Lexmark 2008 Annual Report Download - page 8

diversification to its revenue stream and operations to help offset geographic economic trends, and utilizes
the technical and business expertise of a worldwide workforce. Currency exchange rates had a favorable
impact on international revenue in 2008 and an unfavorable impact on the Company’s costs and expenses.
Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Effect of Currency Exchange Rates and Exchange Rate Risk Management for more information. A
summary of the Company’s revenue and long-lived assets by geographic area is found in Part II, Item 8,
Note 18 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Market Overview
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Lexmark management believes that the total distributed output opportunity was between $90 and
$100 billion in 2008, including hardware, supplies and related software and services. This opportunity
includes printers and multifunction devices as well as a declining base of copiers and fax machines that are
increasingly being integrated into multifunction devices. Based on industry information, Lexmark
management estimates that the market may have declined slightly in 2008 and may decline again in
2009 due to the severe global economic slowdown. When global economic growth resumes, perhaps in
2010, the industry could again experience low to mid single digit annual revenue growth rates with the
highest growth likely to be in multifunction products (“MFPs”) and related software solutions and services
and emerging economies. The Company’s management believes that the integration of print/copy/fax/
scan capabilities enables Lexmark to leverage strengths in network printing solutions. In general, as the
hardcopy industry matures and printer and copier markets converge, the Company’s management
expects competitive pressures to continue.
The Internet is positively impacting the distributed output market opportunity in several ways. As more
information is available over the Internet, and new tools and solutions are being developed to access it,
more of this information is being printed on distributed output devices. Lexmark’s management believes
that an increasing percentage of this distributed output includes color and graphics, which tend to increase
supplies usage. Growth in high-speed and wireless Internet access to the home is also contributing to
increased printing on distributed devices.
The laser product market primarily serves business customers. Laser products can be divided into two
major categories — shared workgroup products and lower-priced desktop products. Shared workgroup
products are typically attached directly to large workgroup networks, while lower-priced desktop products
are attached to personal computers (“PCs”) or small workgroup networks. Both product categories include
color and monochrome laser offerings. The shared workgroup products include laser printers and
multifunction devices, which typically include high-performance internal network adapters and are
easily upgraded to include additional input and output capacity and finishing capabilities as well as
additional memory and storage. Most shared workgroup products also have sophisticated network
management tools and are available as single function printers and multifunction products that print/
copy/fax/scan to network capabilities.
Industry laser printer unit growth in recent years has generally exceeded the growth rate of laser printer
revenue due to unit growth in lower-priced desktop color and monochrome laser printers and unit price
reductions. Additionally, color and multifunction products represent a more significant component of laser
unit growth. The Company’s management believes these trends will continue. The pricing pressure is
partially offset by the tendency of customers in the shared workgroup laser market to add higher profit
margin optional features including document management solutions, paper handling and finishing and to
purchase multifunction products. Pricing pressure is also partially offset by the opportunity to provide
business solutions and services to customers who are increasingly looking for assistance to better
manage and leverage their document-related costs and output infrastructure.
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Certain information contained in the “Market Overview” section has been obtained from industry sources, public information and
other internal and external sources. Data available from industry analysts varies widely among sources. The Company bases its
analysis of market trends on the data available from several different industry analysts.