Lexmark is spending lesson research and development

Lexmark International's earnings last week revealed that for the first time in more than three years, the company reduced its spending on research and development.

Company executives have long emphasized a strong commitment to R&D, saying it was essential to broadening its line of printers to more effectively compete against rivals like HP.

Despite past critiques from some analysts who questioned rising expenses across multiple categories, the company continued to invest heavily until this past quarter. Financial statements show the company's R&D expenses fell from $105.5 million in the first quarter of 2008 to $97.4 million in 2009, a drop of 7.7 percent.

Chief Financial Officer John Gamble Jr. said the company's reduced R&D spending came because some projects are being consolidated, a move CEO Paul Curlander announced a few months ago.

"That allows us to be more efficient from a manufacturing perspective, as well as from a development perspective," Gamble said.

High-end R&D is conducted in Lexington, where Lexmark employs around 3,000 people. It also conducts research in Boulder, Colo.; Cebu City, Philippines; and Kolkata, India.

Tom Carpenter, vice president and senior equity analyst at Hilliard Lyons in Louisville, said the reduced spending is "a function of the economy."

"It probably makes sense from the economy to cut back, considering cash is an issue for many corporations," he said.

He noted that Lexmark had to invest more heavily in recent years because in the early part of this decade it was hurt because the company "stuck to the strategy too long where they were the lower-cost alternative to Hewlett-Packard."

HP, he noted, got more aggressive with its product lineup in 2001 and 2002, and "at the same time, you had Canon and Epson enter the market."

"I don't think Lexmark was as ready as they could have been for the competition," Carpenter said.

Gamble said the company is dedicated to finding the "most cost-effective way" to develop new products and referred to Lexmark's new award-winning lines of laser and inkjet printers as the "fruits" of the company's investments in R&D over recent years.

"The portfolio has broadened dramatically," he said.