Epson and HP: Is the Inkjet Revenue Model Broken Yet?

by admin on March 16, 2009

This news article caught my eye last week: Seiko-Epson warns of 1 billion loss, may restructure. So I thought I would check HP's (Hewlett-Packard) financial numbers: HP's Imaging and Printing down 19% in revenue. Unfortunately, the numbers from Seiko-Epson are pretty opaque, most of the loss seems to be in their semi-conductor and LCD division, there's no breakout of the ink and printer numbers. This is not really surprising, as Epson has been famously (or infamous) for keeping a very tight lid on the profitability numbers of their inkjet business.

Why is this important? Well, the fantastic profitability of Epson/HP duopoly in the late 90's and early 2000's has pretty much dictated that all R&D dollars put towards printing technology has been focused on inkjet technology. Billions have been spent on developing inkjet products. In contrast, I would be surprised to hear if $50 million has been spent on rotogravure, even though that is a niche where the big boys time and time again have expressed interest in shelling out some nice dollars for new toys.

But when it comes to prepress and commercial printing, the consumable has been the tail that wags the dog. Prinergy would have never been built unless Creo has signed a consumables deal with Kodak that had subsidized the manufacture of thermal platesetters in the 1990s, which in turn subsidized the development of the workflow software that drove those very same plate-consuming CTP devices. What would be the cost of those new inkjet presses, I wonder, if the ink could be bought in gallon jugs for $9.99 at Wal-mart?

In theory, inkjet offers a wonderful revenue stream that should not go away for a very long time. But patents expire eventually. Xerox was a money machine with its xerographic copiers for decades until cloning their engines became fair game. If the margins start to shrink on inkjet, then one of two things will happen: 1) Somebody will innovate with a new technology that takes printing in a new direction or 2) With less money in the pot to spend on engineers' salaries, innovation in printing technology will falter.

Which path will the printing industry take? Wish I knew. But in the meantime, it's worthwhile to keep one eye on the numbers coming out from HP and Epson. As goeth those two giants, so goeth the health of theentire printing supplier industry.

{ 1 comment }

Nick March 16, 2009 at 12:23 pm

It will be idd interesting to see how this sector will evolve. But since most of the multinationals must feel the recession I suppose these figures are not necessary the result of a failing business model.

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