Like me, did you do a double take when you saw this news? Frankly, I'd have been less surprised if the headline had been the other way around! It wasn't long ago that I was writing about the lack of consolidation at the OEM level in the office products and imaging industry. Not anymore! It's major mergers and acquisitions news when a series of events such as Ninestar acquiring Lexmark, Foxconn acquiring Sharp, and now HP acquiring Samsung's printer business takes place. The pace of consolidation in the industry continues to accelerate while its scope continues to expand.
So, what are some of the potential implications for the industry and, in particular, for the aftermarket?
DepotMax and Staples - one less brand to carry. Will they seek a replacement?
Canon, HPs partner for 30+ years, owned the laser technology, manufactured the cartridges and kept a share of the profits. What happens next for them?
Hewlett-Packard has made incredible improvements to its inkjet technology over the last few years. With the introduction of high speed, full-page-array printing devices, there finally appears to be a chance that ink will establish a more mainstream presence in the office printing environment. We've assumed HP's inkjet technology initiative was largely driven by their desire to own the entire value chain (unlike laser where it's shared with Canon) and, maybe it has been but, with Samsung and their laser and Multi-Function Printer (MFP) product line, along with their 6,500+ patents, hmm .... who needs Canon anymore?
Samsung - picked up 7-10% market share while HP was losing that, and more, over the last decade. This acquisition will take Hewlett-Packard back toward 50% or so share in the office desktop and MFP device categories.
Hewlett-Packard has made some bold moves over the last 2-3 years shrinking their distribution from 15,000 resellers to perhaps less than 4,000. Presumably, after the deal closes, they'll implement similar strategies for the distribution of Samsung products. While making these changes to their distribution model, they've also been making great strides forward dealing directly with consumers and, in some cases, eliminating middle-man distribution. I don't imagine this strategy will change.
So, what was the driving that took HP down this path with Samsung? Perhaps the need for a stronger line-up of hardware in order to compete effectively with Konica Minolta, Ricoh, and the likes, that they were unable to obtain from Canon. The Office Equipment channel, where more and more of the hardware and supplies are being placed under managed print service agreements, is an attractive growth opportunity. The Samsung products fill the gap, so expect HP to aggressively go after this channel where, it should be noted, they will also be bumping into Canon a lot more frequently.
Ninestar / Apex acquiring Lexmark, a ballsy move but, I'm still scratching my head how this one's going to play out. Ninestar is probably the strongest player in the global aftermarket after their stunning IPO of the Apex chip business. They were unencumbered with channel conflicts in the developed western markets until they decided to acquire Lexmark, and now have the most complex of all distribution conflicts to manage. As a renowned aftermarket manufacturer and a relative upstart in the industry, (only founded as recently as 2000), they have to manage customers selling $20 compatibles in one channel and $100 OEM brand cartridges in another! How long's that going to last?
Not only that awkward complexity to deal with but, also 5,000 nervous employees. Lose some of that talent and what next for Lexmark? How much share of the U.S. printer hardware market do they have? What do you think 7 - 10%? Hmm ... the new Hewlett-Packard / Samsung combination probably can't wait to get started going after that business!
How long before Hewlett-Packard is back at 75% market share? Five years? Ten years? Who knows? Most likely they'll never get back to the kind of market domination they enjoyed 15 years ago. Regardless, even if HP does gradually obtain a more dominant market share, a large part of me thinks the resellers carrying Samsung are not going to be very motivated to replace them. This is a mature industry, printing is now just that ... printing, and I think one less vendor becomes one less headache for them to deal with.
Will Foxconn Technology Group make a difference after their acquisition of Sharp? Well, they're not known for distribution and marketing, more for contract manufacturing. I don't really think they're likely to step into Samsung's shoes.
In other news announced June 13, 2016, regarding the Cartridge World partnership with Samsung. As you may have already read, this is an initiative to place thousands of printers in free Wi-Fi areas across the United States, and to cater for the increasing numbers of mobile workers. What will become of this? Will HP see fit to continue this innovative partnership? Don't forget Cartridge World, as a reseller of aftermarket cartridges, didn't make the cut as HP eliminated 80% of its channel resellers over the last few years. It's likely there's going to be some concern about the future of this initiative within the offices of Cartridge World.
More likely this budding OEM / aftermarket relationship will have established enough traction to survive before the Samsung deal closes 12 months from now. Chances are, you would think, what was good for one OEM (Samsung) should be good for another (HP) and the Cartridge World initiative will survive this unexpected announcement.
So, finally, what impact will these different scenarios be likely to have on the thousands of independent resellers? Is it going to be a game changer or is it going to be business as usual? What's the worst case scenario for a reseller? What if HP accumulated sufficient market power to collapse the price model on ink and toner cartridges, jacking up the prices of the hardware, and eliminating the pricing umbrella that allowed the aftermarket to develop in the first place? Well, I for one, can't see that happening. Even in the unlikely event they eventually got to 80%+ market share, I don't think we'd see a change of this nature taking place to the currently established business model. In my opinion the opportunity for the aftermarket is here to stay for as long as we all continue to print.
More turmoil, more uncertainty perhaps. But, one thing hasn't changed as it's still a $25B annual market for ink and toner in the United States. Between them, the OEMs have an 80% share of the overall market and, between them they're still selling cartridges (for example) at $100 when there are high-quality aftermarket alternatives available that can be profitably sold by independent resellers for substantially less.
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