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Strong Focus On Inkjet Printer Makes Seiko Epson A Winner

Summary

The overall inkjet printing industry is still growing with lots of niche markets.

The 2010 release of the world's first ink tank-equipped printers is helping Epson thrive in home and office printing.

Epson has room for improvement in large-format inkjet printers and label/packaging printers.

Cheap pico projectors are detrimental to Epson's high-end projectors.

Seiko Epson (OTCPK:SEKEY) deserves to be discussed here at Seeking Alpha. Unlike the declining printer business of HP Inc. (NYSE:HPQ), Epson continues to prosper from its inkjet printing products. High-capacity ink tank system inkjet printers and office printers helped Epson achieve an 8% increase in printer shipments in Q1 2016. This is higher than IDC's estimate that Epson only posted a 6.7% growth in Q1.

Epson's first-quarter achievement is impressive considering IDC also estimated that global sales of inkjet printers posted a year-over-year decline of 11.1%. The company is not among the leaders in the Managed Print Services, and yet it continues to see positive growth for its printer business.

Epson is adding new customers at the expense of its rivals. It increased its market share from 15.6% in Q1 2015 to 17.3% in Q1 2016.

(Source: IDC)

Based on the chart above, I deduce that the "paperless office" concept is still a mirage. People still bought more than 23 million printers/copiers.

My investing thesis is that Epson's unwavering focus on inkjet printer technology makes it a good long-term bet. The company appears to be the most agile among its peers in printing. Canon (NYSE:CAJ) is vulnerable to deteriorating camera sales. Canon's latest earnings report also blamed weak printer sales for the 39% drop in operating profits during Q1 2016. HP Inc. is also hurting from continuing weakness in the PC market.

Distractions like these do not affect SEKEY. Aside from being the world's top vendor of projectors, Epson is only preoccupied with improving its Micro Piezo inkjet printers.

SEKEY has a better 5-year return than its printing peers.

(Source: Google Finance)

The overall inkjet printing industry is predicted to grow to a $70/billion per year industry next year. The flexibility of inkjet printing means Epson has long-term growth drivers in advertising, label printing, packaging, commercial digital press, and transactional printing.

(Source: Smithers Pira)

I believe Epson is also benefiting from Lexmark's (NYSE:LXK) exit in 2012 from inkjet printers. It was the first company to shift to a low-cost, ink tank system for inkjet printers in 2010. The economical ink tank system is helping Epson minimize the persistent threat of cheap third-party inks. Switching to ink tank systems showed the company can work around obstacles (and profit from them too).

Canon only introduced an ink tank system for its Pixma inkjet printers last year. Likewise, HP only got involved with the ink tank trend last February. They were too late - Epson is now the go-to supplier for low-cost ink tank printers.

How Epson Dodged The Threat Of Cheap Third-Party Inks

Unlike Lexmark, Epson was smart enough to adopt quickly to the changing trends of home and office printing. The 2010 release of the ink tank-equipped Epson L100/L200 is helping the company minimize the impact of much-cheaper cartridges/ink refills/ continuous ink supply (CISS) products made by third-party companies.

The CISS system, like the one below made by Marrutt USA, ultimately compelled Epson to create the ink tank system of the L100 and L200. The company knew it can't keep selling printers at below cost when buyers are not purchasing original ink cartridges.

(Source: Marrutt USA)

Epson realized it could not...


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