Lexmark Wins SSA Order – Analyst Blog

After disclosing the proposed acquisition of Perceptive Software Inc., the printing and imaging company Lexmark International Inc. (LXK) recently announced that it has been awarded a five-year blanket purchase agreement (BPA) by the Social Security Administration (SSA).

 

As per the terms of the agreement, the SSA will purchase monochrome and color laser printers and multifunction products (MFPs) from Lexmark, amounting to $127 million. These printing and imaging devices will be used by SSA’s employees and spread across 1500 locations across the globe.

 

As per its strategy to attract government customers, the company has recently formed a division called Lexmark Government solutions that will target their sales effort at federal government agencies. The department will focus on providing solutions to help government departments reduce cost and enhance the security of the information sharing process, being alert about the environment as well.

 

We believe that the printing and imaging major has adopted this strategy, which is similar to the strategy adopted by its competitor Hewlett-Packard Co. (HPQ). The latter is taking aggressive steps to revive its printing business and is also targeting government customers, as it leads to an assured revenue flow over a considerable period of time.

 

Lexmark is well positioned in the printer market. The company’s first quarter 2010 results have exceeded our expectations and it also provided an encouraging guidance for the second quarter. The company has a reasonably strong share in the printing and imaging market and enhances the quality and quantity of its product portfolio.

 

This apart, Lexmark is cash-rich. However, while we are encouraged by its performance, we are a bit apprehensive about the debt level, the intense competition it faces in the printing space and increasing availability of cheaper substitutes like ink/consumables supplies.