Lexmark 2008 Annual Report Download - page 13

Download and view the complete annual report

Please find page 13 of the 2008 Lexmark annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 124

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124

various geographies and the size of their markets. In North America, products are primarily distributed
through large discount store chains, consumer electronics stores, office superstores, wholesale clubs,
online, as well as through distributors. The Company’s Western European, Latin American and Asia Pacific
operations distribute products through major distributors and information technology resellers and in
selected markets through key retailers.
Lexmark also sells its products through numerous alliances and OEM arrangements. During 2008, 2007
and 2006, one customer, Dell, accounted for $596 million or approximately 13%, $717 million or
approximately 14% and $744 million or approximately 15% of the Company’s total revenue,
respectively. Sales to Dell are included in both PSSD and ISD.
Economic and Seasonal Trends
Lexmark’s business and results of operations have historically been affected by general economic
conditions. From time to time, the Company’s sales may be negatively affected by weak economic
conditions in those markets in which the Company sells its products. The recent global economic
downturn, including unprecedented financial market disruptions, have adversely impacted the
Company’s sales. If current economic conditions persist or worsen, the Company’s sales could
continue to be adversely affected.
The Company experiences some seasonal market trends in the sale of its products and services. For
example, sales are often stronger during the second half of the year and sales in Europe are often weaker
in the summer months. Additionally, sales during the first half of the year may also be adversely impacted
by market anticipation of seasonal trends such as new product introductions. The impact of these seasonal
trends on Lexmark has become less predictable.
Competition
Lexmark continues to develop and market new products and innovative solutions at competitive prices.
New product announcements by the Company’s principal competitors, however, can have, and in the past,
have had, a material adverse effect on the Company’s financial results. Such new product announcements
can quickly undermine any technological competitive edge that one manufacturer may enjoy over another
and set new market standards for price, quality, speed and functionality. Furthermore, knowledge in the
marketplace about pending new product announcements by the Company’s competitors may also have a
material adverse effect on Lexmark as purchasers of printers may defer buying decisions until the
announcement and subsequent testing of such new products.
In recent years, Lexmark and its principal competitors, many of which have significantly greater financial,
marketing and/or technological resources than the Company, have regularly lowered prices on hardware
products and are expected to continue to do so. Lexmark has experienced and remains vulnerable to these
pricing pressures. The Company’s ability to grow or maintain market share has been and may continue to
be affected, resulting in lower profitability. Lexmark expects that as it competes with larger competitors, the
Company’s increased market presence may attract more frequent challenges, both legal and commercial,
including claims of possible intellectual property infringement.
The distributed printing market is extremely competitive. The distributed laser printing market is dominated
by Hewlett-Packard (“HP”), which has a widely-recognized brand name and has been estimated to hold
approximately 40% of the market as measured in annual units shipped. With the convergence of traditional
printer and copier markets, major laser competitors now include traditional copier companies such as
Canon, Ricoh and Xerox. Other laser competitors include Brother, Konica Minolta, Kyocera Mita, Okidata
and Samsung.
Lexmark’s primary competitors in the inkjet product market are HP, Canon and Epson, who together
account for approximately 80% or more of worldwide inkjet product unit sales. The Company must
compete with these same vendors and other competitors, such as Brother and Kodak, for retail shelf space
allocated to multifunctional printing products and their associated supplies. Lexmark sees other
7