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Once a Little Squirt, Now a Major Industry

Hardware: Color inkjets are behind the resurgence in printers--and a big player such as IBM getting back in the game.


Just five years ago, the world's largest computer company, International Business Machines Corp., thought so little of the computer printer business that it spun off its printer operations into a separate company. At best, it seemed, printers would be a low-margin business, and the competition was just too tough.

The outlook could hardly be more different today. Lexmark International Inc., the erstwhile IBM unit, has executed a textbook turnaround, and is doing fine even though it lags far behind major rivals in market share.

Business is so good, in fact, that IBM itself is getting back in: The company announced last week that it would launch a new line of network laser printers now that its noncompeting agreement with Lexmark has expired.

But the real growth in the $24-billion printer industry is coming from color inkjets, the inexpensive machines that work by cooking little vapor bubbles that propel ink through microscopic nozzles and onto paper. Some now sell for less than $200. It's become the indispensable companion to the multimedia personal computers that consumers and small businesses have been snapping up in the last couple of years.

Boosted by falling prices, the explosion of home offices and computer networks, and the increasingly graphics-oriented character of personal computing, shipments of inkjet printers will surge to an estimated 9.5 million units this year, up 20% from 1995, according to San Jose-based research firm Dataquest.

Giant Hewlett-Packard Co. in Palo Alto controlled more than two-thirds of the color inkjet market in 1994. But a flood of new products from aggressive competitors such as Canon Inc., Epson America Inc. and Lexmark has sent prices plummeting.

"It's the advent of multimedia computers in the home--with the Internet and all of these computer information services that are available--that is driving this tremendous growth of PCs and computers in the consumer market," Lexmark Chief Executive Marvin Mann said.

The rapid emergence of inkjets in the last few years surprised many and forced a strategic shift at Hewlett-Packard and other companies.

"We didn't think [the market] would move this fast," HP Vice President Antonio Perez said. The rise of inkjets had led the company to adopt a more consumer-oriented approach to manufacturing and marketing, he said. Sales to home users now account for about 70% of Hewlett-Packard's inkjet sales, according to Perez.

The good news for consumers is that inkjets are destined to get better. Although Hewlett-Packard introduced its first model in 1984, inkjet technology is still considered young.

"We're less than halfway into the development of this technology," Bob Fennel of Dataquest said. "The final phase is to have photographic quality or near-photographic quality."

Indeed, manufacturers believe that improved inkjets will eventually lead millions of consumers to print their camera images at home, bypassing conventional photo processing.

The bad news for consumers, though, is that even though inkjet printers are cheap to buy, they aren't cheap to own: Manufacturers make their money back through replacement ink cartridges that sell for about $30 apiece. Analysts at Goldman, Sachs & Co. figure the average inkjet user will need about three or four cartridges a year.

Still, inkjets seem destined to continue grabbing market share from laser printers. Color laser printers remain expensive, fetching anywhere from $5,000 to $12,500 a unit, and just 30,000 units were shipped last year. Sales of black-and-white laser printers--which retail for $300 to $800--grew just 6% last year, to 3.4 million units, according to Dataquest.

In April, Sun Microsystems Inc. announced it was leaving the printer business because it couldn't make enough money off its black-and-white lasers. The company will instead market high-end business printers from Lexmark and Xerox Corp.

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