While the market for digital imaging hardware and supplies is mature and various segments are declining, most copier companies have been reporting improved revenue for the past couple of years. The majority of copier makers are Japanese companies of course, and they’ve benefited greatly from the weaker yen. But not all of the copier industry’s success can be attributed to exchange rates.
It’s well documented that many copier manufacturers have been growing the number of production devices they sell. The production space is red hot and copier vendors are cashing in. However, certain copier companies are also enjoying a level of sustainable growth from a strategy that is less acknowledged: a full-blown assault on the A4 market, particularly at the lower end. Most copier companies, which were once known exclusively for marketing A3 devices, have now successfully penetrated the A4 space and many have grown their market share.
Today, the A4 market is an important part of most copier manufacturers’ business, and it represents investments that date back a couple of decades. The convergence of the copier and printer markets began over 20 years ago as manufacturers of analog light-lens copiers embraced digital technology. Firms like Hewlett-Packard, Lexmark, and others quickly began marketing A4 office machines with functionality similar to that of higher-end digital copiers but in a box with a smaller footprint and a much smaller price tag. Over time, these machines became wildly popular and printer companies were able to grab significant market share from copier firms. But that trend appears to have been reversed and today copier companies are taking back some of the share they lost years ago.
Urge to Merge
Before the markets for printer-based MFPs and digital copiers converged in the late 1990s, the printer and copier industries were already closely aligned as they had been from the earliest days of the “page printer.” Various copier manufacturers supplied print engines to third-party customers marketing digital printers. Canon’s long-running relationship as HP’s engine supplier, which began in the 1980s, is perhaps the most famous but there are plenty of other examples. As the laser printer industry grew, hardware companies began to realign assets to better penetrate new market segments, which led to a significant wave of consolidation of manufacturing firms.
Minolta was one of the copier firms marketing print engines as well as its own branded printers and by the late 1990s it was looking for ways to solidify its place in the A4 market. In a move that would increase its technical capabilities in areas like controller architecture and networking, Minolta acquired 51 percent of QMS in 1999 and began filling out its A4 printer line with color and monochrome printers. Over time, Minolta would acquire all of QMS, along with its popular magicolor line of A4 color machines, and gain new technologies that could be incorporated into Minolta’s existing PagePro line of monochrome office printers.
Around the same time as the QMS acquisition, Xerox made a similar move with its purchase of Tektronix’s Color Printing and Imaging Division. The Tek acquisition gave the copier giant access to additional desktop monochrome and color technologies including solid ink. Like Minolta, prior to the purchase, Xerox was marketing a selection of desktop machines, which were based on technologies sourced primarily from its Fuji Xerox joint venture. With the Tek assets, which cost Xerox nearly $1 billion, the firm established a division dedicated to marketing A4 hardware exclusively for office users.
As the decade progressed, copier firms continued to feel increasing pressure from A4 multifunction product lines such as HP’s LaserJet 4345 MFP and Lexmark’s X632s, which sold for thousands less than comparable copier machines. Many equipment dealers, however, were lukewarm to the notion of selling such low-cost machines with puny margins. To make matters worse, A4 customers were accustomed to being able to replace their own consumables and the machines required little maintenance, which denied the dealers their highly-profitable service calls. Copier companies soon realized that they needed to enlist assistance from outside their independent dealer networks if they were to successfully market A4 machines, especially at the lower tiers of the market.
About ten years ago many copier firms began more actively pursuing new channel partners including resellers in the IT space in an effort to place more A4 units. Vendors knew if they were to grow their A4 businesses that it was critical to attract customers in small to medium-sized firms, which were often serviced by IT resellers. Konica Minolta, Ricoh, and Xerox were able to reach more SMB customers with their respective acquisitions of Danka, IKON, and Global Imaging. While these are the three channel deals that received the most attention, there have been plenty of others which allowed copier companies to attract more businesses that traditionally used A4 machines.
The growing popularity of managed print solutions along with other higher-margin services has also resulted in copier OEMs initiating an ongoing spate of acquisitions and strategic alliances with channel partners servicing SMB clients. This trend shows no sign of abating and should allow traditional copier manufacturers to continue to burrow further into the SMB space.
Battle Down Below
Since the global economic picture has brightened, the so-called Big Three—Canon, Ricoh, and Xerox—have grown increasingly active in releasing entry-level A4 devices, especially in emerging markets where consumers can be extremely price sensitive. In North America, hardware manufacturers have reported growing sales of lower-end A4 color electrophotographic single-function printers and MFPs.
As it has for decades, Canon continues to be the industry’s largest producer of A4 printers and MFPs thanks to its ongoing role as HP’s LaserJet engine supplier. According to Canon’s 2013 annual report, for the fiscal years ending on December 31 in 2013, 2012, and 2011, the LaserJet business made up 17.6 percent, 17.0 percent, and 19.3 percent, respectively, of the firm’s total consolidated net sales. More than any other copier manufacturer, Canon’s A4 business is essential to the health of the overall company. In 2013, Canon’s A4 printer and MFP revenue totaled ¥841.4 billion, or 42 percent of the Canon Office Business Unit’s total sales. The group also markets Canon’s A3 devices, digital production systems, high-speed continuous feed printers, and wide-format machines along with document management solutions and the consumables for the various machines. By comparison, Canon’s total monochrome and color A3 sales totaled ¥694.8 billion or just shy of 35 percent of the Office Business Unit’s ¥1,993.9 billion total revenue last year.
Although the final numbers are not in for 2014, it appears that Canon’s printer sales will be flat. During the first quarter, printer revenue surged over 8 percent compared to sales in Q1 2013. However, A4 sales slipped about 7.5 percent in the third quarter compared to the year prior after remaining flat in the second quarter. If Canon’s laser printer business is flat for the year, which I think it will be, it would suggest that sales of Canon-branded laser printers and MFPs outpaced LaserJet sales in 2014. Throughout 2014, HP reported LaserJet sales were sagging along with demand for toner cartridges. LaserJet sales are reported along with revenue from production devices like the Indigo digital press in HP’s printer group’s “commercial” business. It appears that Indigo sales, which were reported to have done well in 2014, buoyed the commercial revenue line for HP, allowing it to basically remain flat as sales of LaserJets tumbled.
Fuji Xerox, another large, long-term producer of A4 electrophotographic printers and MFPs, has successfully grown its revenue in the A4 category over the past couple of years. FujiFilm owns 75 percent of the “FX” joint venture compared to Xerox’s 25 percent, and reports Fuji Xerox performance as part of its Document Solutions unit. The Japanese company has articulated a growth strategy for its A4 business that includes boosting sales of entry-level machines worldwide. The company says the worldwide market for entry-level A4 machines has been growing at a rate of about 7 percent since 2010. During the fiscal year that ended on March 31, 2014, revenue from office printer and MFP sales climbed almost 12 percent to ¥181.2 billion from ¥161.9 billion during the year prior.
While actual revenue numbers are not available, FujiFilm says the performance of its A4 products has been somewhat mixed in 2014 dogged by sales of Xerox-branded units. In the first quarter of the current fiscal year, which ends March 31, 2015, the firm reported sales of Fuji Xerox branded monochrome models were up in Asia and Japan along with exports of color units to Xerox Corporation. In the second quarter, however, while “the overall sales volume increased,” FujiFilm says sales of Fuji Xerox branded monochrome and color A4 units were down in Japan along with sales of exports to Xerox. Sales of color machines were up, albeit only “slightly” to Xerox. With two more quarters still to come, it will be interesting to see if FujiFilm will be able to keep its streak of increased A4 revenues going for a fourth consecutive year.
As the numbers above suggest, the performance of A4 sales for FujiFilm’s longtime partner Xerox has been uneven. During fiscal 2013, Xerox reported that shipments of its monochrome A4 MFPs dipped 20 percent while color MFP shipments surged 24 percent and color printer shipments grew by 5 percent. During the first half of last year, however, Xerox said A4 monochrome and color shipments were down 23 percent and 1 percent, respectively, while shipments of color printers rose 3 percent compare to the first half of 2013. During the third quarter of 2014, A4 mono MFP shipments continued to skid, dropping 22 percent, while shipments of color MFPs dropped 7 percent and color printer shipments fell 3 percent. Xerox did not release revenue numbers for its A4 business.
Ricoh is attacking the lower-end of the A4 market vigorously and currently offers a range of low-end color and monochrome hardware in the U.S. for under $500. Like FujiFilm, Ricoh has articulated a growth strategy based on marketing lower-end electrophotographic machines worldwide with a particular focus on emerging markets. During the fiscal year ending March 31, 2014, revenue from Ricoh’s Office Imaging business was essentially flat. The company said that color A4 MFP sales were up for the year in both Japan as well as worldwide. Printer sales were down in Japan, however, while they were up worldwide. During the first half of the current year, Ricoh reports that its Office Imaging business is up a modest 2 percent but most of that growth has come from improved sales of production printers. Revenue from mono A4 MFPs and printers are off 19 percent and 2 percent, respectively, compared to the same period the year prior. Color printer sales are also down 2 percent while color MFP sales are up 7 percent.
No Thanks
While some of the copier industry’s largest players are slugging it out in the lowest tiers of the market, others have decided to remain above the fray. Konica Minolta, for example, is no stranger to the lower-tiers of the laser market, which is where it once sold its aforementioned magicolor and PagePro product lines. While A4 appears to be important to the company, its entry-level product lines have been scraped. Today, Konica Minolta markets A4 products that share a similar look and feel as its higher-end A3 units. The company has indicated that in 2015 it will look to grow its A4 business in North America, but that growth will come from sales of mid-tier A4 machines rather than entry-level devices.
Other copier vendors with aspirations of gaining share in the A4 space that appear to be avoiding the low-end of the market include Sharp and Toshiba. Like Konica Minolta, both companies have been active for a while in the mid-tiers of the A4 space and up. In 2008, Sharp introduced its Frontier product family of A4 printers and MFPs, which are marketed through Sharp’s direct sales force and dealer channel as well as through additional channels that are more aligned with SMB users. The machines feature the same Sharp OSA development platform as its A3 devices to allow users to customize solutions that can work across machines.
Likewise, Toshiba has teamed up with OKI to bring to market A4 machines that share the same controller technology as Toshiba’s A3 eSTUDIO devices. The machines include A4 mono and color MFPs featuring LED arrays and a print engine sourced from OKI along with Toshiba’s e-BRIDGE controller. OKI is also marketing similar A4 machines as well as A3 units.
Unfortunately, neither Konica Minolta, Sharp, nor Toshiba provide much insight into their respective A4 businesses. While Sharp and Toshiba mention “MFPs,” the firms do not differentiate between A3 and A4 devices. Konica Minolta, on the other hand, breaks out its A3 business separate from its sales of production devices but does not offer numbers for A4 devices. With little to go on, my guess is that each of the firms’ A4 products lines are important in that they enable them to market comprehensive printing solutions.
Who’s Right?
It appears that copier manufacturers have embraced two conflicting go-to-market strategies in their product lines. The Big Three feel that they must bring to market a full range of machines if they are to successfully compete with printer manufacturers as well as rival copier manufacturers on a global basis. If the firms are to grow their business in emerging markets, they must offer low-end machines. On the other hand, Konica Minolta, Sharp, and Toshiba are avoiding the punishing conditions associated with the lower-tiers of the market and are focused instead on the mid-tier segments and up. At least for the time being.
I imagine that each group will be able to maintain the status quo for the foreseeable future. It seems unlikely to me that in the near term Konica Minolta, Sharp, and Toshiba will look to gain market share outside of the markets they are established in. There is plenty of growth available to the three companies in the upper tiers of the market, which they will look to capture. On the other hand, it is essential for the Big Three to offer entry-level units to be successful in emerging markets. They simply have no choice if they are to be competitive.
While strategies appear to be polar opposites, it seems that all of today’s copier companies are in agreement on one crucial point: A3 alone is no longer enough. Companies marketing office equipment must offer an assortment of A4 devices if they are to be successful.
