In an earlier edition of The AccuVal AdVisory™, we discussed the transition occurring in the printing industry, The Digital Age: Transforming Products from Tangible to Intangible. In that article, we discussed how the media has been transitioning from printed to digital formats. We also examined the supply and demand factors influencing printing overall in Commercial Printing: A Fight on Two Fronts – Economics & Technology. In this article, we are going to look beyond the finished printed products and the factors influencing the industry and focus on the machinery market itself – both new and used.
The dealers, brokers and original equipment manufacturers involved in the purchasing, selling and marketing of new and used printing equipment have never seen industry conditions similar to those being faced today. This is due in part to the sudden and significant changes that have occurred industrially and economically. Prior to the current economic crisis, the printing industry had already been facing significant challenges. Since then, advertising levels, retail sales and the performance of the business services and finance sector have all negatively impacted the printing industry and, thus, demand for commercial printing machinery.
The transition to digital products has impacted this industry more than any other. Printed advertisements used to be the major medium. Today, advertisers are transitioning to digital formats, leveraging everything from the internet to vending machines. Declining retail sales not only impact demand for the equipment able to produce full color catalogs and brochures but also the labels, invoices and other packaging materials used on the goods themselves. Finally, the troubled state of business services and the finance sector means less business forms, preprinted contracts, annual reports and stationary are needed.
In the past, a printing company would idle certain equipment to adjust capacity with demand and ride out the economic storm. It was considered preferable to store equipment rather than let it become available to a competitor. But the weakened state of this economy has forced many printers to close plants as a result of consolidation or bankruptcy. In the past five years, Quad/Graphics; World Color Press Inc.; Vertis, Inc.; ACG Holdings Inc.; Consolidated Graphics Inc.; and RR Donnelley & Sons Company have all been involved in various mergers, acquisitions and consolidations. This has resulted in a significant amount of used printing equipment becoming available on the market. According to some industry experts, there is a two-year supply of used web and bindery equipment currently on the market, with minimal activity and a limited number of buyers. There is no indication that this will improve anytime soon.
Secondly, equipment on the used equipment market is not usually the most technologically advanced. Larger printing companies, such as RR Donnelley & Sons, have advised that the focus is now on digital technologies and not traditional printing machinery. The more advanced machinery enables faster production, greater use of color and multitasking capabilities. When deciding to purchase new or used, companies consider many factors, including level of product demand, productive capacity, the cost of the equipment, resale value of old equipment and the cost of repairs and maintenance. Another consideration in today’s environment is the availability of financing and credit.
Demand for new equipment is currently at historically low levels. Those printers that are surviving the current economic market are exercising caution in making any new investments. Those that are interested are finding it a challenge to obtain the necessary financing. Original equipment manufacturers are seeing limited sales activity, even with the incentives in place. Price reductions considered “drastic” by industry players and favorable terms are not helping the market move forward. Industry sources are advising that the new machinery market will have a more difficult time recovering once the market stabilizes as they will have to compete with the excess equipment still available on the used equipment market.
Despite this convergence of factors, the printing industry may still be revived. Certain segments, including commercial packaging, have been impacted much less severely. Research indicates that this sector of the industry has seen some growth in the first quarter of 2010. Many market participants feel that the printing equipment market will rebound as the economy improves. There is plenty of equipment available, both new and used, that can be put into production once lending restrictions begin to ease and demand picks up along with economic growth.
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