Lexmark Finds Buyer for Inkjet Patents

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Apr 16, 2013

Last August, Lexmark announced that it would be exiting the inkjet business and was looking for a buyer. The printer maker planned to close its Philippines factory and cut 1,700 jobs worldwide, or 13% of its staff, to focus on high-end business printers, document software and services.  At the time, many wondered who would want to buy their inkjet segment given market conditions and forecast predictions. As the chart shows below, inkjet is declining and Lexmark’s portion has grown considerably smaller. It turns out the company, Funai that has been manufacturing inkjet printers for Lexmark since 1997 was interested and will acquire the patents and the Philippine ink manufacturing facility. The deal announced on April 2, 2013 includes Funai Electric Company Ltd. (www.funaiworld.com) acquiring more than 1,500 of the OEM’s inkjet patents for $100 million and is expected to close during the first half of 2013. With US$26 billion/2,461 (JPY 100M) in annual sales, Funai has operations all over the world including North America, Europe, Japan, and Asia as well as other markets. The U.S. is their principal market with over half of the company’s sales.

Chart: 2012 U.S and Western Europe Serial Inkjet Populations by OEM
 

Three major business segments are the main focus for Funai: Audio Visual, Information Equipment (printers), and Other. The company’s Information Equipment segment represents about 12% of their sales. Funai has relationships with mass merchandisers and OEMs including Lexmark. OEM business accounts for about a third of Funai’s business. Funai depends on Chinese production for its products because it makes them more cost competitive which is important for their mass merchandiser customers. Over 80% of their products are made through consignment production in China. Funai had plans to commercialize printers developed in-house and last year announced that it had launched a laser beam printer business. This acquisition of inkjet technology speeds this process along for Funai which now has the capabilities to develop, manufacture, and sell inkjet hardware as well as inkjet supplies. In addition, Funai will become the manufacturer of Lexmark’s aftermarket inkjet supplies.

Funai Electric is a company that is known for a unique business model in that it MILKS markets to the end. The company has a history of investing in technology when it’s already proven and then building economies of scale in the production process. Beginning with sewing machines, the company moved on to transistor radios, then VHS. Only recently did they pick up LCD and this year they took over the entertainment section of Philips for their branded audio and accessories. Some wonder what this says about the inkjet market today? It’s certainly past its heyday but will we see Funai entering as a new inkjet brand — if we look at their previous pattern, then yes.

Market Impact
Our initial thought about this transaction is that it is good for Lexmark to have found a buyer for their inkjet business given what we know about inkjet. It will be interesting to see what Funai does with it. Since the serial inkjet market for consumers is in decline but business inkjet is growing, Funai may face challenges with that since what they know is centered around low-cost consumer electronics and relationships with consumer retailers. Funai has made it clear that they wanted to do more in this area and now they have more control over this process since they own the patents and facility. In the past few fiscal cycles, Funai did state in financial documents that orders for printers had been dropping so this deal may help them breathe new life into this area but may also present some risks for them in this very competitive and established market. Funai is not a known brand in the market and the question is whether they will be able to sell its inkjet printers to a wide range of customers under their own brand or even uncover new niches for inkjet? Our guess is that products developed based on this newly acquired intellectual property which may include new printers with new engines will be well suited for emerging markets versus established markets such as the U.S. and Europe even though the U.S. is a dominant market for Funai.

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