Lexmark 2015 Annual Report Download - page 9

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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 and process management worlds.
The Company is managed along two operating segments: Imaging Solutions and Services (“ISS”) and Enterprise 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.
In April 2015, the Company announced a strategic rebranding action to unify and strengthen the market presence of the Company’s
information technology portfolio of enterprise software, print hardware and MPS. As part of the rebranding action, the Company
elected to change the name of its Perceptive Software segment to Enterprise Software. Certain software products will still include the
Perceptive Software name.
In October 2015, the Company announced that its Board of Directors has authorized the exploration of strategic alternatives to
enhance shareholder value. No decision has been made with regard to any alternatives, and there is no assurance that the Board’s
exploration of strategic alternatives will result in any transaction being entered into or consummated.
Revenue derived from international sales, including exports from the United States of America (“U.S.”), accounts for approximately
54% of the Company’s consolidated revenue, with Europe, Middle East and Africa (“EMEA”) accounting for 35% 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 6% unfavorable impact on 2015 revenue compared to 2014. 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 content capture and data
extraction, DOM/CCM, 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 medical information and imaging study sharing within and between facilities and organizations.
Lexmark management believes the total relevant market opportunity of these markets combined in 2015 was approximately $80
billion. Lexmark management believes that the total relevant distributed laser printing and imaging market opportunity was
approximately $68 billion in 2015, 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 in the low
single digit percentage points in 2015. The distributed printing industry is expected to experience low single digit declining revenue
overall over the next few years, but continued growth is expected in MPS, smart MFPs and workgroup 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 high single digit percentage points annually over
the next several years. In 2015, the total relevant content and process management software market was approximately $12 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.
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.