Lexmark 2007 Annual Report Download - page 3

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To my fellow shareholders,
2007 was a challenging year for Lexmark. Despite many positive things happening in our business, we saw a significant
decline in 2007 in our operating income driven by issues in our consumer market segment. As a result, in October 2007
we announced a set of key initiatives to improve our performance while continuing to invest for the long term success of
Lexmark. These key initiatives are:
Continue the Growth in the Business Market Segment
In 2007, revenue in our business market segment grew to a record $3 billion as we continued to leverage Lexmark’s
unique strengths in output related workflow solutions and services. For the year we had strong growth in our Lexmark
branded workgroup laser units. We had on-going good growth in our laser supplies sales. We strengthened the product
line in 2007 with the introduction of a new family of color laser printers and multi-function devices. In addition, we
implemented a significant expansion of our large account sales force to improve the reach of our enterprise solutions
and services proposition. We believe these investments will continue to drive workgroup laser sales and supplies sales
in the years ahead.
Shift our Consumer Market Strategy
One of the major issues in our consumer segment is that our business is too skewed to the low end of the market and
to low usage devices. In the second half of 2007, we started to aggressively shift our focus to geographic regions,
market segments, and customers that generate higher supplies usage. As part of this initiative we are optimizing our
marketing and sales spending, prioritizing specific markets and channels relative to supplies usage, and reducing or
eliminating units in lower priority markets and channels. In the near term, this action is negatively impacting our inkjet
unit sales and we expect this to continue through 2008. However, we believe that in the long term we will build a stronger
business on the foundation of higher usage devices.
As part of this focus shift to higher usage customers and products, we are shifting our inkjet research and development
(R&D) efforts to areas such as wireless printing. Although this is still a small percentage of inkjet market units, we believe
wireless to be the fastest growing segment in the inkjet market. In 2007 we introduced a new family of wireless inkjet
products. By year end 2007, we had captured significant market share in the wireless inkjet segment in a number of major
countries, including the US.
Improve our Cost and Expense Structure
In October 2007, we announced a restructuring plan to improve our cost and expense structure, which includes further
consolidation of our inkjet supplies manufacturing facilities. This restructuring will impact about 1,650 positions, with
most moving to lower cost countries, at a cost of $90 million. Savings in 2008 are projected to be about $40 million
with annualized savings of $60 million starting in 2009.
Paul J. Curlander
Chairman and CEO