Computer maker Dell remained the top customer of Lexington-based printer maker Lexmark International in 2010. Dell accounted for 10 percent of Lexmark's revenue during the year, down from 12 percent in 2009.
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. Dell accounted for 13 percent of revenue in 2008 after having been 15 percent in 2005, 2006 and 2007, when Lexmark's total revenue was higher than it is today.
The declines, though, have some upside, said Ed Crowley, founder of Versailles-based printer-industry research firm The Photizo Group.
"Quite honestly, it wouldn't surprise me if that wasn't OK with them," he said of Lexmark management, explaining that profit margins are typically lower on OEM products than on printers sold under a company's own name.
"As a smaller player ... you're going to want to get some high-margin business," Crowley said. "Margin becomes more important than volume. That will drive a lot of decision-making."
Lexmark announced Tuesday that its recently acquired Perceptive Software business generated revenue of $22 million in the fourth quarter. That was up 11 percent from the third quarter, executives said. The Kansas-based company develops software that helps businesses manage content. During the fourth quarter, Perceptive released its first application co-developed with Lexmark called "Interact."
Research spending up
For the first time in several quarters, Lexmark spent more on research and development year over year. During the quarter, the company spent $96.7 million, up from $93.3 million a year ago.
Chief Financial Officer John Gamble Jr. told analysts that the increase came because of the acquisition of Perceptive Software. Before that, the company had been consolidating some projects, which led to the decline in spending.
No stock repurchases
For the second consecutive year, Lexmark did not repurchase any of its outstanding stock in 2010. Before 2009, the company had been aggressively buying back stock, including spending more than $1 billion in 2005 to buy 17 million shares.
The company halted purchases in recent quarters as much of its cash is overseas, and it would have to pay a certain amount to be able to bring it back to the United States to fund share repurchases.
The company had billed the program as a way to return value to shareholders, but some industry observers were skeptical.
Crowley said Lexmark's moves the past two years are wise. Given its smaller size compared to rivals like HP and Canon, the company should spend its cash "on development and buying other companies, which I think drive more shareholder value long-term."
Printers hailed by critics
Lexmark has been calling attention to critical praise of its recent laser and inkjet printer lines. In an internal assessment released during the earnings period, Lexmark announced its printers earned 24 percent of industry awards in 2010 while its next closest competitor earned 13 percent.
The company also began 2011 by having its new Genesis all-in-one inkjet printer recognized at the Consumer Electronics Show. The printer boasts new scanning technology that essentially uses a camera to take a snapshot of documents that need to be scanned. It replaces the common older scanning method in which a scanner moves more slowly across an image.