Kindle Printing

Regarding the Amazon (NASDAQ AMZN) Kindle e-book reader announced on November 19th, Im working on a column for my December Observations that will include historical perspective, and potential impact on the printer industry. So in researching that piece, Ive come across a couple of relevant items worth highlighting here, ahead of my December column which will appear around the middle of next month.

Andrew Sullivan, in "Reviewing the Kindle" at The Daily Dish at TheAtlantic.com forwards an idea, as a fan of small, fast, compact printers:

What Id buy is a small printing device that can download any book and print it out in a classic simple paperback style: a consumer-friendly print-on-demand.

Rob Enderle, in "The Rise of ePaper: Could Kindle Represent the End of Printing?" on his blog at ITBusinessEdge.com, beyond some good commentary on the Kindle itself, offers the idea that this could be the beginning of the end for printing. He asserts interesting arguments about our (printer) industry that speak to its mature status, seeing low (single digit) sales growth but high profits at least for the dominant player, HP (NYSE: HPQ).

In short, this has the feel of a business that has peaked and is in the process of being replaced by something else.

February Observations If It Sounds Like Print and Looks Like Print Is It Printing

The Hard Copy Observer, February 2011

Observations: If It Sounds Like Print and Looks Like Print, Is It Printing?

by Jim Lyons

[February 24, 2011] Since my November 2010 Observations column on ACTPrinter (“All That Glitters...”) and January 2011 Observations column on paper.li (“Paper as a Metaphor”), I have been tempted to fall back on the old saw, “If it looks like a duck, quacks like a duck...” and conclude that these products confirm the importance of printing in our new world, but this is not the case! In fact, these two solutions with print or paper in their names do not actually mean paper or printing in any material sense at all. In the same vein, I offer the conclusion of my three-part series with this month’s feature attraction, Instapaper, the very popular viewing app for iPhone/iPad/iPod Touch (Apple iOS) and other platforms, including Web browsers and Amazon Kindles.


At first glance, this popular app (featured in much press coverage, including The Wall Street Journal and the New York Times) with the prominent inclusion of the word “paper” in its name, makes a long-time printer industry member like me take quick notice. But while the $5 version (a free one is also available), named by the Times’ Damon Darlin as “One of the best values in the Apple App Store” in December 2010 and by fellow Times writer Bob Tedeschi as one of “Ten Apps That Make Magic on Your iPad,” also in December, meets user needs in virtually the same fashion as physically printing and then reading the content, Instapaper precludes the trip to the printer and the corresponding depletion of paper and toner or ink.

The description of Instapaper available from the app’s listing on the Apple iTunes App Store has a familiar ring to it: “Great for long articles and blog posts that you find during the day and would like to read, but don’t have the time when you find them. Save with Instapaper, then read later, when you’re commuting, in a meeting, or waiting in line.” This description could have just as easily been ascribed to HP’s original Web Printsmart or Canon’s WebRecord (and was, just not in so many words), back in the days when information availability was exploding via the Web and e-mail, and printer industry types were assured that content must be printed on paper before being consumed, at least in a large number of cases. Apparently, in the decade or more since those first Web-printing attempts (see “Printing from the Web – Are we reaching the end point?”), the physical act of printing has more often been replaced by the virtual equivalent.

The Instapaper App Store description of the application’s core features also states, “Saves most webpages as text only, stripping away the full-sized layout to optimize for the iPhone and iPad screens; distraction-free reading environment gets out of your way so you can focus on the content; everything you download is then available off-line so you can read whatever you want even on airplanes or on Wi-Fi only devices away from Internet connections.” Substitute “letter-sized and A4 paper” for “iPhone and iPad screens” in that feature list and you would have a description of the Web-tuned printing apps of recent history.

So just as the electronic viewing of photos has become more customary, via social media platforms like Facebook, photo sites like Flickr, and even digital photo frames, electronic document viewing continues its march toward popularity and pervasiveness. These “substitutes,” as economists label them, are replacing printed photos and documents, leaving our industry with the hope that net growth in prints coming from the total number of photos taken and documents distributed increases faster than the decline in printed content.

Plays Well with Others

With respect to inter-application versatility (i.e. send-to-Instapaper capability), the App Store description notes that “sending to Instapaper is supported by over 135 other iPhone and iPad apps! You can even send long emails to Instapaper.” So within the iOS environment, many apps “get along” and can provide source content to the Instapaper viewer. This behavior is different than that of those previously-mentioned browser-based print apps and reflects the app-driven (as opposed to browser-driven) world of today’s mobile platforms. (As a note, Instapaper, according to Darlin’s Times article, is holding back from doing Android versions to avoid further complexity for the one-person company.)

Instapaper’s one person is the charismatic Marco Arment, a developer of social media platform Tumblr and an influential force in the app universe. When initially contacted, Arment was responsive but concerned on the fit of Instapaper in an article for a printer-industry publication. Despite his busy schedule (while we were researching this piece, Arment was an outspoken industry voice on the newly-announced enforcement of Apple’s in-app purchase (IAP) program), Arment was friendly enough but offered, “I’d be happy to do a brief interview, but are you sure Instapaper is relevant to the article? It doesn’t really have anything to do with physical paper or printing.”

But, a “print” option displayed to logged-in users on Instapaper’s Web site (and described pre-login, see screenshots below) offers a glimmer of hope.

While couched with cautions, this capability became the subject our first-ever Twitter interview (see below) when we tweeted to Arment, “Will the print function on Instapaper web site evolve beyond ‘very beta?’ ” Arment tweeted back almost immediately, “Probably not. Hardly anyone ever uses it. But I love printing off a few pages before air travel for taxi, takeoff, and landing.”

This twitter exchange just goes to show that like the “everything will be printed” assumptions of a more than a decade ago, today’s “nothing will be printed” assertions will not come to pass—the world does not work like that. Finding the right time, place, and applications for each medium is the important issue that will let creative forces prevail in our industry and others.

HP NYSE HPQ comments on printing from Q2 2009 earnings conference

From the May 19th, 2009 conference call transcript, HP CEO Mark Hurd and CFO Cathie Lesjak commented on the companys printing group (IPG) results and direction, both in prepared remarks as well as the question and answer session.

Excerpt from Lesjaks prepared remarks:

Imaging and printing revenue for Q2 was $5.9 billion, down 23% year-on-year, due to a tough economic environment. IPG delivered another quarter of operating profit in excess of $1 billion. Segment operating margin increased 220 basis points to 18.2%, as favorable supplies mix and cost reductions were partially offset by hardware rate declines.

Compared to the second quarter of last year, total printer units declined 27%, and consumer and commercial hardware units declined 23% and 36%, respectively. Supplies revenue declined 14% due to lower end-user demand and reductions in channel inventory.

Last quarter, we outlined several actions that IPG was taking to align its supply chain with lower demand. IPG made progress against these objectives with both owned and channel inventory down significantly since the end of Q1.

We continue to be the undisputed leader in printing, with over twice the market share of our nearest competitor. We are investing in new innovation across the printing business that we expect will drive page growth and extend our leadership. Some of the more innovative investments include our retail publishing systems, touch smart technologies, the Indigo 6000, and new mobile and Cloud printing technologies. In addition, weve demonstrated good momentum in wireless printing and managed print services in Q2.

The second question in the Q&A addressed printer supplies and the nature of their business decline, and Hurd and Lesjak used the opportunity to address the entire printer strategy, and its impact on the companys bottom line. The multi part answer goes from how great the longer-term analog-to-digital transformation strategy is going in spite of the short-term economic woes, to how IPGs $1 Billion quarterly profit now makes up only approximately one-third of company profit.

From the question and answer session (with question from Brian Alexander, analyst from Raymond James and Associates):

Brian Alexander - Raymond James & Associates – Analyst

Okay. On the supplies business, just given the year-over-year declines of 7% and 14% that youve seen over the last two quarters, so a little bit over 10% in the first half of the year, Mark -- what specific metrics do you track internally, whether they be macro or micro in nature, that might support your argument that the declines youre seeing in the supplies business are entirely cyclical versus secular?

Mark Hurd - Hewlett-Packard - Chairman of the Board, CEO and President

So, theres a lot of metrics we track. Obviously, we track revenue performance. We track owned or profit, if you will. We track owned inventory and channel inventory, if you will -- the aggregated supply chain across the business. We track market share by segment.

We track market share by country. So its a pretty thorough score card we track in the printing business. We obviously, then, look at it relative to our pools of the business, which is graphics, which is obviously a place that we have a lot of intellectual property -- inkjet, where we have a lot of intellectual property, and then laser. So we actually look across those three pools as well, with the same metric set.

So, with supplies, I think you should expect probably in Q3 a bit more of what you saw in Q2 for us. Theres some places that we did a very good job in IPG, managing the collective owned inventory and channel inventory. We feel very good about that. But theres some places that we like to align the mix of hardware with supplies within the context of the channel inventory.

I also think in Q3 you should expect to see us going after a bit more share than what you saw in Q2. This is really interesting for us -- one point that would be a little noticeable I thought in the quarter was we had some hardware situations where we had some outages. And we could have shipped some more hardware units in the quarter than we did. So well try to take advantage of those opportunities from a market share perspective in Q3.

Brian, let me just for a second, though, try to take you up a level and try to give you some context for how we look at the whole business, because I think its related to your point. I mean, our view is the base business is slightly up over the long-term – flat to slightly up would be the way I would think of the entire printing segment.

Digital printing content is growing. So the cyclical stuff that were seeing right now, as weve talked about before, is based on GDP and unemployment. But secular changes that occur in printing, which Ive heard from several people that says, is there some big secular change in printing? Secular changes occur over years and decades and over very long periods.

I mean, home photo-printing, for example, is less than 10% of our supplies revenue. Its shifting to the Web and its shifting to retail locations as well as the home, which is one of the reasons why you see HP investing in Snapfish. Its one of the reasons why you see HP investing in retail photo kiosk. That as everything that goes -- when things go to Snapfish, a photo book, for example, is printed on an Indigo printer using HP intellectual property and HP ink.

When you go to a retailer and see an HP photo kiosk, youre printing that on HP ink and HP intellectual property. And the reason why we build that strategy around pages is because we want to be where the consumer goes to print. And so were agnostic as to where the consumer goes, to be able to get that photo printed. And we see that base business being again some good things and some things that perhaps are headwinds, in terms of what the overall business looks like.

So, think of it this way -- continued growth and printable content; a lot of movement from analog printing to digital. So there is a big market pool for analog printing to move to digital -- things like brochures, signage, labels, coupons, manuals -- stuff like this is all stuff thats shifting from analog to digital, giving us an opportunity for us to get more business.

At the same time, digital printing is increasing and improving its ability to deliver quality, speed; its lowering its costs. And that will shift to more applications to digital. So things like newspapers, directories, magazines, all these things have an opportunity to move to digital. And then that gives us an opportunity for us to leverage our intellectual property as we move.

So, when we look at the whole thing, we say the base business is flattage [sic] -- flat to up slightly. And then we like our opportunities to gain share in the context of that hand that gets dealt to us.

Brian Alexander - Raymond James & Associates – Analyst

Thanks for the detail.

Cathie Lesjak - Hewlett-Packard - EVP and CFO

Let me just add that we think that with the position that weve got our technology roadmap and our strong competitive position, that we will gain share in that market over the long-term, when economies come back. And that that would allow us to grow this business in the low to mid-single digits, which Mark talked about earlier.

I think the other thing I really want to make clear to folks is, IPG today is roughly one-third of HPs profit. Thats a very different position that IPG is in today versus historically. Weve now got a much better balanced set of segments from a profitability perspective. I mean, you see services this quarter generating over $1 billion -- $1.2 billion in operating profit. And IPG, at just over $1 billion.

From a margins expectation perspective in the near-term, we expect IPG margins to stay up in the high teens, because we get such a high supplies mix. But over the longer term, with us going out and gaining share, again, getting the unit placements when the market turns around, we expect it to basically go back to the more normal mid-teen range.

And so thats really how you should think about this printing business. We are very well-positioned for when economies turn and we have this makeshift from analog to digital.

Mark Hurd - Hewlett-Packard - Chairman of the Board, CEO and President

I mean, I think, Brian, probably more data than youre asking for, but I think its important to set the context. And we look at the market as being a low single-digit growth market. And then we like our opportunity to gain share within it.

And thats probably the point when were dealing with some of the issues we had in Q1, where we get frustrated because we just think the opportunity is a marvelous one for us to take advantage of, given our IP position, our share position, our brand position, and the movement from analog to digital.


Brian Alexander - Raymond James & Associates - Analyst
Thanks.