HP to Buy Samsung's Printing Business for $1.05 Billion

Sep 13, 2016

Silicon Valley company sees deal with South Korean major as bid for expansion into high-volume printer-copier device business

HP derives most of its profit from supplying ink and toner for its printers. PHOTO: BLOOMBERG NEWS

HP Inc. agreed to buy Samsung Electronics Co.’s printer business for $1.05 billion, a deal designed to bolster the Silicon Valley company’s offerings in the market for high-volume devices that handle printing and copying for office work groups.

The transaction, which is subject to regulatory approval, is expected to close within 12 months, the companies said on Monday. Samsung also agreed to buy between $100 million and $300 million in HP shares through open-market purchases after the business sale is completed.

Several hours after disclosing the deal, HP unveiled 16 new multifunction printers targeted at so-called A3 larger printer-copier combinations that are the stronghold of such companies as Xerox Corp., Canon Inc., Ricoh Co. and Konica Minolta Inc.

HP, created as part of the breakup of Hewlett-Packard Co. last fall, sells personal computers but gets most of its profit from supplying ink and toner for its printers. It is the market leader in the desktop printer business.

That business hasn’t been growing lately, in part because PC users print fewer pages these days. HP last month reported that revenue from ink and toner supplies declined 18% in the third fiscal quarter from the year-earlier period, while printer hardware unit sales fell 10%.

HP Chief Executive Dion Weisler has vowed to spur revenue growth by expanding in A3 printing markets, a business HP estimates has $55 billion in annual revenue and which it has tried to crack before with little success. Samsung already has a business selling A3 machines, which HP will acquire in the deal.

HP also acquires through the deal the ability to manufacture the crucial mechanisms inside laser printers, known as printing engines. Samsung developed the printing engines used in its own laser printers, while HP has always used external suppliers for these components.

Enrique Lores, president of HP’s imaging and printing business, said acquiring printer-engine technology would bolster its profit margins and help it shape the evolution of its laser printers. “You have control over the core technology,” he said. “That is very, very important.”

Canon is HP’s main supplier of printing engines in its existing product line, a relationship Mr. Lores said he expected to continue. HP’s new A3 laser printers rely on Samsung’s print engine.

Beyond helping HP enter the market for A3 machines, he said, the deal would likely help winnow the number of suppliers in the market.

“We see HP as a consolidator in the market,” Mr. Lores said. “We want to drive this consolidation and make it happen.”

The deal includes about 6,500 Samsung printing-related patents, which Mr. Lores said would also help HP expand its business. Around 6,000 Samsung employees will join HP, including about 1,500 engineers, he said.

Samsung has been slimming down its business portfolio under vice chairman and heir apparent, Lee Jae-yong, said Lee Sei-cheol, an analyst at NH Investment & Securities Co., adding that the deal can be seen as a bid to strengthen the South Korean company’s better-performing areas.

The world’s top maker of smartphones, memory chips and refrigerators, Samsung ranks fifth in the world-wide market for printers and copiers by shipments with a 4% market share, behind global majors HP, Canon, Seiko Epson Corp. and Brother Industries Ltd.Samsung’s shipments declined by 8.9% in the second quarter compared with a year earlier, according to research firm IDC.

Samsung doesn’t break out sales figures for its printer business, which falls under the consumer-electronics division that also includes television sets and home appliances such as refrigerators and washing machines. Last year, consumer electronics contributed just 4.7% of the company’s operating profit, while the higher-profile smartphone and chip divisions generated 38.4% and 48.4%, respectively.

Amit Daryanani, an analyst at RBC Capital Markets Corp., estimated in a research note that Samsung’s printer business generates $1 billion to $1.6 billion in annual revenue and ranks No. 5 in unit shipments of PC printers. Printing engines account for 10% to 15% of the cost of goods HP sells, he estimated.

Three of HP’s new models use a proprietary technology called PageWide that evolved from inkjet printers.

Inkjets, while offering low cost, are relatively slow because they use a print head that moves back and forth across a page. PageWide printers, by contrast, use a print head as wide as the paper being used. That increases speed and reduces cost, particularly when printing in color. PageWide printers also have fewer parts that may need to be replaced, Mr. Lores said, reducing service cost for customers and dealers.

David Ramos, an analyst at the research firm InfoTrends, predicted HP’s new offerings “are going to create some pressure” on competitors.

Xerox, the No.1 A3 hardware maker, contends its line of A3 hardware remains broader and more productive than HP’s.

“There’s really nothing new here; no breakthroughs and really just a lot of the same HP technology we’ve seen before,” said Tracey Koziol, senior vice president of Xerox’s office and solutions business group, in a statement.

Source: WSJ