Lexmark’s and HP’s Printer Business Model Is Increasingly Unsustainable (LXK, HPQ)

The Consumer Electronics Stock Blog � Lexmark’s and HP’s Printer Business Model Is Increasingly Unsustainable (LXK, HPQ): "William Trent (Stock Market Beat) submits: Gearlog points to the latest evidence that the business model employed by the major printer manufacturers is dead in the water. Staples’ 20th anniversary sale includes a Samsung color laser printer that can do duplex (2-sided) printing for $199 after a $50 rebate.

Manufacturers such as Lexmark (LXK) and Hewlett Packard (HPQ) have traditionally used the razor/blades approach to sales, subsidizing the initial cost of the printer and making up for it as customers buy high-margin replacement toner and ink. When the typical printer cost $700 and the replacement ink/toner was $30-$50, this strategy worked fine. Customers tended to own the machine far longer and buy multiple replacement cartridges.

As with all electronics, however, hardware prices declined rapidly. As early as 2003, one could occasionally find a basic black-and-white inkjet printer (with ink) on sale for as low a price as the replacement ink cartridge. Customers realized the printer was a better deal than the ink alone and frequently upgraded to a newer printer rather than buy replacement ink."

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