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Lexmark dumps inkjet arm, sacks 1,700

Estimates savings of $95m per year

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Lexmark is to shut down its inkjet printing manufacturing and research operations, although it will continue to support and supply existing hardware and is keeping its laser printing division.

"Today's announcement represents difficult decisions, which are necessary to drive improved profitability and significant savings," said Paul Rooke, Lexmark chairman and chief executive officer, in a canned statement.

"Our investments are focused on higher value imaging and software solutions, and we believe the synergies between imaging and the emerging software elements of our business will continue to drive growth across the organization."

Staff on the laser printing side are safe for now. Lexmark's going to continue with laser in both stand-alone printing and multifunction devices for the enterprise sphere, where it can add in all sorts of extras and services to make deals more profitable.

But around 1,700 people, roughly 13 per cent of Lexmark's workforce, will lose their jobs in the move away from inkjets, which the company estimates will save it $85m next year and up to $95m per annum thereafter, although the restructuring will cost it $160m. It's also looking to sell off around 1,000 patents for inkjet technology to realize more funds.

The inkjet research and development arm will be shut by the end of next year and the company's printer manufacturing plant in the Philippines will close by 2015. This time lag will let Lexmark wring the last few drops of value out of its consumer business by selling consumables.

It has long been the case that manufacturers like Lexmark make little or no money from the hardware side of the business, while some toners are more seven times more expensive than vintage champagne. But Lexmark said the slim margins and increasing complexity of inkjets meant it was pulling the plug.

Lexmark's move comes as the general outlook for the inkjet market looks a little grim. In HP's recent financial results its printing and imaging division saw revenues fall 3 per cent – not too bad in a softish market but a clear sign that the inkjet market is less of a gravy train than once it was. Xerox and Canon have also downgraded sales forecasts.

Lexmark shares rallied strongly at the news, up 13 per cent on the day. This was in part due to the company spending $100m to buy back its own shares, and the board has OKed another $200m in purchases as they are needed. ®

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