Lexmark Pushing Sales Of Its Branded Printers Through Channel

“We need to drive more sales of branded hardware and work with the channel to make sure they are carrying a comfortable level of inventory,” Lexmark Chairman and CEO Paul Curlander told Wall Street analysts last week after the company cut its third-quarter profit forecast by more than half. The profit shortfall sent Lexmark&s shares plummeting 29 percent, or $17.44 per share, to $43.50 on Oct. 4.

Curlander stopped short of saying its OEM agreement with Dell has been problematic. Since that deal was put in place three years ago, Dell&s printers have accounted for more than 10 percent of Lexmark&s overall revenue while Lexmark&s profits have shrunk.

Solution providers, for their part, pointed to Dell&s slash-and-burn pricing strategy on Lexmark-built printers as a key reason for the Lexington, Ky-based company&s problems.

“I personally think that [OEM deal] was a giant mistake,” said George Civita, director of Lexmark relations at Vecmar, a Mentor, Ohio-based solution provider. “That is one place where I do run into issues where I am presented with a very aggressive price—even with special pricing from Lexmark—and I can&t compete with the same product coming from Dell.”

Among other things, Dell either has bundled printers for free to buyers who also purchase desktops, notebooks or servers, or has sold them at bargain-basement pricing.

“People are still realizing, ‘I can get a Dell for this [lower] price, so why am I buying a Lexmark?& I do think that kind of hurt them,” said Feddly Jeanniton, president of FAJ Systems, a Wilmington, Del.-based solution provider and Lexmark partner. “They should have kept their name on the printers,” he said.

Lexmark rolled back its profit forecast from between 95 cents to $1.05 per share to between 40 cents and 50 cents per share and said sales would drop by 4 percent or 5 percent on a year-to-year basis.

Curlander said it appears solution providers are drawing down current inventory. “As we came into the quarter, clearly our analysis did not tell us, we did not believe we would see this type of shift in channel inventory,” he said.