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Imaging Index: A financial wrap-up of this month's document technology market

9 Jul, 2004 By: Mike Dudek imageSource

Imaging Index: A financial wrap-up of this month's document technology market

Each month we track changes in stock values of major public players in the
imaging industry. The following chart depicts most recent month-end prices
compared to September 30, 2003.

Danka and IKON continue to be the leading value-gainers this fiscal
year—growing over 50 percent in the last eight months.  Lexmark stock value
continues to steadily increase and has also reached 50 percent.  Global and
Xerox have fared well increasing by over 30 percent.  Surprisingly, Canon, Ricoh
and HP have only grown in the single digits at 2 percent, 7 percent and 9.7
percent respectively.

    Stock Price   $ % Market
Company Symbol 5/31/2004 9/30/2003 Change Change CAP
Danka Danky $4.02 $2.42 $1.60 66% $279million
Ikon Ikn 11.02 7.31 3.71 51% $1.62billion
Global imaging Gisx 33.75 24.61 9.14 37% $744million
Xerox Xrx 13.54 10.26 3.28 32% $10.7billion
Hewlett Packard Hpq 21.24 19.36 1.88 10% $64.9billion
Canon Caj 49.56 48.72 0.84 2% $44.5billion
Ricoh Ricoy.ob 95.38 89.00 6.38 7% $13.7billion
Lexmark Lxk 94.32 63.01 31.31 50% $11.9billion
Oce Oceny 15.24 13.99 1.25 9% $1.32billion
Electronics for Imaging Efii 27.72 23.33 4.39 19% $1.45billion
Adobe Adbe 44.63 39.39 5.24 13% $10.8billion


$410.42 $341.40 $69.02 20%  

Latest Industry Developments

Danka – Announced its intention to distribute the Hitachi Digital Document
Publisher 92 printer, which handles complex print jobs for data centers, central
reproduction departments, print-for-pay operations and service bureaus. Within
this news release, Danka touted that its installed equipment base is now 55
percent digital, which has helped stabilize its service revenues.

Opinion: For a number of years now Danka’s aftermarket revenues have
substantially declined. An analysis of its current functional revenue
components—equipment and aftermarket—suggests that Danka will continue to
experience aftermarket revenue erosion and will not completely stabilize until
it experiences additional equipment revenue growth.

Dealer Questions: Are dealers able to retain their aftermarket base better
when the base is digital rather than analog? Are customized digital solutions
being implemented to capture the customer and reduce customer base turnover?

Danka also released fourth quarter earnings reporting a net loss of $96
million, which is primarily attributable to several significant items,
including: $51 million non-cash deferred tax asset charge, $31 million
restructuring charge and $8 million tax provision. The $51million tax charge
reflected the company’s accounting assessment that the deferred tax would not
ultimately be realized.

Quarterly revenues for Danka were $344 million; 3.5 percent lower than the
prior year (11 percent lower without the foreign currency benefit) and 3 percent
higher than the prior quarter. Equipment revenue of $125 million was a slight
decline compared to a year ago. Service revenue of $161 million was a decline of
6 percent compared to the prior year.

For the full year, revenue of $1.3 billion was 4.9 percent below the prior

Ikon – Announced its intention to distribute a private labeled IKON CPP
8050e, the new Konica Minolta 50 page-per-minute printer and copier.

Opinion: Ikon did something which many predicted it would do a long-time ago,
turn to private-label products and strive to better establish the Ikon brand.
Ikon’s primary suppliers have been concerned for many years that Ikon would
begin to “cherry-pick” the best products from a host of different manufacturers
thereby reducing sales focus on the primary suppliers’ full line of products, as
well as promoting a brand other than the manufacturer. Although this may be an
isolated event, we will keep you informed of future developments. Be assured
that Canon and Ricoh are watching this activity also.

Global – Completed its acquisition of Imagine Technology Group, a $117
million operating group, for a purported purchase price of $130 million.

Opinion: Global will slow down other acquisition activity as it digests the
Imagine operation and purchase price.

Xerox – Announced improving cash flow, with the CEO pointing out that with $2
billion in cash flow Xerox can “eliminate” the group’s debt in 18 months or even
concentrate on acquisitions to take advantage of service opportunities.

Opinion: Xerox still has about $12 billion in total debt, so it is unclear
how the stated cash flow could eliminate its debt in 18 months. Nevertheless,
this substantial cash flow is another indicator that Xerox continues to improve
performance and will become more competitive.

HP – Reported second quarter revenue of $20 billion, a record quarter
reflecting a 12 percent increase over the prior year. Profits were $1.1 billion,
a 77 increase increase. Imaging and printing revenue of $6 billion grew 11
percent. HP shipped a million printers a week in the quarter.

Dealer Questions:

1) Does your strategy include servicing and supplying

2) Are these HP printers supplanting copiers?

If the answer to
question one is no and question two is yes; then please re-think your answer to
the first question.

Private monies have been entering the printer service arena. A million
printers a month by HP alone may be one reason for this development.

Canon – Announced that Kodak Polychrome Graphics (KPG) will become a reseller
of Canon branded CLC products and accessories in the U.S. This agreement is
expected to expand the presence of both companies in the graphics and commercial
print markets.

Opinion: Danka had acquired the Kodak copier division in fiscal year 1998.
Even at the time Kodak was looking to sell its copier division, but it was
reluctant to limit future opportunities with overly restrictive non-competes. As
evidenced by this move the non-competes with Danka have expired; at least as
they pertain to Canon color products. We will continue to watch Kodak as they
have been making a number of interesting moves in the industry, including this
expanded relationship with Canon and the acquisitions of NexPress and Heidelberg
digital operations.

- - -

Mike Dudek, the “Acquisition
Guy.com” is the President and Owner of Zygoquest Group and an authority on
acquisitions in the office products industry. Zygoquest Group specializes in
providing customized acquisition services to buyers and sellers, advising
entrepreneurial owners through the entire acquisition life cycle or specific
transaction aspects. Zygoquest assists entrepreneurs engaged in selling their
company or contemplating future disposition to position their company to
maximize exit value and minimize post-sale risk. Contact Dudek at 610.873.6555;
e-mail: mdudek@zygoquest.com; or visit

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