Lexmark 2009 Annual Report Download - page 30

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Consolidated Financial
Statements and Notes thereto presented under Part II, Item 8 of this Form 10-K.
OVERVIEW
Products and Segments
Lexmark makes it easier for businesses of all sizes to move information between the digital and paper
worlds. Since its inception in 1991, Lexmark has become a leading developer, manufacturer and supplier
of printing and imaging solutions for the office. Lexmark’s products include laser printers, inkjet printers,
multifunction devices, dot matrix printers and associated supplies, services and solutions.
The Company is primarily managed along divisional lines: PSSD and ISD.
• PSSD primarily sells laser products and primarily serves business customers. Laser products can
be divided into two major categories — shared workgroup products and lower-priced desktop
products. Lexmark employs large-account sales and marketing teams, closely supported by its
development and product marketing teams, to generate demand for its business printing solutions
and services. The sales and marketing teams primarily focus on industries such as financial
services, retail, manufacturing, education, government and health care. Lexmark also markets its
laser and inkjet products through SMB teams who work closely with channel partners. Lexmark
distributes and fulfills its laser products primarily through its well-established distributor and reseller
network. Lexmark’s products are also sold through solution providers, which offer custom solutions
to specific markets, and through direct response resellers.
• ISD predominantly sells inkjet products to a range of customers, including SOHO users,
professionals and consumers who are heavy users, as well as business users who may choose
inkjet products as a lower-priced alternative or supplement to laser products. ISD also sells select
laser products in certain geographies to SOHO and business users that purchase products through
retail channels. Additionally, over the past couple of years, the number of customers seeking
productivity-related features has driven significant growth in AIO products. Key factors promoting
this trend are greater affordability of AIOs containing productivity features like wireless connectivity,
full fax capabilities, automatic document feeders and duplex capabilities. Lexmark distributes its
branded inkjet products and supplies through retail outlets as well as distributors and resellers
worldwide. Lexmark’s sales and marketing activities are organized to meet the needs of the various
geographies and the size of their markets.
The Company also sells its products through numerous alliances and OEM arrangements.
Refer to Part II, Item 8, Note 18 of the Notes to Consolidated Financial Statements for additional
information regarding the Company’s reportable segments, which is incorporated herein by reference.
Operating Results Summary
2009
The weakness of the global economy continued to impact revenue and operating income in both of the
Company’s segments during 2009. This included adverse effects on global demand for both hardware and
supplies in both of the Company’s segments. Additionally, Lexmark’s inkjet strategy shift that began in
2007 to transition to higher usage customers and products, and reduce sales of low-end / low-price inkjet
hardware, continued to impact the Company’s inkjet unit sales and supplies revenue. The objective of this
transition is to move to a smaller installed base of higher page generating units. However, in the near term,
the Company sees the potential for continued erosion in end-user inkjet supplies demand due to the
reduction in inkjet hardware unit sales during this transition period. In addition, the Company has
experienced weakness in its OEM business over the last several years, which the Company believes
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