Office Equipment Industry analysis (Qualitative)

 Office Equipment

 The Office Equipment industry consists of companies engaged in manufacturing office technology equipment, such as photocopiers, facsimile, calculators, cash registers, coin and currency counting devices, as well as scientific and analytical equipment. The Office Equipment industry excludes computers, telecommunications-related equipment, official furniture and supply manufacturers.

The Office Equipment & Supplies Industry is subject to wide cyclical swings. This industry is not capital intensive, and expenditures are often less than annual depreciation charges. This industry includes companies that produce digital office equipment, such as copiers, printers, facsimile equipment, and postage meters. The largest customer category here is major financial institutions. Other important sources of revenue stem from small and mid-sized businesses and government agencies. The provision of management/outsourcing services supplements the top lines of these companies.

Stocks in this group are relatively easy to analyze, given the straight forward nature of their businesses, the extended length of the product cycle versus most other technologically oriented industries, and the ease of determining market-share gains and losses. Investors must be mindful of the swings in the economy because of the industry's close link to the business cycle.

One prime growth strategy for product developers is the launch of enhanced models. New versions might feature color output, lower per-unit (page or envelope) cost, and increased functionality. Research and development expenditures as a percentage of sales and the amount of sales derived from products launched in the past, say, five years, are key analytical criteria. Another growth engine for product makers is the development and marketing of services that may have previously been performed by the customer's in-house staff. Such services involve document management, the maintenance of mail departments, and the servicing of printers/copiers. Geographic expansion is the third key growth vehicle that is utilized by all the larger players. Acquisitions supplement the above strategies, particularly the last.

Cost cutting is the prime method of improving profit margin. This is done mainly by cutting administrative employees, outsourcing manufacturing and/or transferring this function to low-cost countries, and acquisition integration. Another means is the upgrading of products, leading to price increases. New service offerings are an additional relatively successful way of bolstering margins, since they typically command a high mark-up over cost. There are wide operating-margin variances among companies in this industry, and the overall average is relatively low.