Lexmark 2007 Annual Report Download - page 19

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The Company’s inability to meet customer product requirements on a cost competitive basis may
negatively impact the Company’s operating results.
• The Company’s future operating results may be adversely affected if it is unable to continue to
develop, manufacture and market products that are reliable, competitive, and meet customers’
needs. The markets for laser and inkjet products and associated supplies are aggressively
competitive, especially with respect to pricing and the introduction of new technologies and
products offering improved features and functionality. In addition, the introduction of any
significant new and/or disruptive technology or business model by a competitor that
substantially changes the markets into which the Company sells its products or demand for the
products sold by the Company could severely impact sales of the Company’s products and the
Company’s operating results. The impact of competitive activities on the sales volumes or revenue
of the Company, or the Company’s inability to effectively deal with these competitive issues, could
have a material adverse effect on the Company’s ability to attract and retain OEM customers,
maintain or grow retail shelf space or maintain or grow market share. The competitive pressure to
develop technology and products and to increase the Company’s investment in research and
development and marketing expenditures also could cause significant changes in the level of the
Company’s operating expense.
Any failure by the Company to execute planned cost reduction measures timely and successfully
could result in total costs and expenses that are greater than expected or the failure to meet
operational goals as a result of such actions.
• The Company has undertaken cost reduction measures over the last few years in an effort to
optimize the Company’s expense structure. Such actions have included workforce reductions, the
consolidation of manufacturing capacity, and the centralization of support functions to shared
service centers in each geography. In particular, the Company’s manufacturing and support
functions are becoming more heavily concentrated in China and the Philippines. The Company
expects to realize cost savings in the future through these actions and may announce future actions
to further reduce its worldwide workforce and/or centralize its operations. The risks associated with
these actions include potential delays in their implementation, particularly workforce reductions,
due to regulatory requirements; increased costs associated with such actions; decreases in
employee morale and the failure to meet operational targets due to unplanned departures of
employees, particularly key employees and sales employees.
The competitive pricing pressure in the market may negatively impact the Company’s operating
results.
• The Company and its major competitors, many of which have significantly greater financial,
marketing and/or technological resources than the Company, have regularly lowered prices on
their products and are expected to continue to do so. In particular, both the inkjet and laser printer
markets have experienced and are expected to continue to experience significant price pressure.
Price reductions on inkjet or laser products or the inability to reduce costs, including warranty costs,
to contain expenses or to increase or maintain sales as currently expected, as well as price
protection measures, could result in lower profitability and jeopardize the Company’s ability to grow
or maintain its market share. In recent years, the gross margins on the Company’s hardware
products have been under pressure as a result of competitive pricing pressures in the market. If the
Company is unable to reduce costs to offset this competitive pricing or product mix pressure, and
the Company is unable to support declining gross margins through the sale of supplies, the
Company’s operating results and future profitability may be negatively impacted. Historically, the
Company has not experienced significant supplies pricing pressure, but if supplies pricing was to
come under significant pressure, the Company’s financial results could be materially adversely
affected.
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