Lexmark Earnings: Printer Companies Continue Feeling the Virtual Pinch

(MoneyWatch)  There's a lot of talk about how online media consumption has been a thorn in the side of publishers. But it's just as big a problem, if not bigger, for printer makers. As people get larger screens and become more adept at consuming much of their media intake without paper, the need for printers drops. Today's earnings report from Lexmark International (LXK) is simply another indicator of the same problem.

Although revenue was up 12 percent between the third and fourth quarters of 2009, that's the difference between summer and peak holiday buying season. The real measure is year-over-year. Last quarter's revenue was down by 1 percent from 2008, which was a disaster of a year. Furthermore, the whole of 2009 was down by 14.3 percent from 2008. Margins took a big jump, which made Wall Street happy, but that seems more due to reduced operating expenses.

I'm not knocking greater efficiency, but it's generally a bad sign when revenue takes a hit, because it means you're not selling as much in products and services. It's not as if Lexmark is alone in this: in its last reported quarter, HP (HPQ) saw a 4.7 percent year-over-year drop in its imaging and printing group. Maybe people are printing out less paper, which means less need to buy ink and upgrade machines. Plus, there's been a lot of competitive pressure on ink prices, given how outrageously high they can be. And, similarly to HP, Lexmark's R&D spending is down -- though by over 11 percent. That's the sign of a company eating its intellectual young. To pull out of trouble, Lexmark and others relying on printing equipment would need other lines of business that could replace them. Canon already has extensive other choices. HP is moving more heavily into services, in addition to its already diversified product portfolio. But this is a challenge for a company like Lexmark, which needs to create a brand identity outside of printing.

Image via Flickr user Sir Adavis, CC 2.0.