Lexmark's outlook warning pulls down printer makers

Reuters News
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Posted: Jul 13, 2012 11:05 AM

By Himank Sharma

(Reuters) - Shares of laser and inkjet printer makers fell on Friday, after Lexmark International Inc joined a host of technology companies that warned of falling sales in Europe.

Lexmark's stock slid as much as 17 percent, making it one of the biggest losers on the New York Stock Exchange and dragging down rivals Xerox Corp and Hewlett-Packard.

Deteriorating economic conditions in Europe and a stronger dollar have led to bleak forecasts from several American technology companies, including Advanced Micro Devices and Applied Materials.

Shares of HP, known for its once ubiquitous Deskjet printers, fell 3 percent to $18.77, their lowest in a year, while those of Xerox were down as much as 3 percent. Japanese rivals Canon Inc and Ricoh Co Ltd both closed down on the Tokyo Stock Exchange.

Morningstar analyst Michael Holt said printing, one of the most dispensable parts of a company's budget, is always the first target of cost-cutting measures.

"When you see times of macroeconomic distress, printing is one of the areas most susceptible to changes in demand. Even if we have long term negative trends in printing, they can be exaggerated in the short run by economic conditions."

Lexmark, which derives almost 40 percent of its sales from Europe, Middle East and Africa, cut its profit outlook on Thursday and said second-quarter revenue would fall about 12 percent, much more than it had earlier anticipated.

Lexmark said it would be hurt by a strong dollar in the second quarter. The euro has shed 5.5 percent against the dollar this year.

HP, unlike Lexmark, has other business segments to fall back on, including its Personal Systems Group, which is being merged with the printing business.

Palo Alto-based HP derives 20 percent of its revenue from its Imaging and Printing Group, considered as a steady cash cow because of recurring sales of printer cartridges.

"Lexmark is focused on mainly business printing but HP has exposure to both businesses and consumers. We see consumer printing as declining much more rapidly than business," analyst Holt said.

(Reporting by Himank Sharma in Bangalore; Editing by Don Sebastian)