By Don Clark and Eun-Young Jeong
HP Inc. agreed to buy Samsung Electronics Co.'s printer business
for $1.05 billion, a deal designed to help bolster the Silicon
Valley company in the market for high-volume devices that handle
printing and copying for office work groups.
The transaction, which is subject to regulatory approval, is
expected to close within 12 months, the companies said Monday.
After it is completed, Samsung has agreed to make an equity
investment of $100 million to $300 million in HP through
open-market stock purchases.
Several hours after announcing the deal, HP unveiled 16 new
multifunction printers targeted at the larger printer-copier
combinations known by the designation A3, the stronghold of such
companies as Xerox Corp., Canon Inc., Ricoh Co. and Konica Minolta
Inc.
HP, created as part of the breakup of Hewlett-Packard Co. last
fall, sells personal computers but gets most of its profit from
supplying ink and toner for its printers. It is the market leader
in the desktop-class printer segment.
That business hasn't been growing lately, in part because PC
users print fewer pages these days. HP last month reported that
revenue from ink and toner supplies declined 18% in the third
fiscal quarter from the year-earlier period, while printer hardware
unit sales fell 10%.
HP Chief Executive Dion Weisler has vowed to spur revenue growth
by expanding in A3 printing, a market HP estimates at $55 billion
in annual revenue that it has tried before with little success.
Samsung already has a business selling A3 machines, which HP will
acquire in the deal.
HP will also acquire the ability to manufacture the crucial
mechanisms inside laser printers, known as printing engines.
Samsung developed the printing engines used in its own laser
printers, while HP has always used external suppliers for these
components.
Enrique Lores, president in charge of HP's imaging and printing
business, said acquiring printer-engine technology would both
bolster its profit margins and help it shape the evolution of its
laser printers. "You have control over the core technology," he
said. "That is very, very important."
Canon is HP's main supplier of printing engines in its existing
product line, a relationship Mr. Lores said he expected to
continue. HP's new A3 laser printers rely on Samsung's print
engine.
Beyond helping HP enter the market for A3 machines, he said, the
deal would likely help winnow the number of suppliers in the
market.
"We see HP as a consolidator in the market," Mr. Lores said. "We
want to drive this consolidation and make it happen."
The deal includes about 6,500 Samsung printing-related patents,
which Mr. Lores said would also help HP expand its business. Around
6,000 Samsung employees will join HP, including about 1,500
engineers, he said.
Samsung has been slimming down its business portfolio under vice
chairman and heir apparent, Lee Jae-yong, said Lee Sei-cheol, an
analyst at NH Investment & Securities, adding that the deal can
be seen as a bid to strengthen the South Korean company's
better-performing areas.
The world's top maker of smartphones, memory chips and
refrigerators, Samsung ranks fifth in the world-wide market for
printers and copiers by shipments with a 4% market share, behind
global majors HP, Canon, Seiko Epson Corp. and Brother Industries
Ltd. Samsung's shipments declined by 8.9% in the second quarter
compared with a year earlier, according to research firm IDC.
Samsung doesn't break out sales figures for its printer
business, which falls under the consumer-electronics division that
also includes television sets and home appliances such as
refrigerators and washing machines. Last year, consumer electronics
contributed just 4.7% of the company's operating profit, while the
higher-profile smartphone and chip divisions generated 38.4% and
48.4%, respectively.
Amit Daryanani, an analyst at RBC Capital Markets, estimated in
a research note that Samsung's printer business generates $1
billion to $1.6 billion in annual revenue and ranks No. 5 in unit
shipments of PC printers. Printing engines account for 10% to 15%
of the cost of goods HP sells, he estimated.
Three of HP's new models use a proprietary technology called
PageWide that evolved from inkjet printers.
Inkjets, while offering low cost, are relatively slow because
they use a print head that moves back and forth across a page.
PageWide printers, by contrast, use a print head as wide as the
paper being used. That increases speed and reduces cost,
particularly when printing in color. PageWide printers also have
fewer parts that may need to be replaced, Mr. Lores said, reducing
service cost for customers and dealers.
David Ramos, an analyst at the research firm InfoTrends,
predicted HP's new offerings "are going to create some pressure" on
competitors.
Xerox, the No. 1 A3 hardware maker, contends its line of A3
hardware remains broader and more productive than HP's.
"There's really nothing new here; no breakthroughs and really
just a lot of the same HP technology we've seen before," said
Tracey Koziol, senior vice president of Xerox's office and
solutions business group, in an emailed statement.
Write to Don Clark at don.clark@wsj.com
(END) Dow Jones Newswires
September 12, 2016 14:03 ET (18:03 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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