The printing industry, which still produces a majority of HP Inc.'s (HPQ) profits, remains in the midst of a long-term decline. To its credit, HP doesn't seem to be under any illusions about this fact, and is trying to offset this trend by growing its addressable market.
HP's latest attempt to do so was revealed on Monday morning, when the company announced it's buying Samsung's printer unit in for $1.05 billion. As part of the deal, Samsung will buy $100 million to $300 million worth of HP shares via open-market purchases. Those shares closed up 3.9% on Monday, but were down 1.1% on Tuesday morning.
Samsung's printer business is much smaller than HP's. Research firm IDC estimates Samsung had 4% of the hardcopy peripherals market, which covers printers and copiers, in the second quarter on a unit basis, and HP (the market leader) had 36.6%. Canon (CAJ) , Epson and Brother had estimated shares of 20.6%, 17% and 7.3%, respectively.
But Samsung nonetheless has a relatively strong position in the market for A3-format multifunctional systems (MFPs) featuring some combo of printing, copying, scanning and faxing functionality. HP proclaims Samsung's MFPs "deliver the performance of copiers with the power, simplicity, reliability and ease-of-use of printers and with as few as seven replaceable parts," and also praises their mobile and cloud-friendly features.
HP predicts the acquisition will help it "disrupt and reinvent the $55 billion copier industry;" Canon remains the biggest fish in this space, and Xerox (XRX) , Ricoh and Konica Minolta also have large presences. It also sees the deal strengthening the company's hand in the laser printer market, where it has long depended on Canon's technology. HP insists its alliance with Canon will remain in place.
This year had already seen HP officially enter the 3-D printing market with its innovative Jet Fusion line of industrial 3-D printers. And through offerings such as the Instant Ink subscription service, the company has tried to expand its footprint in the managed print services market, which was recently forecast by research firm Transparency Market Research to post a 15% compound annual growth rate from 2015 to 2024 (as always, take such long-term estimates with a grain of salt).
A look at HP's July quarter results shows why the company is so hungry to expand into new markets. The company's printing division revenue fell 14% annually to $4.4 billion, with commercial hardware sales dropping 3%, consumer hardware sales dropping 22% and high-margin supplies revenue falling 18%.
A change in HP's approach to selling supplies to channel partners is having a short-term impact on sales. But weak end-market demand remains the main culprit behind HP's printing declines, as well as those of peers. Online/mobile document and photo-sharing has led both consumers and businesses to cut back on their printer usage, and there are no signs this trend is about to change.
It makes a lot of sense for HP to leverage many of its printing business' core assets -- a massive enterprise installed base, a large sales force and channel partner network, and considerable intellectual property and engineering talent -- to expand into fields such as copiers, 3-D printers and subscription printing services.
Whether these efforts will ultimately stabilize HP's printing sales is still very much a question mark.