Desktop Printing Supplies:

The Global Market & South Africa

Steve BambridgeLyra ResearchOctober 10, 2003

2

AgendaAgenda

•Desktop Printer and Printing Markets

– What is driving the OEMs?

– What does this mean for supplies?

• Inkjet Cartridge Market

• Laser Cartridge Market

• South Africa

3

Worldwide Printer MarketWorldwide Printer Market

Printer Revenue Trends

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006 2007

$(b

n)

Inkjet Printers &MFPs

Color PagePrinters andMFPs

Mono PagePrinters & MFPs

Source: Lyra Research, Inc, First Half 2003 Forecast

CAGR 2002-2007 = 5%

CAGR 2002-2007 = 6%

4

Worldwide Printer Installed BaseWorldwide Printer Installed Base

2.1 4.3 10.4757360

224

407

316

0

50

100

150

200

250

300

350

400

450

2000 2003 2007

(m)

Mono Page Printers & MFPs

Colour Page Printers & MFPs

Ink Jet Printers & MFPs

Source: Lyra Research, Inc., First Half 2003 Forecast

5

Worldwide Desktop Printing MarketWorldwide Desktop Printing Market

Worldwide Revenues from Desktop Printing, 2003

Laser Printers & MFPs22%

Inkjet Cartridges25%

Laser Cartridges25%

Laser Media 9%

Inkjet Printers & MFPs

13%

Inkjet Media6%

$86bn Source: Lyra Research, Inc., First Half 2003 Forecast

6

Worldwide Revenue TrendsWorldwide Revenue Trends

Worldwide Printing Revenues

(Ink Jet and Page Printers Combined)

-

10,000

20,000

30,000

40,000

50,000

60,000

2000 2001 2002 2003 2004 2005 2006 2007

$(m

)

Printers (CAGR 2002-2007 = 2.5%)

Cartridges (CAGR 2002-2007 = 4.2%)

Source: Lyra Research, Inc., First Half 2003 Forecast

7

OEM vs Third Party OEM vs Third Party

Worldwide Cartridge Revenues(Inkjet and Laser Combined)

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2000 2001 2002 2003 2004 2005 2006 2007

$(m

)

0%

5%

10%

15%

20%

25%

30%

Per

cent

of M

arke

t R

even

ue

OEM Revenue

Third Party Revenue

Third Party Revenue Share

Source: Lyra Research, Inc., First Half 2003 Forecast

CAGR 2002-2007 = 10%

8

What‘s So Important about Supplies?What‘s So Important about Supplies?

Printer market is mature and supplies are now the main source of revenue growth and margin

• Critical to OEMs

– The ‘razors & blades’ business model is coming under threat

– Revenue growth is slowing and may cease for some

• Growth area for the channel

• Fuelling third party industry

9

Ink Jet Cartridges

10

Desktop Inkjet MarketDesktop Inkjet Market

Worldwide Desktop Inkjet Market Forecast

11.6 11.1 13.7

14.321.3

26.33.4

5.6

7.7

$0

$10

$20

$30

$40

$50

$60

2000 2003 2007

Rev

enue

(in

billi

ons

of U

.S. d

olla

rs)

Media

Ink Cartridges

Printers

Source: Lyra Research, Inc., 2003 Forecast

111 billion cartridges ÷ 365 days/year = 2.7 million cartridges/day!

Ink Jet Cartridge MarketInk Jet Cartridge Market

Worldwide Shipments of Cartridges for Desktop Ink Jet Printers, 2000 to 2007

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2000 2001 2002 2003 2004 2005 2006 2007

Bill

ion

s o

f U

nits

Source: Lyra Research, Inc., First Half 2003 Forecast

CAGR 2002 to 2007 = 10.5%

12

Product MixProduct Mix

Worldwide Shipments of Ink Jet Cartridgesby Printer Brand, 2003

Epson21%

Canon21%

Apollo/Hewlett-Packard

42%

Lexmark/Compaq11%

Others5%

Source: Lyra Research, Inc., First Half 2003 Forecast

923 Million

13

Third Party Market SharesThird Party Market Shares

Worldwide Third Party Market Share, Shipments

0%

5%

10%

15%

20%

25%

30%

35%

40%

2000 2003 2007

Canon

Epson

HP

Lexmark

Source: Lyra Research, Inc.

14

Third Party Cartridge ShipmentsThird Party Cartridge Shipments

Worldwide Third Party Ink Jet Cartridge Shipments

4087

51

10653

84

21

7

0

50

100

150

200

250

300

350

2003 2007

Mill

ions

of C

artr

idge

s

Other

Lexmark/Compaq

HP/Apollo

Epson

Canon

Source: Lyra Research, Inc. First Half 2003 Forecast

15

• Frequent launch of new cartridges (especially Epson)• Use of inhibiting technology

– Patent protection on integrated cartridges

– Canon ThinkTankTM, Epson smart chips

– Litigate where possible (e.g. HP vs MultiUnion, Canon vs Pelikan)

• Lower cartridge pricing– Single color ink tanks (especially Canon)

– Reduced ink volume (HP 56/57/58)

• Performance guarantees – Matched ink/media for long photo print life

• Leverage Brand and Channel Strengths• Cartridge reclaim schemes (HP)

OEM StrategiesOEM Strategies

16

Laser Cartridges

17

Desktop Laser MarketDesktop Laser Market

Worldwide Laser Printing Market

15.8 18.6 19.2

6.47.4 7.5

15.9

21.724.8

-

10

20

30

40

50

60

2000 2003 2007

$(bn

)

Laser Cartridges

Laser Media

Laser Printers & MFPs

Source: Lyra Research, Inc., First Half 2003 Forecast

18

Mono Cartridge Market Mono Cartridge Market

Shipments will decline as mix shifts towards larger capacity cartridges

Worldwide Shipments of Mono Laser Cartridges

0

20

40

60

80

100

120

140

160

180

200

2002 2003 2004 2005 2006 2007

Uni

ts (

M)

Mono Laser Cartridges (m) Mono Printer IB (m)

Source: Lyra Research, Inc., First Half 2003 Forecast

19

Mono Product MixMono Product Mix

Worldwide Shipments of Cartridges for Laser Printersby Printer Brand, 2003

Lexmark7%

Brother5%

Okidata4%

Canon4%

Other8%

HP72%

Source: Lyra Research, Inc., First Half Forecast 2003

178 Million

20

Colour Laser Cartridge MarketColour Laser Cartridge Market

Worldwide Shipments of Colour Page Printer Toner Cartridges

0

10

20

30

40

50

60

70

2002 2003 2004 2005 2006 2007

Uni

ts (

M)

Source: Lyra Research, Inc., First Half 2003 Forecast

CAGR 2002-2007 = 33%

21

Colour Laser in ContextColour Laser in Context

Worldwide Revenue From Monochrome and Colour Toner Cartridges

0

5

10

15

20

25

30

2002 2003 2004 2005 2006 2007

$(bn

)

Monochrome Cartridge Revenue Colour Cartridge Revenue

Source: Lyra Research, Inc., First Half 2003 Forecast

22

Third Party Market Shares Third Party Market Shares

Worldwide Laser Cartridge ShipmentsThird Party Market Share

0%

5%

10%

15%

20%

25%

30%

35%

40%

2000 2001 2002 2003 2004 2005

Monochrome

Colour

Source: Lyra Research, Inc., First Half 2003 Forecast

23

• Frequent launch of new cartridges– Higher yield cartridges

• Use of inhibiting technology– Smart Chips (& related firmware)

– Cartridge design and construction (e.g. LJ 9000)

– Litigate where possible (e.g. Lexmark vs SCC)

• Move to sophisticated new toners– Chemical Toners, e.g. Polyester toner used in LJ 4200/4300

• Cartridge reclaim schemes– Lexmark prebate, HP

• Cartridge Remanufacturing– Lexmark claim to remanufacture >1m cartridges a year

• Leverage brand and channel strengths

OEM StrategiesOEM Strategies

24

Some Key MessagesSome Key Messages

• The ink jet and laser cartridge markets remain critically important to OEMs as a source of revenue growth and margin– Growth for some is threatened in part by success of third party industry

– OEMs will continue to seek ways of slowing down third parties

• The OEMs will increasingly focus on the colour laser market– Be ready for rapid growth of the cartridge market

– Potential opportunity for third parties to take ownership of the mono cartridge market

• Be ready for rapid growth in the Lexmark ink jet cartridge market

• The South African third party market growth should exceed worldwide growth rates over the next few years

25

South Africa

26

Desktop Printing Market South Africa Desktop Printing Market South Africa

What little information is available suggests……

• Laser printing market is relatively well developed– Driven by business activity

– PC use normal in business environments

– OEM growth has fallen below 10% per annum

• Inkjet printing market is under developed– Low level of household PC ownership

– Low level of spending on consumer electronics (e.g. digital cameras)

– OEM growth remains between 15 and 20% per annum

27

The South African Remanufacturing IndustryThe South African Remanufacturing Industry

• 100+ players

• Average monthly output of 400-500 (for each of laser and inkjet)

• Empties recovered exceed the number remanufactured:– By 35% for Laser

– By 31% for Inkjet

– Enabler for further growth?

28

Ink Jet Cartridge MarketInk Jet Cartridge Market

Ink Jet Cartridge Shipments in South Africa

OEM50%

Compatibles38%

Remans12%

4.7m

29

Laser Cartridge MarketLaser Cartridge Market

Laser Cartridge Shipments in South Africa

OEM58%

Compatibles15%

Remans27%

3.2m

30

Which Means….Which Means….

The available data suggests……..

• Third party ink jet cartridges have much higher market share in South Africa than in Europe and the USA– Compatibles account for well over 50% of ink tanks shipped, vs <30%

in USA and Europe

– Remans account for over 20% of integrated cartridges shipped, vs <15% in USA and Europe

• Third party laser cartridges also have significantly higher market share in South Africa than in Europe and the USA

• Is this correct?

• How do the OEMs feel about this, and what are they doing?