OEM Pain: Not Necessarily Aftermarket Gain
This guest blog was contributed by Luke Goldberg
By now many of you must have seen the latest financials from HP and other OEMs that paint a pretty grim picture of printer sales and print volumes for the coming year. HP showed year-over-year declines in IPG revenue of 7 percent and other OEMs’ results are projected to be similarly bleak. From an aftermarket perspective, some may view OEM pains as equating to a healthy aftermarket. In some respects, this is true, at least in the short term. We know that during the height of the recession in 2008 and lingering into today’s market, as reflected by these reported OEM results from Q1 2012, that printer placements are suffering. Customers are holding onto their old technology longer, which means the installed base is aging. As I have also said in the past, there is a direct correlation between the age of the installed base and aftermarket share. In many cases, in legacy printers older than 5 years, we might have as much as 40 to 50 percent share in the monochrome world. This is because we have perfected the technology (some of us at least) and there are more cores available. Exacerbating this trend is MPS. MPS engagements thrive when the implementing company can place hardware that uses readily available, low CPP quality aftermarket consumables. This is why the 4200/4250/4350 family is the No. 1 selling printer family in MPS engagements even though some of these printers are an astounding 10-plus years old. In addition, refurbished printers continue to recirculate these older printers into the base, which further accelerates these trends. There is no question that this equates to more share for the aftermarket, but is it sustainable for us to continue to grow if the OEMs continue to suffer?
From my perspective, these gains are not sustainable. We need a healthy OEM in order to continue to thrive. If we look at the halcyon days of the remanufacturing market in 2004 to 2006, these were also the best years from an OEM perspective. Granted, macro trends have changed since then. From an OEM perspective, these years were the height of the home printing photo explosion, which has died a fast death due to almost complete migration to digital, Facebook, etc. In the case of the aftermarket, these years were just prior to the growth of offshore clone production, which has been the biggest source of internal price compression and the trading of share within the aftermarket today. These macro trends aside, it’s clear that we can both succeed, and it doesn’t need to be at each other’s expense.
We need new printers to be placed. New printers bring with them new customers who are buying 100 percent OEM, which gives us new opportunities at the customers we want the most: OEM customers who value quality over all other variables. We are OK with the OEM enjoying 100 percent share for the initial period of launch until the cores become available. From an OEM perspective, this is one more reason that their interests and that of the legitimate aftermarket should be aligned. New mold makers short track this period of OEM 100 percent share, which means they will not be able to realize ROI on the R&D for their new printers. If they cannot enjoy this share, then the monies for further R&D of new printers will not be there, which just perpetuates the cycle of an aging base and commoditized technology.
We also need the new printers because the older the technology, the more commoditized the cartridge. Simply, the older the model, the lower the aftermarket price versus the OEM. The height of this is illustrated with cartridges such as the 61x, 27x, etc., where the prevailing price is totally commoditized. We need new technology to break this cycle; technology companies thrive when we can set ourselves apart, which can only take place with new OEM placements.
Finally, if we are legitimate remanufacturers, we need new printers to be sold because we need new cores to circulate into the collection stream. If the base continues to age, eventually we will reach a tipping point in the aftermarket where our share becomes too large and starts to eat too much into the base of available virgin cores. This also heightens the need to reuse the non-virgin cores, which brings a number of challenges to the aftermarket.
The OEMs cannot fight larger macro trends such as migration of print to tablets, the cloud, paper usage declines, recessionary trends, etc. Print will never rebound to pre-Recession levels, but we do need it to find a “new normal” level that will allow for enough of an influx in new technology to keep us both vibrant, relevant and healthy in today’s new era of printing.
Contact Luke Goldberg at 800-673-4968 or e-mail firstname.lastname@example.org.
Luke Goldberg is the senior vice president of Micro Solutions Enterprises (MSE). He is responsible for developing worldwide market analysis, examining sales trends, expanding and analyzing emerging sales channels and opportunities for the industry. Goldberg also is responsible for MSE's worldwide sales effort, marketing, tech support, product management and customer service. With more than 19 years of experience in the imaging supplies industry, Goldberg has served as SVP at Future Graphics Imaging Corp./Nu-kote Components Division and vice president/partner Imaging Division. He has extensive industry knowledge and expertise in sales and marketing techniques, industry trends and developments, market analysis and sales channel development. Goldberg has been a long-time speaker at global trade shows and contributor to industry trade magazines.
Posted on Mar 15, 2012