Summary
Despite concerns that remanufactured(third party) ink and toner cartridges continually push HP for share in the lucrative ink consumable market, HP has delivered a potent punch combination of brand image, marketing, promotional activity within the CE and Office supply sector and first-to-market technology which has and will continue to distance them from chief rivals, Dell and LexMark in the PC, print-on-demand and ink/consumable arena. It would appear that concern for Kodak's entry into the printer and ink business with its bold and innovative marketing strategy reversing the razor and blade philosophy of HP is totally unfounded based on the last 2 quarters of earnings at HP. Despite the slowdown in the US economy in the first half of FY 2007 and lackluster earnings announcements from key CE and Office Supply sector players, HP has proven that laptop PC growth and market basket sales of ink, photo paper and printers is surely a huge and ever growing opportunity.
Analysis
Capitalizing on the growth and popularity of laptop computers and staying within its core marketing strategy to promote low cost printers that run on high consumer cost ink, HP has once again proven that Americas love of all things ink has not waned in favor of low cost alternatives such as private label, refill kits and refill stations at retailers and mall stores, nor Kodak's pressure of introducing extremely low cost ink into the marketplace. Coupled with a 54% growth in laptop sales over LY and a 20% share of the worldwide PC market, HP certainly packs a huge wallop in commanding sales of peripherals and ink/toner consumables post-PC purchase. With unparalled representation of printer assortments over competition in the big box CE and Office Supply retailers, HP will continue to dominate the entire segment and distance itself from rivals. By heavily promoting inkjet, laser and all-in-one technology through rebates, it is easy to see why weekly circulars at Office Depot, OfficeMax, Staples, Best Buy and Circuit City are crammed with 2-3x as many HP imaging products as those from rivals, LexMark, Canon, Epson, et al. By adding style features such as color to the hard cases and even trendy "skins" to personalize its laptop assortment to the style conscious student customer, HP has also enticed the tech-savvy high school and college student to turn to them when the buying decision is close at hand. Once the hardware has been purchased, it's all about ink and profits given that a "typical" consumer will purchase ink cartridges 4 times/year at roughly $35 a pop. To further their already enviable position of strength following two successive quarters of earnings in the Imaging division, HP has also announced on August 18th(just 2 days following 3rd quarter earnings release), a web feature that make document printing mobile, an initiative that will fuel not only additional sales of laptop PC's, but further their internal strategy of indirectly creating a business that will foster incremental market basket sales of(you guessed it), even more ink and supplies! If ever there were a company that truly lives up to its brand statement, HP is richly deserving of owning the moniker, Invent! They continually find ways to make money and fortify the brand.
