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U.S. All-in-One Cartridge Market Report

10 Sep, 2003 By: CAP Ventures imageSource

U.S. All-in-One Cartridge Market Report

chart below shows the current monochrome all-in-one printer/printer-based MFP
cartridge forecast in terms of millions of cartridge units. This market is
expected to experience an estimated CAGR (compound annual growth rate) of 6%
between 2001 and 2006.

of this growth is taking place in the speed segments above 12 ppm (pages per
minute). This results from a decline in demand for personal monochrome laser
printers (inkjet tends to be today's preferred personal technology), as well as
a shift up the speed segments for the remaining market for personal or
quasi-personal printers.

primary market for monochrome laser printers and the corresponding toner
cartridges remains the workgroup segments from 13 - 24 ppm, and the small but
growing higher-end market above 25 ppm. All-in-one cartridges do extend all the
way up to production speeds of 50 ppm. For this forecast period, however, those
very high speed machines remain in their own market.

are four main issues impacting the competing shares between OEMs and the
aftermarket. These are smart chips, prebate, the recession, and new engines.
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.

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 (CAP Ventures is preparing an extensive report on smart chips
that will be published in 2003). For now, smart chips are an important factor
because they delay aftermarket penetration, which can give OEMs a value-added
edge. The aftermarket believes that smart chips may potentially become their
largest threat in the future.

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.

the same time, however, late 2002 and 2003 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.


We believe that the color aftermarket remains very small, with a market share of
only about two to three percent. 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.

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.

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. At this time, therefore, the aftermarket's share remains very
small at about two to three percent. We do not expect the aftermarket to exceed
a five percent market share within our forecast period.


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.

term, the health of the aftermarket side or the OEM side may depend less on
market and technical forces and more on the outcome of certain legal issues that
are now or will be before the court. Issues such as smart chips and prebates
will likely be decided in the courts. While we hesitate to guess the outcome of
these cases, they will likely have a long-term impact on the ongoing competition
between OEMs and the aftermarket.

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