Lexmark 2014 Annual Report Download - page 10

growing software and services opportunities that are associated with providing MPS and content and process management software
and services that are focused on streamlining and automating document-intensive business processes, as well as reducing unnecessary
print. Lexmark sees a significant opportunity to take a leadership role in providing innovative printing, imaging, content and process
solutions and services to help business customers improve their productivity and business performance.
The content and process management software and services markets serve business customers. These markets include solutions for
capturing all types of unstructured information such as hardcopy, photographs, emails, images, video, audio and faxes as well as
intelligent indexing, archiving and routing of this information to streamline and automate process workflows while managing changes
to both content and processes and automating governance and compliance policies. These solutions help companies leverage the value
of their unstructured information by connecting it with existing enterprise applications and making it available in context within
processes so that businesses can make better and faster decisions to enhance growth, improve productivity, lower costs and improve
customer satisfaction. These markets also include solutions that help businesses understand existing processes, design and manage
new processes, and enable the assembly of content into meaningful communications internally and with their customers and partners.
The continued digitization of information as well as the electronic distribution of information, has led to the rapid growth of
unstructured digital information. Unstructured digital information is represented by office documents, emails, photographs, audio and
video files, industry-specific content like high resolution medical images, document and image scans and other information that is not
stored in a traditional structured database. Lexmark management believes that the deployment of content and process management
systems and associated workflow solutions to effectively capture, manage and access this unstructured information is a significant
long term opportunity. Lexmark management also believes the growth in unstructured digital information and the systems to manage
it continues to positively impact the distributed printing and imaging market relative to centralized printing and imaging, as more of
the information that is being printed and captured is on distributed devices and less on commercial and centralized devices. Lexmark’s
customers are increasingly interested in streamlining and automating document workflows and business processes in order to reduce
costs and/or improve customer service. Improving business processes includes reducing physical handling, movement and storage of
hardcopy documents, as well as reducing unnecessary and wasteful printing. Lexmark sees the greatest waste in high volume
centralized print which includes the need to physically transport printed materials to the point-of-need and has been traditionally
associated with considerable amounts of unused and wasted printed material. Lexmark’s distributed print and enterprise content and
process management solutions and services are focused on reducing centralized print and reducing unnecessary distributed print as
well.
Laser technology based products within the distributed printing market primarily serve business customers. Laser products can be
divided into two major categories — large workgroup products and lower-priced small workgroup products. Large workgroup
products are typically attached directly to large workgroup networks, while small workgroup products are attached to personal
computers (“PCs”) and/or small workgroup networks. Both product categories include color and monochrome laser offerings.
The large workgroup products include laser printers and MFP 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 large workgroup products also have sophisticated network management tools and are available as single
function printers, and as MFP devices that can print/copy/fax and scan to network.
Color and MFP devices continue to represent a more significant portion of the laser market. The Company’s management believes
that these trends will continue. Industry pricing pressure is partially offset by the tendency of customers to purchase higher value color
and MFP devices and optional paper handling and finishing features. Customers are also purchasing connected smart MFPs and
content and process management software solutions and services to optimize their document-related processes and infrastructure in
order to improve productivity and cost.
Strategy
Lexmark’s strategy is based on a business model of investing in technology to develop and sell printing and imaging, and content and
process management solutions, including printers, multifunction devices and software solutions with the objective of growing its
installed base of hardware devices and software installations, which drives recurring printing supplies sales and software subscription,
maintenance and services revenue. Supplies have been the primary profit engine of the business model. Supplies profit helps fund
new technology investments in products, solutions, services and software. As Lexmark continues to increase its mix of MPS and
content and process management software solutions, management anticipates that the Company’s annuity mix will increasingly
include software and services, in addition to printing supplies. The addition of Perceptive Software and its expansion through the
acquisitions of Pallas Athena, Brainware, Isys, Nolij, Acuo, AccessVia, Twistage, Saperion, PACSGEAR, ReadSoft, GNAX Health
and Claron add to Lexmark’s traditional technology strength and provide content and process management solutions for specific
industries and business processes. The Company’s management believes that Lexmark has the following strengths related to this
business model:
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