direct mail applications Xerox sees as a way to regain profitability. In its analyst briefing Xerox featured Japan's JAIS as its prize iGen3 user, hoping many more follow. For now, Xerox doesn't need to field new technology, but rather build on the iGen3 as a platform. Xerox is unusual in that two of its top execs are women which is seen as a good fit for Xerox's turnaround strategy at this point.

Challenges include the reality that Xerox's targeted world of mono pages is slowly shrinking, the value of its potent brand name is being eroded in a world with less and less brand loyalty, and tougher competition forcing down margins on hardware and perhaps supplies as well. Xerox's current direction looks appropriate for the next few years, but beyond that, some more radical changes are needed to address a changed world where value will shift from the printed document to managing data. Xerox, in short, comes through as not exciting, but stable.

Turning to Kodak, we see a company with more urgent challenges and a need to reinvent itself as film sales shrink much faster than anticipated. To compensate, Kodak has been successful in building its digital camera and accessory lines and is building its Graphics Communications Group primarily by an ambitious series of acquisitions. An important asset is Kodak's link to the offset market as a major supplier of digital platemaking products. This should help the company grow page volume by changing the analog/offset world to digital, hopefully Kodak digital equipment and supplies.

Kodak's top management people, unlike that of HP and Xerox, are relatively new to the company. They profess conviction, but are seen as rapidly running out of time and money. One possible response would be to sell off Kodak's profitable medical imaging business and use the proceeds to rebuild the company as a smaller, more agile digital industry factor.

Finally, we have HP. We focus mostly on whether its voiced goal of doubling its printer business from $25B to $50B in ten years is possible. On the surface, with the industry growing at only around 3% per year, this seems unrealistic. But the possibilities add up. Printing is decentralizing, so HP's strength at the lower end is a plus. It can grow ink sales by pushing photographic and other image printing. Like Xerox HP hopes to convert monochrome laser printer users to color to expand toner revenues. HP can convert copier users to HP MFPs, in effect stealing copier pages from the major copier vendors. HP's stage is already larger than that of the other majors in that HP is also into PCs, servers and other data technologies.

We note some challenges. Any leader becomes a target for more and more competitors, ink margins are declining, and third party supplies competition is emerging from the retail chains and others. But finally, considering world population growth, we are almost convinced HP can do it. And we agree HP's leadership style is appropriate, in the wake of Ms. Fiorina, not exciting but solid. When you are big, you don't need to be exciting.

As a postscript, Canon is discussed mostly because it offers a clear contrast to the U.S. giants, in leadership style and in company priorities. Long term thinking drives much more investment in pure science and R&D that should result in long run payoff. Much Canon volume, however, is in copiers which is declining as the world moves toward networked printers. As Canon builds its printer line, it seems likely to collide with its major laser printer customer, HP.

The digital printing industry can be viewed as maturing, but in our discussion this November afternoon-with colliding worlds, pain points, and contrasting strategies and leadership styles-this certainly doesn't mean boring.