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Must-know: Why does HP keep failing to grow its business?

Part 2
Must-know: Why does HP keep failing to grow its business? (Part 2 of 9)

Weak toner sales are driving a decline in HP’s Printing segment

HP’s Printing segment is important in terms of revenues and operating profits

The Printing segment is an important segment for HP (HPQ), and as of the latest quarter’s results, ending April 2014, this segment drove 21% of the overall company’s revenues and 42% of the overall company’s operating earnings. The Printing segment consists of the Inkjet, Laser Jet, and Graphics Solutions business lines. The Inkjet business line mainly consists of printer hardware and ink supplies, while the Laser Jet business line mainly consists of LaserJet printers, toner supplies, and scanners. As of the quarter ending April 2014, total printing revenues were $5.8 billion, declining 4% compared to last year. If HP can bring about a turnaround in its Printing business, it will help ETFs such as the SPDR Morgan Stanley Technology (MTK) and First Trust Exchange-Traded Fund II (SKYY), which have high exposure to HP.

Printer Market ShareEnlarge Graph

HP continues to dominate the Printer hardware market

According to a report by IDC, and as the chart above shows, HP dominates the worldwide hard copy peripherals market, with a share of about 40% as of 2013 that increased from about 39% in 2012. Canon (CAJ) is a distant second in this market, with a share of about 21%, while Epson (SEKEY), Brother (BRTHY), and Samsung (SSNLF) are smaller players in this market. Although HP gained share in this market, the overall market declined from 113.5 million units in 2012 to 111.7 units in 2013—a decline of 1.6%. This resulted in HP increasing its sales by just 1% in 2013 compared to 2012.

Weak toner sales cause a decline in Printing revenues

In HP’s printing segment, supplies such as ink and toner rather than hardware printers play an important role in driving revenues. In the latest quarter ending April 2014, Supplies contributed about two-thirds to the overall printing segment’s revenue. Supplies revenue, at $3.9 billion, was down 6% over the prior year, and the decline was mainly driven by weak toner sales. Lower supplies sales are an even more important concern for HP, as these are a high-margin business.

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