Lexmark 2014 Annual Report Download - page 13

environment and document related workflow/business processes. MPS allow organizations to outsource fleet management, technical
support, supplies replenishment, maintenance activities and other services.
Through its MPS offerings, ISS gives customers greater visibility and control of their printing environment. These services include
asset lifecycle management; implementation and decommissioning services; proactive consumables management; remote device
monitoring and management; and business process optimization that include industry specific and back office solutions. These
services are tailored to meet each customer’s unique needs to ensure their mission-critical business processes run smoothly.
Lexmark Customer Support Services are comprised of authorized maintenance and repair, technical support, warranty support and
parts operations. From basic service coverage to comprehensive support, Lexmark offers a range of plans to meet the specific
demands of the customer’s output environment and reduce costly downtime.
ISS printer products generally include a warranty period of at least one year, and customers typically have the option to purchase an
extended warranty. Extended warranties may be purchased at any time during the printer’s base warranty year(s) and are
available on ISS laser and dot matrix devices for a total warranty period of two, three, or four years.
• Marketing and Distribution — ISS
ISS employs large-account sales and marketing teams whose mission is to generate demand for its business printing solutions and
services, primarily among large corporations, small and medium businesses, as well as the public sector. These sales and marketing
teams primarily focus on industries such as financial services, retail, manufacturing, education, government and health care, and in
conjunction with ISS’ development and manufacturing teams, are able to customize printing solutions to meet customer needs for
printing electronic forms, media handling, duplex printing, intelligent capture and other document workflow solutions. ISS distributes
and fulfills its products to business customers primarily through its well-established distributor and reseller network. The ISS
distributor and reseller network includes IT Resellers, Direct Marketing Resellers, and Copier Dealers.
ISS’ international sales and marketing activities for business customers are organized to meet the needs of the local jurisdictions and
the size of their markets. Operations in EMEA, North America, Latin America and Asia Pacific focus on large-account and SMB
demand generation with orders primarily filled through distributors and resellers.
Supplies for both laser and inkjet products are generally available at the customer’s preferred point-of-purchase through multiple
channels of distribution. Although channel mix varies somewhat depending upon the geography, most of ISS’ laser supplies products
sold commercially in 2014 were sold through the ISS network of Lexmark-authorized supplies distributors and resellers, who sell
directly to end-users, or to independent office supply dealers. Inkjet supplies are primarily sold through large office superstores,
discount store chains, distributors, online, wholesale clubs, and consumer electronics stores.
ISS also sells its products through numerous alliances and OEM arrangements. During 2014, 2013 and 2012, no one customer
accounted for more than 10% of the Company’s total revenues.
• Competition — ISS
ISS continues to develop and market new products and innovative solutions at competitive prices. New product announcements by
ISS’ principal competitors, however, can have, and in the past, have had, a material impact 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 ISS’ competitors may also have a material impact on the Company as purchasers of printers
may defer buying decisions until the announcement and subsequent testing of such new products.
In recent years, ISS 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. ISS has
experienced and remains vulnerable to these pricing pressures. ISS’ ability to grow or maintain market share has been and may
continue to be affected by these pricing pressures, resulting in lower profitability. Lexmark expects that as it competes with larger
competitors, ISS’ 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 market share leader in the distributed laser printing market is Hewlett-
Packard (“HP”), which has a widely-recognized brand name and has been identified as the market leader 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, Okidata and
Samsung.
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