Looking for Bigger Bite of A3 Copier/MFP Market, HP Aims for 12 Percent Share by 2021

Last week, HP Inc. reported strong-out-of-the-gate results for its first quarter of 2018, including net revenue of $14.5 billion, up 14 percent versus first-quarter 2017, in part fueled by its acquisition of Samsung’s Printing Solutions group, which it closed in November 2017. In a conference call with analysts HP Inc. executives provided a closer look at those results, as well as HP’s continuing integration of Samsung Printing Solutions (otherwise known as S-Print), and its goals for the copier market.

According to HP Inc. President and CEO Dion Weisler, HP’s first quarter saw growth in both its Print and Personal Systems (PC) groups, with year-over-year increases not only in revenue for both groups, but also for operating profit.

First-quarter 2018 net revenue by segment.

New Tax-Cut Law Lowers Tax Rate to 16 Percent; Employee Bonuses

HP Inc. CFO Catherine A. Lesjack explained that the passage of the U.S. Tax Cuts and Jobs Act earlier this year will bring HP’s effective tax rate to about 16 percent, versus the company’s previous forecast of about 22 percent.

HP’s Weisler said that this tax-reduction will not only benefit HP’s stakeholders, but also help drive higher net earnings, strengthen its balance sheet, and increase its near-term shareholder returns. Weisler also said HP intends to use some of the savings to increase non-executive employees’ performance bonus.

Personal Systems Group

According to Weisler, the Personal Systems (PC) group “had a terrific start” for the fiscal 2018 year, with net revenue growing 15 percent year-over-year, marking five consecutive quarters of double-digit revenue growth, with Weisler noting, “We also achieved the trifecta, share gains, revenue gains and profit dollar growth.”

HP’s Lesjack also noted that HP recently announced that it would service Apple devices within a device-as-a-service program, noting that managing multiple different operating systems is key for HP moving forward.

Print Group

Much like HP’s Personal Systems group, HP’s Weisler noted that HP’s “Print business is off to a fantastic start.” In the first quarter, HP’s Print group grew revenue and operating profit, and placed more units, irrespective of the addition of the Samsung Printing Solutions group.

Total Print-group revenue for the first quarter was up 14 percent year-over-year, with growth across consumer hardware, commercial hardware, and supplies – with growth “across all regions and broadly across the business.”

One key component of the first quarter was that supplies revenue grew 10 percent year-over-year, “marking another quarter of substantial progress in supporting our confidence in the Four Box Model to drive health in the Print business for the long-term,” said Weisler.

Other key growth areas included:

  • Graphics revenue grew year-over-year, largely driven by HP Indigo and PageWide presses.
  • Managed print services (MPS) revenue grew year-over-year, as businesses continue to shift to contractual printing. Weisler noted that in market-research firm IDC’s most recent report on the smart copier/MFP market, HP was the recognized leader for both A4 and A3 across laser and PageWide (inkjet) devices. IDC also recognized HP as the number-one vendor in both capability and strategy.

HP’s Lesjack noted that revenue for the Print group was $5.1 billion in the first quarter, up 14 percent year-over-year, and up over $600 million. “We’re very pleased with this growth with or without the impact from S-Print (Samsung Printing Solutions),” she noted.

Total printer hardware units were up 14 percent year-over-year, noted Lesjack, with consumer units up 7 percent, and commercial units up 73 percent (emphasis added).

Gaining Market Share for A3 Copier/MFPs

Weisler said that HP is gaining market share for A3 copier/MFPs, both year-over-year and sequentially. In the first quarter, HP added an important new functionality to its A3 PageWide inkjet products for the enterprise with “low-cost color, maximum uptime, and best-in-class security.”

“We have now created a larger print family, which will help us address the $55 billion A3 market opportunity along with adding capabilities and revenue in A4,” said Weisler. “The integration efforts and key initiatives are on track. We are joining teams, combining our product portfolios, on boarding new partners, rationalizing SKUs, and streamlining processes.”

According to HP’s Lesjack, HP’s goal is to hit at least 12-percent market share in the A3 copier/MFP market in 2020. In the last quarter, it had 7.9 percent share, which was up both year-over-year and sequentially.

Lesjack noted: “So we’re feeling confident and optimistic about what we can do in the copier space. The kind of reception from customers has been positive, and so it does take a little bit of time with such a big transactional business that we have for it to have a meaningful impact, but we are making progress.

“We are in the early days of A3, but remain confident and optimistic about the opportunity ahead,” said Lesjack. “An important marker for success of A3 and for our S-Print acquisition is making steady progress towards our goal of achieving at least 12-percent market share of A3 hardware units by the end of fiscal 2020.”

In the fourth quarter of 2017, HP achieved 7.9 percent total share in the A3 copier/MFP market, which includes both Samung Printing Solutions and HP.

Lesjak also said HP continues to make good progress with its MPS offerings, as well as “good momentum” with its popular Instant Ink program, “where we are growing our global subscriber base.”

Overall in the first quarter, Print-group operating profit grew $87 million year-over-year, and operating margin was 15.8 percent, down 20 points year-over-year and 80 points sequentially. Lesjack said the largest driver of the margin decline is the impact of adding the Samsung Printing Solutions group. She expects that HP’s first-quarter operating margin rate will be the low for the year.

Last year, Barrons reported that as of April 2017, HP had shipped more than 54 SKUs of new A3 copier/MFPs to more than 80 countries worldwide, and signed on more than 500 resellers worldwide for A3 copier/MFPs, with roughly 40 percent of these new for HP.

Barrons also noted that according to market-research firm Gartner, HP had only 3.7 percent share of the $25.3 billion hardware market in 2016, and that the total A3 market opportunity, including supplies, services, etc., is some $55 billion.

HP’s top A3 copier/MFP competitors, in a rough ranking of top market share, include Canon, Ricoh, Xerox, Fuji Xerox, Konica Minolta, Toshiba, Kyocera, and Sharp Corporation.

As Wirth Consulting’s noted previously, HP’s A3 strategy centers around A3 copier/MFPs with an up to 20-percent lower cost of services via its Smart Delivery Services, which are cloud-based service that provides remote diagnostic and servicing, as well the use of analytics to anticipate service needs. Its A3 PageWides, which use inkjet technology, as such have fewer serviceable parts than laser-counterparts, reducing the need for service.

3D-Printer Business

Weisler also noted that HP marked a new milestone in the first quarter, with the introduction of new 3D printers, several of which print in full color, and all of which break new ground as they are less expensive than previous HP 3D-printer offerings, and can be used for both light production for producing functional parts (as with HP’s existing 3D printers), but also add the ability to be used for engineering-grade prototyping (see “HP Launches its First 3D Printers that Can Produce Functional Parts in Full Color”).

Weisler noted: “… we are now the only 3D-printing provider that enables both prototyping and industrial final-part production on the same underlying technology platform.”

HP also added two new key 3D-printing partners in the first quarter, FedEx and the U.S. Marine Corps.

HP’s Printer-Supplies Group

In the first quarter, HP’s printer supplies’ revenue made up 23 percent of HP revenue – surpassed only by notebook PCs, which made up 39 percent of revenue.

The good news was that printer-supplies revenue was $3.4 billion, up 10 percent year-over-year, “which includes approximately 6 points of S-Print (Samsung) supplies,” according to Lesjack.

Lesjack said HP doesn’t anticipate breaking out S-Print’s specific supplies results in future quarters, due to the integration progress that has already been made – with Samsung printers and copier/MFPs being sold under the HP brand name.

Lesjak also said that HP expects that Samsung-brand printer supplies continue to decrease due to declines in the historical Samsung installed base.

Overall, HP expects that total supplies revenue, including both legacy HP and S-Print devices, to be up 5 to 7 percent for the rest of 2018. Looking forward to 2019, its expects its overall supplies business “to be flat to slightly up.” For the second to fourth quarter of this year, HP expects its printer-supplies growth to be 5 to 7 percent, which includes Samsung-branded supplies.

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