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The Monochrome Opportunity Most cartridges now include smart chips, which carry out a variety of functions and offer varying levels of difficulty to the aftermarket. Some chips simply perform value-added functions, while the cartridges do the printing. Other chips, like those inside the Lexmark Prebate cartridges, are much stronger and help to enforce Lexmark’s patent claims. While the aftermarket industry has generally been able to find solutions to chip issues in time, these solutions often delay penetration and the aftermarket cartridges will sometimes not have all of the value-added features that OEM cartridges provide. The aftermarket believes that smart chips may potentially become their largest threat in the future. The aftermarket industry has also been concerned with the Lexmark Prebate program, under which users receive a discount for agreeing to return empty cartridges to Lexmark. Unless the courts decide otherwise, this pre-existing agreement appears to enhance the possibility of stronger smart chips. The recession in the United States has provided a boost to the aftermarket as users have looked for ways to economize. The aftermarket was able to increase its market share between 2000 and 2002 at least partially because of the poor economy. We expect that this gain in market share will be permanent for the existing installed base that is using aftermarket cartridges. In late 2002 and 2003 the market saw a number of new important printers, including HP’s LaserJet 1300, 2300, 4200, and 4300. This is an unusually large number of new machines in a short time span. It takes time for the aftermarket to get up to speed on new machines, and smart chips further lengthen the time it takes for suppliers who do not wish to supply cartridges that are not fully functional to create comparable products. The net effect of a large number of new engines, therefore, is that it depresses aftermarket share in the short term as the aftermarket works on these new introductions. Therefore, for the near-term forecast OEMs are expected to outperform the aftermarket. As the aftermarket develops solutions to the smart chip issues and new engine introductions, it is predicted that they will begin to regain lost shares in 2006.
The Color Opportunity The color aftermarket remains very small, with a market share of only 2 - 3%. There are a number of reasons for this. The first reason is that the HP opportunity is composed primarily of chemically produced toner. While it is possible for aftermarket companies to provide an alternative toner that will perform in the machine, this is not an easy task given that the machine was designed to perform with toner that has the unique capabilities of chemically produced toner. As a result, the aftermarket is having a general difficulty in supplying suitable toners. In addition, users’ requirements and expectations are different with color products. Users are less willing to trade quality for cost with color products than they are with monochrome. Most entities that own color laser devices do not have them to save money. They have them to handle special print jobs. As a result, they are less willing to sacrifice quality for cost, at least until color lasers are seen as general purpose printers. While the color market is still small, it has already become highly fragmented. Few individual toners pose a large opportunity for the aftermarket. The most likely exceptions are the HP 4500 and 4600 toners. Nevertheless, these products are chemically produced and difficult for aftermarkets to supply. Finally, many color products also contain smart chips, further complicating the options for the aftermarket. Therefore, CAP Ventures does not expect the aftermarket to exceed a 5% market share within our forecast period. Conclusion Whether the two like it or not, and despite temporary share shifts, OEMs and aftermarket suppliers will have to continue coexisting with each other. Neither is expected to gain a significant upper hand relative to current conditions over the long term on the monochrome side. At the same time, however, OEMs will continue to enjoy a dominant position in the color market for the foreseeable future. Color raises the standards all around, and for the time being, OEMs are best able to meet these standards. The preceding analysis is an excerpt from CAP Ventures’ research report U.S. All-in-One Cartridge Market Report 2003. To learn more about the report or to make a purchase, contact Alison Hipp at ext. 126. |
