Lexmark will close its inkjet printer business operations and lay off 1,700 employees.
The American printer maker has decided to focus on its more profitable imaging and software businesses, raising its shares by 20 percent.
Closure of Lexmark’s inkjet printing operations highlights how printer makers continue to struggle against the burgeoning adoption of smartphones and tablets.
As more companies turn to digital documents for convenience and portability, OEMs like Lexmark will have to fight their way with pervasion in enterprises.
Overall spending on inkjet printers dropped 13 percent in the second quarter as companies limited their printing expenditure, pushing Lexmark to start downsizing, according to the latest study by IDC, a market research and analytics company.
“Today’s announcement represents difficult decisions, which are necessary to drive improved profitability and significant savings,” said Lexmark CEO Paul Rooke.
The company adds that it is now looking at selling its inkjet patents for extra cash.
Industry leader HP was also on the losing edge during the second quarter, as its printers division dropped three percent in sales – part of a steep $8.5 billion loss announced on July 31.
HP, Canon and Epson together account for about 90 percent of inkjet sales worldwide.
Lexmark admitted that competitive market pricing and investments to sustain satisfactory return sparked the downfall of its business.
With a sharp 66 percent decline in the first half of this year, Lexmark’s old inkjet business was in a quandary that forced the company to reduce its fiscal year estimates.
“We plan to continue using part of the free cash flow to accelerate growth in the software business through acquisitions,” Rooke added.
In 2010, Lexmark acquired Perceptive Software to offer software services for handling documents, imaging, and other content.
Two years later, it acquired Brainware Inc., ISYS Search Software and Nolij Corp and supplemented them to its Perceptive unit.
So far, Perceptive has only broken even but Rooke clarified that earlier expectation for turning profit was set for 2013.
The company’s software business increase by around 2 percent year-on-year and shoveled in 5 percent of its second quarter revenue.
In January, consumer ink suppliers yielded to the problems impaling the printer industry, so Lexmark had to cut 625 related jobs.
Xerox Corp and Canon saw the sharp decline and responded by cutting their twelvemonth profit and operating profit estimates, respectively, as both companies anticipated bad recessions in the European market.
Moreover, HP’s sales from its printing and imaging divisions decreased 3 percent in the third quarter.
Lexmark said it would demand $160 million as pre-tax fee for restructuring, taking $110 million this year and $50 million for the next three years.
The company will close its inkjet plant in Cebu, Philippines by 2015.
The company expects $95 million in annual savings after restructuring is complete, and will repurchase an extra $100 million worth of shares in the second half of this year.
Image: cpchannel via Flickr (CC)