With its inkjet printer operations ending, Lexmark International's spending on research and development in the fourth quarter fell to its lowest point in more than six years.
For the quarter, the company spent $88.1 million on R&D, a 10 percent drop from $98.3 million in the same quarter a year ago. The last time it was less was during the first quarter of 2006, when Lexmark spent $87.4 million as it began a period of increased spending to broaden its product lines.
CEO Paul Rooke said the drop was largely related to the company's decision to exit the inkjet printer business. The company announced last year it would lay off 1,700 employees worldwide — including 350 full-time employees and 200 contractors at the Lexington headquarters — during the next couple of years as part of that restructuring.
While research and development spending is dropping for inkjet, Rooke said, it's increasing for the company's burgeoning software business, which is focused on making companies more efficient. "In the fourth quarter, the negative outweighed the growth in Perceptive," he said.
In the fourth quarter, Perceptive Software's revenue grew 37 percent, to $43 million. That includes the effect of acquisitions completed within the past year, though. Without those acquisitions, the division's sales would have grown 16 percent.
For the year, Perceptive Software's sales grew 62 percent, to $162 million, including the effect of the acquisitions. Factoring those out, its sales grew 21 percent.
While Lexmark executives said that growth is better than that of competitors, it's less than what the company had anticipated. The software division lost $7 million in the fourth quarter and $25 million for all of 2012.
Rooke has said the company is investing in the division to help it grow and expects to make it profitable in 2013.
"We're growing a young business here rather rapidly, and I think that will improve as time goes on," he said.
Printer sales to Dell fall
For the first time since 2003, sales to computer maker Dell did not account for 10 percent of Lexmark's annual revenue.
Lexmark manufactures printers for Dell, which then sells them under the Dell brand. That business, commonly called OEM, for original equipment manufacturer, has declined in recent years.
Lexmark executives did not state the amount of sales to Dell in 2012 because Dell's business no longer amounts to 10 percent of revenue.
But based on Lexmark's 2012 annual revenue of $3.8 billion, sales to Dell must have fallen at least 8 percent from 2011's $415 million to fall below the 10 percent threshold in 2012.
Over the years, Dell has been a key part of Lexmark's revenue, rising to as high as 15 percent in 2005 and 2006. The dollar amount peaked in 2005 at $782 million.
Rooke said the decline for Dell came because Lexmark has pulled out of the inkjet printer market and no longer is making those printers for Dell.
In total, OEM sales account for about 10 percent of Lexmark's business, he said.
"It's not the core part of our strategy," he said.
That drag from OEM affected overall sales of ink and toner. While annual sales of ink and toner dipped 9 percent, Rooke said sales of Lexmark-branded ink and toner were up for the year, excluding the effect of currency shifts.
"As we look ahead, we expect our branded to continue to grow and OEM to have some decline," he said.
Managed print grows
Lexmark's managed print services offering saw growth in the fourth quarter and full year. The program is just like it sounds — Lexmark manages companies' printing by choosing the most efficient printer setups and shipping more toner as needed. In the fourth quarter, sales grew 3 percent; revenue was up 7 percent in all of 2012.
The company recently announced it had signed a five-year managed print services deal with Anheuser-Busch InBev that expands the service into Europe beyond the existing agreement in North and South America.
Inclusive policies lauded
Lexmark has received recognition in recent months for its policies that support lesbian, gay, bisexual and transgender employees.
The Human Rights Campaign Foundation, an LGBT advocacy group, has scored Lexmark a perfect 100 on its 2013 Corporate Equality Index. Lexmark was one of 252 large companies that received a perfect score this year. Louisville-based Brown-Forman was the only other Kentucky company to receive the same score.
Also, members of the Gay-Straight Alliance of Lexmark Employees Diversity Network Group recently shared their stories in a video to support the It Gets Better Project. The project was created to support LGBT teens facing bullying. To view the Lexmark video, go to Itgetsbetter.org and search "Lexmark" in the "Find videos" box.