Printing solutions and content management provider Lexmark International (NYSE:LXK) is set to announce its Q1 results for 2012 on April 24. It has provided a weak Q1 outlook and expects low single digit growth assuming that the growth in Europe and North America remains sluggish.^[1] Lexmark along with other key market players such as Canon (NYSE:CAJ) and Epson have lost significant share to market leader Hewlett-Packard (NYSE:HPQ), which further extended its dominating share to 56% in the U.S. hard-copy peripheral market. ((U.S. Hardcopy Peripherals Market, IDC)

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Trends Likely to Drive Lexmark’s Performance in 2012

1. Move to Managed Printing Solutions

Companies are increasingly adopting Managed Printing Solutions (MPS) which provide end-to-end printing solutions as a service. This simplifies the process for the clients and allows for higher margins as opposed to selling just hardware. We expect Lexmark to concentrate on such higher margin businesses, going forward.

2. Enterprise Content Management and Business Process Management

Lexmark revealed that Enterprise Content Management (ECM)and Business Process Management (BPM) is expected to grow at about 12% y-o-y. The market is currently worth $8 billion, but has a huge potential to grow as the penetration of document and human-centric ECM and BPM solutions is still small. These services involve capturing unstructured information such as hard-copy, photographs, physical invoices, faxes, etc., into digital formats to streamline and automate processes, which are currently manually done in most organizations. Lexmark expects these services to drive revenue, going forward, and we expect it to focus on this area in 2012.

3. Printing Hardware Industry Headed for Consolidation

Lexmark reported shrinking inkjet sales due to the economic slowdown in Europe as well as consolidation in the printer hardware market.^[2] It expects more competition from larger traditional copier machines as most of them now provide systems with multiple functionality such as fax, copier and scanner. Refilling cartridges and imitators are eating away further sales opportunities in the cartridge business line. These factors will likely lead to a slowdown in near-term hardware sales and impact short-term revenues.

We currently have a $39.75 Trefis price estimate for Lexmark, which is about 20% over its current market price.

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