Lexmark 2014 Annual Report Download - page 9

document process automation capabilities and expand its footprint in Europe. In October of 2014, the Company acquired GNAX
Healthcare LLC (“GNAX Health”), a provider of image exchange software technology for exchanging medical content between
medical facilities. In January of 2015, Lexmark announced the acquisition of Claron Technology, Inc. (“Claron”), a leading provider
of medical image viewing, distribution, sharing and collaboration software technology. Lexmark continues the transition to a solutions
company as it shifts from a hardware-centric company to a solutions company providing end-to-end solutions that allow customers to
bridge the paper and digital worlds and the unstructured and structured content/process worlds.
The Company is primarily managed along two segments: Imaging Solutions and Services (“ISS”) and Perceptive Software. The
information included in this report has been prepared under the current organizational structure for all periods presented. Refer to
Part II, Item 8, Note 20 of the Notes to Consolidated Financial Statements for additional information regarding the Company’s
reportable segments.
In August 2012, the Company announced it was exiting the development and manufacturing of inkjet technology. In April of 2013,
the Company and Funai Electric Co., Ltd. (“Funai”) entered into a Master Inkjet Sale Agreement of the Company’s inkjet-related
technology and assets to Funai. Included in the sale were one of the Company’s subsidiaries, certain intellectual property and other
assets of the Company. The sale closed in the second quarter of 2013. The Company continues to provide service, support and
aftermarket supplies for its inkjet installed base.
Revenue derived from international sales, including exports from the United States of America (“U.S.”), accounts for approximately
57% of the Company’s consolidated revenue, with Europe, Middle East and Africa (“EMEA”) accounting for 37% of worldwide
sales. Lexmark’s products are sold in various countries in North and South America, Europe, the Middle East, Africa, Asia, the Pacific
Rim and the Caribbean. This geographic diversity offers the Company opportunities to participate in emerging markets, provides
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 1% unfavorable impact on 2014 revenue compared to 2013. Refer
to Part II, Item 7, 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 20 of the Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K.
Market Overview1
Lexmark serves both the distributed printing and imaging, and content and process management markets with a focus on business
customers. Lexmark’s enterprise content and process management software platform supports traditional business content as well as
rich media and industry-specific content like medical image content, and includes enterprise search, intelligent capture, DOM, and
business process and case management. Lexmark’s healthcare offering includes an industry leading, standards based and highly
secure, content repository and VNA that integrates all patient unstructured information across the enterprise to enable easy access
including access via an EMR system. This healthcare content and process management offering also includes workflow automation
and information and medical imaging study sharing within and between facilities and organizations. Lexmark management believes
the total relevant market opportunity of these markets combined in 2014 was approximately $80 billion. Lexmark management
believes that the total relevant distributed laser printing and imaging market opportunity was approximately $70 billion in 2014,
including printing hardware, supplies and related 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 believes that the overall distributed printing market declined slightly in 2014. The distributed
printing industry is expected to experience flat to low single digit declining revenue overall over the next few years but continued
growth is expected in MPS, multifunction products (“MFPs”), and color laser printing products which are all areas of focus for
Lexmark. Based on industry analysts’ forecasts, MPS and fleet solutions are projected to continue to experience approximately 10%
annual revenue growth rates over the next several years and the relevant content and process management software markets that
Lexmark participates in are projected to grow in aggregate approximately 11% annually over the next several years. In 2014, the total
relevant content and process management software market was approximately $10 billion, excluding related professional services.
However, management believes the total addressable market is significantly larger due to relatively low penetration of content and
process management software solutions worldwide.
In general, as the printing and imaging market matures and printer and copier-based product markets continue to converge, the
Company’s management expects competitive pressures to continue. However, management believes that this convergence represents
an opportunity for printer-based product and solution vendors like Lexmark to displace copier-based products in the marketplace. The
Company’s management believes that the integration of print/copy/fax/scan capabilities enables Lexmark to leverage strengths in
network printing and document workflow solutions. Lexmark management also believes that it is well positioned to capture faster
1 - 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.
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