Lexmark 2015 Annual Report Download - page 10

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In general, as the printing and imaging market matures and traditional 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 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 documents and forms, photographs, emails, images, video, audio and
faxes, and then intelligently indexing, archiving and routing this information to streamline and automate process workflows, while
managing changes to both content and processes, and automating and monitoring 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 and the ability to electronically store and distribute this information, has led to the rapid
growth of available 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 traditional structured databases. 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 continue 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 higher volume
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 printing 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 product 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 printing 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. This includes solutions to enable mobile printing and content capture/access.
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 an
installed base of hardware devices and software installations, which drives recurring printing supplies sales and software subscription,
maintenance and services revenue. Supplies have traditionally been the primary profit engine of the business model. Supplies profit
has helped 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 expansion of Enterprise Software through the
acquisitions of Perceptive Software, Pallas Athena, Brainware, Isys, Nolij, Acuo, AccessVia, Twistage, Saperion, PACSGEAR,