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Xerox Aims to Challenge HP with New Color Printers

Reuters
Monday, 24 Sep 2007 | 6:13 AM ET

In a move aimed at chipping away at Hewlett-Packard's dominance, Xerox Monday launched a system promising to slash the cost of color printing for high-volume users willing to pay more initially for machines.

Xerox introduced five printers, including the Phaser 8860 which features new solid-ink technology, saying the system puts the cost of color pages on par with that of black-and-white.

Solid ink uses wax ink sticks rather than the cartridges of powdered toner found in laser printers. The process works like that of a high-end offset press to create richer colors, the company says, and has significantly fewer disposable parts, which leads to lower maintenance costs.

"If you compare HP color toner to what our inks will be, we will be one-fifth the price. We think it's going to help us grow our market share and attract a lot of customers who maybe don't consider Xerox today," said Jim Rise, a Xerox vice president.

Experts say color documents are seen as more effective in communications, but the cost of buying new color printers, supplies and service contracts has been a barrier to adoption.

Xerox says the printers cut the cost of printing a color page to about 5 cents a page, a fraction of rival systems, which analysts peg at between 8 cents and 13 cents a page.

Yet to stay profitable, the Xerox printers are priced higher. The strategy is similiar to Eastman Kodak's consumer inkjet printers unveiled this year. Both represent a shift from the so-called razor/razor blade model – selling hardware at little or no profit to encourage sales of more profitable replacement ink and toner.

At $2,500 to $4,000, the Phaser 8860 is roughly $1,000 more than other Xerox products with similar functions, said analyst Angela Boyd of research firm IDC. That may lead some potential buyers to think twice.

"It's targeted at the person who has made up their mind they want color. It's not for the person who is happy with their black-and-white laser machine," she says. "Eighty percent of the world is still buying black-and-white laser machines."

Investors Looking for a Spark

Xerox said its new solid-ink system, five years in the making, uses long-lasting crayon-like ink sticks. By increasing the total number of color pages the ink sticks produce, Xerox says it has reduced the price of color printing.

Printer makers for years have been promoting the move to color printers, mostly by cutting prices. That has prompted printer makers to battle on the idea of lower cost-per-page, which would most benefit high-volume users.

Xerox's new systems are aimed at customers that print 2,000 to 10,000 pages a month, such as real estate offices or departments inside big corporations. They come at a time when investors are looking for a spark from Xerox, whose stock closed Friday on the New York Stock Exchange at $17.02, one penny better than its closing level on Dec. 31, 2004.

Experts credit the company with impressive additions to its office line, solid profitability and improved market share. But analysts have been disappointed by tepid sales gains -- Xerox's revenue ended 2006 at $15.9 billion, up only about 3% from 2003. Analysts, on average, expect a 7% rise in 2007 annual revenue from 2006, according to Reuters Estimates.

The new system will not shift the balance of power, IDC's Boyd says. HP dominates the global office laser printer market with a 40% share, with Xerox at 10%, and Japan's Canon at about 7%, she says.

"It puts Xerox in a good competitive situation among all the others chasing that juggernaut (HP)," she says. I don't think this is going to change things dramatically for Xerox. Xerox has been able to remain in the top tier of vendors and it will help them sustain behind HP."

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