HP to pay $1.05 billion for printer and copying business
competing with Xerox, Canon
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 bolster the Silicon Valley
company's offerings 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 on Monday.
Samsung also agreed to buy between $100 million and $300 million in
HP shares through open-market purchases after the business sale is
completed.
Several hours after disclosing the deal, HP unveiled 16 new
multifunction printers targeted at so-called A3 larger
printer-copier combinations that are 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 printer business.
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 markets, a business HP estimates has
$55 billion in annual revenue and which it has tried to crack
before with little success. Samsung already has a business selling
A3 machines, which HP will acquire in the deal.
HP also acquires through the deal 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 of HP's imaging and printing business,
said acquiring printer-engine technology would 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 Co., 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 Corp.,
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 a statement.
Write to Don Clark at don.clark@wsj.com
(END) Dow Jones Newswires
September 13, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
HP (NYSE:HPQ)
Historical Stock Chart
From Feb 2024 to Mar 2024
HP (NYSE:HPQ)
Historical Stock Chart
From Mar 2023 to Mar 2024