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Monthly Financial Wrap-Up

9 Nov, 2004 By: Mike Dudek imageSource

Monthly Financial Wrap-Up

Each month we track changes in stock values of major public players in the
imaging industry. The following chart depicts the change in value over a full
year since we began tracking these companies a year ago at September 30, 2003.  

IKON and Danka were the top two value gainers this year with stock
appreciation of 64 percent and 57 percent respectively. In addition, the stock
value of Xerox (37 percent), Lexmark (33 percent), Global Imaging Systems (26
percent), and Adobe (26 percent) experienced substantial appreciation.  If you
had the foresight to purchase these six stocks on September 30, 2003, you would
have realized 32 percent annual growth. If you invested evenly across all of
these companies, you would have realized 13 percent annual growth.

Latest Industry Developments 

Danka: Announced a plan to complete the analog to digital conversion of Staples
office superstores by installing a minimum of 1,335 additional Canon IR 8500s
across the United States in a three-year deal that expands and extends the two
companies 2001 agreement. Danka will be replacing Xerox analog products.

Danka also announced a three-year extension of its agreement with Pitney
Bowes Management Services for locations throughout the United States, Canada and

IKON: Announced Robert Woods as its new CFO following the departure of Bill
Urkiel. Like his predecessor, Woods comes from IBM.

Global Imaging Systems: Announced the acquisition of Image Manufacturing, a
$5.5 million print management and HP printer reseller serving the Chicago

Opinion: This acquisition is indicative of the continuing trend among dealers
to provide products, supplies and services to the converged printer/copier

Xerox: Announced three "lower-cost" replacement cartridges for HP’s 25, 35
and 45 page-per-minute LaserJet printers. Xerox is touting that they presently
have toner cartridges for 90 percent of HP’s LaserJet product familyat 15
percent to 20 percent lower costs than HP direct.

Opinion: Xerox is aggressively targeting the lucrative printer supplies
market both online and as part of their printer management customer offering.

HP: Announced a $15 million print management services contract with
University Hospitals Health Systems (UHHS). HP will provide product and services
across more than 150 facilities throughout Northern Ohio. UHHS had 78 different
device models from 12 different manufacturers. The contract calls for
implementing a new fleet of 1,250 printers and multi-functional devices.

Opinion: HP’s expansion of direct operations will have substantial
consequences on the converged printer/copier marketplace during ensuing years.
Other printer/copier manufacturers (mega-dealers and large dealers alike) will
not sit idle as HP continues to bite off large chunks of direct printer and
image management contracts. I expect a continued expansion of vendor-direct
distribution and service offerings, which will continue to impact the entire
dealer channel as these large industry players seek to better control their own
destiny. I expect HP, Canon, Lexmark, Ricoh, and Xerox to all continue to expand
such initiatives.

HP also announced an accelerated share repurchase plan under which it
acquired $1.3 billion in outstanding shares bringing its total quarterly
repurchase to $2.1 billion. In addition, its board authorized the re-purchase of
$3 billion in additional shares. 

Opinion: As indicated in the stock chart above, HP’s stock value has not
performed well over the prior 12 months. The share repurchase program, referred
to above, comprises an estimated 9 percent of total shares outstanding at
current values. Stock repurchase programs are done and announced for various
reasons. The standard explanation, which HP gave in this instance, is that that
the company’s board of directors perceives their stock as undervalued and
therefore authorizes repurchasing it as a way of demonstrating their confidence
in the future.

Adobe: Announced revenue of $407 million for its third quarter ending
September 3, 2004, representing 27 percent growth over the prior period with net
income of $105 million, which was 62 percent over the prior year. 

ITEX: During my appearance at the ITEX 2005 convention in Las Vegas from
February 3-4, 2005 I will speak about my favorite topic–mergers and

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