Desktop Printing Supplies: The Global Market & South Africa Steve Bambridge Lyra Research October 10, 2003

2 Agenda Desktop Printer and Printing Markets – What is driving the OEMs? – What does this mean for supplies? Inkjet Cartridge Market Laser Cartridge Market South Africa

3 Worldwide Printer Market

4 Worldwide Printer Installed Base

5 Worldwide Desktop Printing Market

6 Worldwide Revenue Trends

7 OEM vs Third Party

8 Whats So Important about Supplies? Printer market is mature and supplies are now the main source of revenue growth and margin Critical to OEMs –The razors & blades business model is coming under threat –Revenue growth is slowing and may cease for some Growth area for the channel Fuelling third party industry

9 Ink Jet Cartridges

10 Desktop Inkjet Market

11 1 billion cartridges ÷ 365 days/year = 2.7 million cartridges/day! Ink Jet Cartridge Market

12 Product Mix

13 Third Party Market Shares

14 Third Party Cartridge Shipments

15 Frequent launch of new cartridges (especially Epson) Use of inhibiting technology –Patent protection on integrated cartridges –Canon ThinkTank TM, Epson smart chips –Litigate where possible (e.g. HP vs MultiUnion, Canon vs Pelikan) Lower cartridge pricing –Single color ink tanks (especially Canon) –Reduced ink volume (HP 56/57/58) Performance guarantees –Matched ink/media for long photo print life Leverage Brand and Channel Strengths Cartridge reclaim schemes (HP) OEM Strategies

16 Laser Cartridges

17 Desktop Laser Market

18 Mono Cartridge Market Shipments will decline as mix shifts towards larger capacity cartridges

19 Mono Product Mix

20 Colour Laser Cartridge Market

21 Colour Laser in Context

22 Third Party Market Shares

23 Frequent launch of new cartridges –Higher yield cartridges Use of inhibiting technology –Smart Chips (& related firmware) –Cartridge design and construction (e.g. LJ 9000) –Litigate where possible (e.g. Lexmark vs SCC) Move to sophisticated new toners –Chemical Toners, e.g. Polyester toner used in LJ 4200/4300 Cartridge reclaim schemes –Lexmark prebate, HP Cartridge Remanufacturing –Lexmark claim to remanufacture >1m cartridges a year Leverage brand and channel strengths OEM Strategies

24 Some Key Messages The ink jet and laser cartridge markets remain critically important to OEMs as a source of revenue growth and margin – Growth for some is threatened in part by success of third party industry – OEMs will continue to seek ways of slowing down third parties The OEMs will increasingly focus on the colour laser market – Be ready for rapid growth of the cartridge market – Potential opportunity for third parties to take ownership of the mono cartridge market Be ready for rapid growth in the Lexmark ink jet cartridge market The South African third party market growth should exceed worldwide growth rates over the next few years

25 South Africa

26 Desktop Printing Market South Africa What little information is available suggests…… Laser printing market is relatively well developed – Driven by business activity – PC use normal in business environments – OEM growth has fallen below 10% per annum Inkjet printing market is under developed – Low level of household PC ownership – Low level of spending on consumer electronics (e.g. digital cameras) – OEM growth remains between 15 and 20% per annum

27 The South African Remanufacturing Industry 100+ players Average monthly output of (for each of laser and inkjet) Empties recovered exceed the number remanufactured: – By 35% for Laser – By 31% for Inkjet – Enabler for further growth?

28 Ink Jet Cartridge Market

29 Laser Cartridge Market

30 Which Means…. The available data suggests…….. Third party ink jet cartridges have much higher market share in South Africa than in Europe and the USA – Compatibles account for well over 50% of ink tanks shipped, vs <30% in USA and Europe – Remans account for over 20% of integrated cartridges shipped, vs <15% in USA and Europe Third party laser cartridges also have significantly higher market share in South Africa than in Europe and the USA Is this correct? How do the OEMs feel about this, and what are they doing?