Heidelberg Misses the Mark

Implications: Heidelberg's stock (HDD) is falling precipitously, from the mid 40's last August to the 10's today.  I see several scenarios playing out: Business as usual:  The stock will continue to perform poorly since the company is chasing the wrong target market.  At some point (perhaps now) the stock becomes attractive as a purchase for someone like Hewlett Packard (HPQ) who does not have a product in this category. Refocus:  Heidelberg  utilizes its existing technology base (which is excellent) but refocuses on the highly profitable and growing High Volume Transaction Output (HVTO) space.  This is the space for companies that are printing credit card statements and other high value 'transactional' materials on very high speed printers.  In this case, Heidelberg would play extremely well and gain a significant competitive advantage. The question is, which path will Heidelberg take?  In either case, the stock appears to be reaching the bottom. 

Analysis: The commercial printing and publishing industry is going through significant changes.  While one segment of the market, traditional 'press' printing, is going through a steep contract, other segments such as the HVTO market are experiencing rapid growth.  Heidelberg is caught in the middle of these two trends.

Some explanation is in order.  The traditional commercial printing space consists of large 'offset' presses that print a static piece of information (i.e. a newspaper or book) over hundreds of thousands of times at a very high speed.  The market for this type printing is going through a rapid decline as many of these publications increasingly shift to electronic formats.  Historically, Heidelberg has sold their sophisticated very high speed digital press technology into this market space.  They promised printers the opportunity to capitalize on the new emerging market of printing variable data (i.e. addresses on billing statements) by replacing their traditional presses with new digital presses from Heidelberg.  

Unfortunately, Heidelberg is selling the right product to the wrong people.  Heidelberg's target market continues to be a in a 'press mind set'.  These firms buy Heidelberg's equipment in order to be able to 'offload' small jobs to the digital presses due to their rapid set up time.  However, this group still sees their focus as printing, largely, very high volume print jobs that do not contain any variable data.

The right people to sell to are the firms (such as VistaPrint (VPRT)) who are using digital presses to print High Volume Transaction Output jobs (i.e. credit card statements) and other types of high value output.  These companies are buying Xerox (XRX) IGen presses and Kodak (EK) Digimaster products to print variable data on critical documents.  And most importantly, they are often turning what was a cost center (i.e. printing a credit card statement) into a profit center by selling ad space or promoting their own products on the transactional document.  This 'transpromotional' or 'transpromo' printing is becoming widespread and driving significant growth into those firms who are focusing in this area.

Heidelberg has some of the best technology in the industry.  The firm is highly innovative and continually produces products that offer significant leaps in functionality and performance.  However, they cannot seem to move away from their sales and marketing 'comfort zone', the traditional press guy with ink under his fingers.  The question is, will they get the message before it is too late?