Lexmark Inc. (LXK) is reportedly selling its non-profitable inkjet business to Japan-based consumer electronics provider Funai Electric Co. for $100.0 million. The decision to divest its inkjet business is in line with Lexmark’s restructuring plan announced in Aug 2012.
As part of its restructuring initiatives, Lexmark planned to abandon its consumer-based inkjet hardware (printers) business, which failed to generate profits for the past few quarters. Instead, the company intended to focus more on the high-margin imaging and software solutions business.
Further, Lexmark also announced plans to shut down its inkjet supplies manufacturing facility in Cebu, Philippines, by 2015, resulting in a headcount reduction of 1,700 employees. The exit from the Inkjet business is expected to save roughly $85.0 million of cash annually in 2013 and roughly $95.0 million annually by 2015. But the company will record a pre-tax severance charge of $30.0 million in 2013 and $10.0 million in 2014 and 2015 each.
Per the contract, Funai will take over all the assets of inkjet business along with 1,500 inkjet patents, inkjet-related research and development assets and tools, the manufacturing facility in Philippines and inkjet-related technologies.
Funai shares a longstanding business tie with Lexmark. Previously, Funai supplied hardware for Lexmark’s inkjet printers. Hence, it will be easier for Funai to integrate the business within its operations. The quick integration will also help Lexmark’s existing inkjet customers as they can get the services, software and supplies without any interruption.
Having divested the inkjet business, Lexmark is now busy focusing on the software space through consecutive acquisitions. Since Jan 2013, Lexmark has acquired printing software solutions providers Twistage, AccessVia and Acuo Technologies, LLC. In 2012, Lexmark acquired Australia-based ISYS Search Software, which is a leading provider for search and text mining software; Boston-based Nolij Corp., which develops web-based document imaging and workflow software targeted toward the education sector and Luxembourg-based software company BDGB Enterprise, along with its U.S. subsidiary Brainware Inc. These acquired units became part of its Perceptive Software business.
During the fourth quarter of 2012, Lexmark generated a solid 37.0% year-over-year growth within its Perceptive Software segment.
Lexmark’s fourth quarter results were not encouraging as its earnings per share missed the Zacks Consensus Estimate by a wide margin. Revenues came below the year-ago period but were better than expected due to improved performances in Perceptive Software and Managed Printing Services. Guidance for the first quarter was deterring, too, reflecting inkjet exit and macro uncertainty. But management looked confident with growth in software, which could offset the legacy headwinds.
Currently, Lexmark has a Zacks Rank #3 (Hold). Other technology stocks that are performing well and are worth considering include Hewlett-Packard Co. (HPQ), NetSol Technologies Inc. (NTWK) and Synopsys Inc. (SNPS). All the stocks have a Zacks Rank #1 (Strong Buy).
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LEXMARK INTL (LXK): Free Stock Analysis Report
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