Mergers and Acquisitions News - HP & Samsung Announce Combination!


Did you do a double-take when you saw this news? Frankly, I'd have been less surprised if the headline had been the other way around! Not long ago, I wrote about the lack of consolidation at the OEM level in the office products and imaging industry. Not anymore! It's significant mergers and acquisitions news when events such as Ninestar acquiring Lexmark, Foxconn acquiring Sharp, and HP developing Samsung's printer business occur. The industry's consolidation pace continues to accelerate while its scope continues to expand.

So, what are some potential implications for the industry and, in particular, for the aftermarket?

DepotMax and Staples - one less brand to carry. Will they seek a replacement?

Canon, the HPs partner for 30+ years, owned the laser technology, manufactured the cartridges, and kept a share of the profits. What happens next for them?

Hewlett-Packard has made incredible improvements to its inkjet technology over the last few years. With the introduction of high-speed, full-page-array printing devices, there finally appears to be a chance that ink will establish a more mainstream presence in the office printing environment. We've assumed HP's inkjet technology initiative was primarily driven by their desire to own the entire value chain (unlike laser, where it's shared with Canon) and, maybe it has been but, with Samsung and their laser and Multi-Function Printer (MFP) product line, along with their 6,500+ patents, hmm .... who needs Canon anymore?

Samsung - picked up 7-10% market share while HP was losing that, and more, over the last decade. This acquisition will take Hewlett-Packard back toward 50% or so share in the office desktop and MFP device categories.

Hewlett-Packard has made some bold moves over the last 2-3 years, shrinking their distribution from 15,000 resellers to perhaps less than 4,000. Presumably, after the deal closes, they'll implement similar strategies for distributing Samsung products. While making these changes to their distribution model, they've also been making great strides in dealing directly with consumers and, in some cases, eliminating middleman distribution. I don't imagine this strategy will change.

So, what was the driving that took HP down this path with Samsung? Perhaps a more robust hardware line-up may be needed to compete effectively with Konica Minolta, Ricoh, and the like, which they could not obtain from Canon. The Office Equipment channel, where more and more hardware and supplies are being placed under managed print service agreements, is an attractive growth opportunity. The Samsung products fill the gap, so expect HP to aggressively go after this channel where, it should be noted, they will also be bumping into Canon a lot more frequently.

Apex_Acquires_Lexmark_Headline_Image.pngNinestar / Apex is acquiring Lexmark is a ballsy move, but I'm still wondering how this one will play out. Ninestar is probably the strongest player in the global aftermarket after their stunning IPO of the Apex chip business. They were unencumbered with channel conflicts in the developed western markets until they decided to acquire Lexmark, and now have the most complex of all distribution conflicts to manage. As a renowned aftermarket manufacturer and a relative upstart in the industry (only founded in 2000), they have to work with customers selling $20 compatibles in one channel and $100 OEM brand cartridges in another! How long's that going to last?

Not only that awkward complexity to deal with but also 5,000 nervous employees. Lose some of that talent, and what next for Lexmark? How much share of the U.S. printer hardware market do they have? What do you think, 7 - 10%? Hmm ... the new Hewlett-Packard / Samsung combination probably can't wait to get started going after that business!

How long before Hewlett-Packard is back at 75% market share? Five years? Ten years? Who knows? They'll likely, never return to the kind of market domination they enjoyed 15 years ago. Regardless, even if HP gradually obtains a more dominant market share, many of me think the resellers carrying Samsung will not be very motivated to replace them. This is a mature industry, and printing is now just that ... printing, and I think one less vendor becomes one less headache for them to deal with.

Foxconn_acquires_Sharp_Headline_Image.pngWill Foxconn Technology Group make a difference after it acquires Sharp? Well, they're not known for distribution and marketing, more for contract manufacturing. I don't think they will likely step into Samsung's shoes.

Other news was announced on June 13, 2016, regarding the Cartridge World partnership with Samsung. As you may have already read, this initiative is to place thousands of printers in accessible Wi-Fi areas across the United States and cater to the increasing numbers of mobile workers. What will become of this? Will HP see fit to continue this innovative partnership? Don't forget Cartridge World, as a reseller of aftermarket cartridges, didn't cut as HP eliminated 80% of its channel resellers over the last few years. There's likely going to be some concern about this initiative's future within Cartridge World's offices.

CW_announcement_June_16.pngThis budding OEM / aftermarket relationship will likely have established enough traction to survive before the Samsung deal closes 12 months from now. Chances are, you would think, what was suitable for one OEM (Samsung) should be ideal for another (HP), and the Cartridge World initiative will survive this unexpected announcement.

So, finally, what impact will these different scenarios likely have on the thousands of independent resellers? Will it be a game changer, or will it be business as usual? What's the worst-case scenario for a reseller? What if HP accumulated sufficient market power to collapse the price model on ink and toner cartridges, jacking up the hardware prices and eliminating the pricing umbrella that allowed the aftermarket to develop in the first place? Well, I, for one, can't see that happening. Even in the unlikely event they eventually got to 80%+ market share, I don't think we'd see a change of this nature to the currently established business model. In my opinion, the opportunity for the aftermarket is here to stay for as long as we all continue to print.

More turmoil, more uncertainty, perhaps. But one thing hasn't changed as it's still a $25B annual market for ink and toner in the United States. Between them, the OEMs have an 80% share of the overall market, and, between them, they're still selling cartridges (for example) at $100 when there are high-quality aftermarket alternatives available that independent resellers can profitably sell for substantially less.

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