Seiko Epson sees printer hardware profit in 05-06

Japan's Seiko Epson Corp. said on Thursday it aims to make a profit on multi-function printer hardware in the next financial year, which would be rare in an industry where makers typically sell hardware at rock-bottom prices and focus on making money on ink instead.

Seiko Epson, the world's second-largest printer maker behind U.S.-based Hewlett-Packard but ahead of Canon Inc. , is planning to achieve profitability on hardware through higher volumes and by lowering production costs.

"It's not just us but also Canon and HP. No one is really making any money on the hardware itself," Executive Vice President Norio Niwa told a gathering of reporters at Seiko Epson's printer headquarters in Nagano prefecture, central Japan.

"Everyone is profiting on ink cartridges," he said.

On Wednesday, Seiko Epson President Saburo Kusama unveiled a plan for the company to slash production costs for its next lineup of multi-function printers by 20 percent through a more efficient design process and lower procurement costs.

That would come on top of a 30 percent reduction in production costs already achieved on a new lineup of multi-function printers (MFP) launched in October. MFPs are a hot-selling type of printer that can also copy and scan.

But Kusama, who had said he would like to change the business model whereby printer makers always sacrifice profitability on hardware, did not unveil a target for when multifunction hardware would return to the black.

"Much depends on how much prices fall, but if we can meet our target for 20 percent in cost cuts, we should be able to (turn a profit on hardware) next financial year," Niwa said, referring to the year starting next April 1.

Niwa said single-function models would continue to lose money due to severe price competition at the low end of the market, where it still gets a large chunk of its sales. But Seiko Epson has been bolstering its lineup of MFPs, a segment of the market expected to post solid growth over the next few years.

"Given that in the future multi-function printers are going to account for half of the market, we need to ensure that we engage in cost reduction measures so that we will have a business model where we can also profit from our hardware," Niwa said.

PROJECTION TVs TO TURN PROFIT

Seiko Epson expects unit sales of ink jet printers to reach 16.8 million in the current business year to March 31, up about 6 percent year-on-year.

Niwa told Reuters on Wednesday he expects sales to rise at least 10 percent next year.

Profitability in Seiko Epson's printer business is on a recovery track after tough competition with the likes of HP and Dell helped push operating profit in its printer division down 43 percent last business year.

Niwa attributed the recovery to strong sales of photo printers and new MFP models, as well as a decision to stop bundling printers with PCs, as this boosted the sale of low-end printers, users of which tend not to buy much ink.

Seiko Epson earns nearly all of its revenues from printers, liquid crystal displays and other electronic devices, but the company is also leveraging its technology in an effort to tap growing demand for large, flat-screen televisions.

The Nagano-based company began selling microdisplay rear-projection televisions in North America in March, and in May in Japan. The TVs use LCD panels to project small images in the back of the set onto a large plastic screen.

Microdisplay rear-projection TVs are much thinner and weigh less than traditional cathode ray tube (CRT) televisions, but are still bulkier than plasma sets, which dominate the domestic market for thin TVs above 40 inches.

Kenji Uchida, head of Seiko Epson's visual instruments division, said the company would probably fall short of its target to sell 20,000 of the sets in the U.S. and 5,000 in Japan in the current business year.

But he also unveiled a target to make the loss-making business profitable within three years. In addition to selling TV sets, the business also includes sales of microdisplay engines to other rear-projection TV makers. The engines are composed of 3 LCDs, a prism, a lamp and a projection lens.

Uchida blamed the sales shortfall in the U.S. market on its strategy of using high-end retailers to sell its product instead of mass-market retailers like Best Buy , where sales volumes are high. He said consumers in Japan were still more interested in buying plasma TVs.

"Projection TVs will become deeply rooted in the Japanese market," Uchida said at Seiko Epson's Shimauchi plant. "But it will take time." ($1=102.98 Yen)