Latest OEM Financials: A Peek Into the Future?

The summer season of financial reporting for most OEMs ended August 27 with HP’s Q2 report, and suffice it to say, everyone in the industry is glad to have that quarter in the rearview mirror. As 2020 enters its last quarter, manufacturers and their channel partners continue to navigate the personal and economic impacts of the COVID-19 pandemic. We thought it would be a good time to review not only how the industry did during the second quarter but also provide some color on how it fits into the timeline of the industry and what it means going forward. Has the industry changed forever?

Second-quarter (calendar 2020) results

The following table is a quick view of the imaging channel’s OEM revenue and operating profit performance for the second calendar quarter of 2020, compared to the same quarter of 2019. These OEMs represent the majority of the worldwide manufacturer revenues in the printer/copier/MFD industry.

Overall, print solutions results mirrored the total corporate results for virtually every company, with two notable exceptions.

1. HP reported print revenue with a 20% decline but only a 2% decline in total corporate revenue (supported by a 7% growth in personal systems)
2. Epson showed a 28% growth in Print Solutions operating profit that offset profit declines in other areas to give the company only a 3% decline in total operating profit.

The ongoing office closures due to COVID-19 took a toll on most print solutions revenues and operating profits, with Canon, Konica Minolta, Ricoh, and Toshiba TEC reporting operating losses for the quarter.

Here’s a summary of the OEMs’ key messages for their performance and their expectations going forward:

Brother:

• SMB demand and consumables were “sluggish,” but home and SOHO laser and inkjet printer demand were up.
• Laser consumables down 18% reflective of the lower page volumes being printed.
• Expectations:
  • Demand in work from home and learning from home to “run its course,” decreasing page volumes from office printers as more people work from home.

Canon:

• Laser printers and MFD unit sales significantly down while inkjet unit sales were up on expanding demand from remote working and remote learning.
• Canon’s online channel increased sales of both inkjet hardware and consumables significantly.
• Expectations
  • “Style of work within corporations may not be the same as before (COVID-19)” making a second-half recovery slow in Office product demand and pages. Consumer inkjet hardware sales will “settle down,” but sales of inkjet consumables will expand.

Epson:

• The Professional printing subsegment (about 30% of total print solutions revenue) was down 35%.
• Office shared inkjet hardware sales remained flat but consumable sales dropped, driving Office, SOHO, and home printer revenue down 5.4%.
• Work from home demand increased overall ink revenue sharply as high-capacity ink tank unit sales went up and cartridge-based unit sales decreased.
• Expectations:
  • For the rest of the year, home use will drive both home and office inkjet printer business, but hardware unit sales are expected to be down while ink revenue will remain flat.

HP:

• The printer business performed “better than expected,” due to strong demand from work from home, representing 28% of total company revenue (normally 30% or more) and 46% of total operating profit (normally well above 50%).
• Consumer printer units increased 3% (revenue up 7%), Commercial printer units down 32% (revenue down 37%), label and packaging printing had a 14% increase in impressions while MPS page volume declined 40% in April, 25% in July.
• Expectations:
  • HP expects positive demand for home printing, with Instant Ink reaching 8 million subscribers by the end of the year while commercial printing demand will continue to be depressed.

Konica Minolta:

• Office and Professional revenues declined 30% and 37% respectively (IT services solutions decline not as severe as Office due to the ability to interact with clients and implement telecommuting services without face-to-face contact).
• Label printers and digital embellishment printing along with related non-hardware (consumables) revenue grew in the United States and Europe.
• Expectations:
  • Due to telecommuting and “other new working styles,” sales will expand in IT service solutions and Workplace Hub (especially in SMB and government), with office and professional print volume continuing to decline.

Kyocera

• Demand for document services increased, but demand for equipment and consumables declined significantly due to COVID-19 office restrictions.
• Expectations:
  • The quarter performance was in line with projections, therefore maintaining Document Solutions sales revenue forecast of being down 11% for the current fiscal year versus last fiscal year.

Ricoh

• Office Printing down 32% (A3 MFP units decreased 30% and A4 units shrank 31%), Commercial Printing down 35%, and Office Services down only 8.7%
• April and May print volumes were less than half of a year ago in Europe and U.S., and down 30-40% in Asia; however, Ricoh said a recovery trend emerged in June.
• Expectations:
  • Office and Commercial Printing expected to be down 15% and 16% (respectively) for the year but MFP output will recover to 90% of pre-COVID demand.

Toshiba TEC

• Total company revenue decline and the net operating loss blamed on the shrinking demand of POS (Point of Sale) and MFPs.
• Printing Solutions revenue down 39+% with a net loss of approximately $46.5M.

Xerox

• Equipment sales revenue was down 38%; Unbundled supplies, paper, and other sales decreased by 50%; and services revenue declined by approximately 28%.
• Expecting a gradual recovery for the second half of 2020 but do not anticipate recovery to pre-COVID-19 revenue levels.
• CEO John Visentin believes “everyone will be … going back to the office once it’s considered safe.”

All OEMs suffered during the quarter, some clearly more than others. We feel some key messages stand out in relation to the future of this industry:

• The home and consumer printer business of Brother, Canon, Epson and HP mitigated revenue losses in the office and production print as they were able to meet work from home print demands caused by the pandemic. (HP’s personal systems business, as companies outfitted work from home workers and remote learning students, also softened the pandemic impact on their total revenue and operating profits.)
• Remote work and home printing demand may remain but begin to level off soon while office printing and page volumes will remain depressed for some time – if not forever.
• There are areas of commercial print growth, such as label and packaging printing.
• IT services revenue, as offered by various OEMs, was negatively impacted but not at the rates of office and production print.
• Full recovery to pre-COVID printer sales and page levels is not expected to happen

Second-quarter 2020 in relation to industry performance since 2008

We charted the last 50 quarters (1Q 2008 through 2Q 2020) of combined worldwide revenue of Brother, Canon, Epson, HP, Konica Minolta, Kyocera, Ricoh, Sharp, Toshiba TEC, and Xerox, as 2008 began the last “recession worse than any since the Great Depression.” The chart below puts the 2020 second-quarter performance in stark relief against the history of the past 12 years.

Data used reflects what each OEM identifies as consumer, office, and commercial print business and adjusts for business acquired (Canon and Océ, HP and Samsung) and businesses shed (Xerox and Conduent).

Between 2008 and 2019, the average year over year (YoY) quarterly decline rate was -1% per quarter. However, in the last five years (2015 through 2019), even with slight YoY revenue increases during 2017 and 2018, that average YoY quarterly rate of decline tripled to -3% per quarter. If an event like the coronavirus hadn’t occurred, and the -3% decline rate continued, it’s likely the revenue levels reported in the second quarter of this year would have occurred sometime within the next 5 to 7 years. In that sense, COVID-19 gave the industry a clear view of the future.

While the second quarter of 2020 was disastrous for all the economy, affecting the imaging channel OEMs particularly in their print solutions businesses, to assume the level of business reported during the second quarter wasn’t expected would be an error – it simply showed up early.