david mendelson

Monopoly Below the Radar?

Sunday, 12. July 2009, 21:31:21

My 20 year old daughter recently asked what "cc" meant on the email. Today, to many people, carbon paper is a relic of the the days when printing was done on a press. Typewriters whacked keys, creating ink impressions which, with carbon paper, could create multiple simultaneous copies. Later, NCR (No Carbon Required) paper even made carbon paper itself obsolete.

25 years ago, the most reliable way to get ink on paper was primarily based on mechanical machines: first as modified typewriters and later as simply impact printers (Dot-matrix, dot-band, band, print train, etc.). There was simply no less expensive way to get ink onto paper than the dumb old impact printer. Continuous forms, multipart printers behemoths were the backbone of printed output for countless firms. Today, many vital industries and enterprises still depend on multipart forms and continuous forms printers. Many people might see them as primitive. I, for one, am awed by the engineering and beauty of these mechanical wonders.

When I turned 14 my mother bought me a wristwatch as a birthday gift. Just the touch of a button on this digital device would display the time and date in glowing red LED's. Today the little LCD watch works are very accurate, very inexpensive, but very boring. But my fascination for mechanical devices with intricate gears, and precision movements has endured. Many find near-magic in the spectacular mechanical clockwork. The degree of engineering, refinement, and detail is surely impressive. There is just something special about an automatic mechanical wristwatch.

A new set of technologies converged in the invention and development of laser printers, LED, ink jets, etc., all of which enhanced the speed and versatility of printed output. These new devices introduced a new paradigm which has endured ever since. The cost of these laser printers, then as now, were but a tiny fraction of the total cost of printing, the manufacturers saw dollar signs based on the concept of "give them the razor, sell them the blades". Make the printers cheap and the toner cartridges expensive. Ongoing revenue streams from supplies has allowed manufacturers to continuously reduce prices of their hardware, even while increasing their total revenue.

The introduction of these new machines caused a sea change in demand for the existing impact printer market. (We economist-types differentiate between a change in demand on the one hand, and the demand curve itself on the other.) To adjust to this new technology, a new group of companies met the market demand. Hewlett-Packard introduced a line of tabletop laser printers (sourced through Canon, of copier reknown). HP's expertise, software, and ubiquity, led the market for these new business laser printer products in the United States. They were a huge hit, with HP now dependent on their prized LaserJet brand.

The lesson was not lost on the rest of the world's technology companies. New plants were tooled, and worldwide transition away from impact printers left old-line companies like IBM, Genicom, Digital Equipment, Burroughs, Sperry, DecisionData, et al. back-peddling to adapt their production and manufacturing base to a significant change in demand away from their mechanical-based impact printers. One by one as the marketplace has changed over the years, most firms spun off, closed, or severely curtailed impact printer development and production.

HP divested its impact printer division to Genicom, thereby orphaning Printer Systems International (PSI). Genicom next bought Digital Equipment Corporation's printer division as part of DEC's implosion. That purchase mortally wounded Genicom's balance sheet, forcing it into bankruptcy. Genicom eventually regained its footing. The acquisition consolidated the market to three major impact printer engine manufacturers: Genicom, Mannesmann Tally, and Printronix. Together they accounted for the vast majority of the market in high speed industrial impact printers. Genicom eventually regained its footing.

Genicom eventually regained its footing, and the reorganized Genicom, with new capital backing, merged with Mannesmann Tally to become TallyGenicom. Ultimately, even the combined companies could not avoid collapse. Printronix purchased the assets of TallyGenicom and now is the ONLY manufacturer of high speed line printers in the market. How will Printronix define its role and how does this change the balance of power between Printronix and their clients? Will Printronix raise prices across the board or only around the edges so as to not stir the Justice Department?

One source of potential moderation of pricing power is the relationship of Printronix with IBM Infoprint Systems Company. Infoprint has been using the Printronix engines in its high end impact printer market for many years. I hope that Printronix and its important customers can come to terms which respect the importance of their vital technology without succumbing to monopoly price manipulation. I have my doubts.

I just don't see any company making the capital investments necessary to pose any imminent threat to Printronix.

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Humbled by The Great Purge

Saturday, 30. May 2009, 17:55:33

It has been so very long that since I have felt that there was something to say about the calamitous situation we all find ourselves in today. Everything has changed, our lives, our kids, our business environment, our very futures. At first, almost a year ago, I had felt almost paralyzed in disbelief at the deterioration of the economy, hoping that the downturn was illusory and temporary. Unfortunately, looking back, I failed to cut overhead soon enough or fast enough. it will take years to recoup the capital lost to overhead against the sharp and continuing decline in revenues over the past year. I set about slashing overhead in earnest, and in the process had to say goodbye to many beloved, loyal, and long-tenured employees. I cut everything I could in an effort to get under the shrinking demand. I held on, telling myself that survival of the business was the most important goal, even though I have had to deplete many years of hard-earned savings and retained earnings. Living off of savings and watching my account balances dwindle is indeed frightening, severe, and humbling.

While the sheer pace of decline has decreased, the deterioration of sales revenue has yet to cease. I feel that the bottom is nearing, but obviously will not truely know until it has passed. Some time ago I wrote in this space that we tend have short memories for pain, but I have to say that the anxiety and angst from this experience will probably shape our economic behavior for years to come. This Great Purge of excess, skewed priorities, and values will hopefully give way to a realignment of personal responsibility and a return to familiar values. We have all had to relearn the value of a dollar, even while we watch the destruction of the lives and dreams of millions.

When stock prices soared in the 1990's, I had my money tied up in my business. ("Invest in yourself" was the advice from my elders). I felt that the rewards reaped by the internet millionaires based on non-existant revenues and doubtful potential seemed grossly unfair. I held on to the belief in the ideals of basic economics. I believed that the value added in making a market for computer gear, especially printing equipment, would at least keep up with the economy, but I did feel thatt I had missed out on the stock market explotion. When the dot-com bubble finally burst, I admit some sense of vindication, all the while suffering the decline in business that accompanied that correction.

Then came 9/11 and the world seemed at first turned sideways. Soonafter it seemed that the economy had somehow come through, regaining momentum as soon as the initial shock wore off. But I recall mentioning to my brother that the ramifications of the nine-eleven shock would probably take years to completely manifest. Meanwhile another bubble of false value was forming in false housing values. As it burst, credit froze (and has yet to flow freely again), layoffs continue at a mind-numbing pace, and everyone from consumers to companies stopped, or severely curtailed, their infrastructure expenditures. Millions are now suffering as a result of this collapse. You and I are no different in the pain, the only thing that differs is the degree.

A student of history, I know that the recovery from the Great Depression took many, many years to play out. This episode will also take years to correct. The world indeed has changed. I only hope that it represents a reset of our social value system. The pursuit of money and power are endemic to capitalism, and I as many others have benefited from its rewards. But accepting the upside is the deal we make against the risk of the reality we now face. I fear that we have sown our own demise in the macro, as we and our children bear the great sacrifices and costs that go with them. Even if you are unscathed by the current situation, it is difficult to watch the suffering of others, no matter whether they laid the foundation of their own failure.

Two of my three kids are in University now. My son has just completed his freshman year. He commented how hard his math and science curriculum was. I was reminded of the winnowing out process that first year students experience. It helps clarify and simplify, separating out who is willing to endure, before the intensity of studies moderate in the second year of college. This is a metaphor which has not been lost on me. These tough years are like that. Famously, Warren Buffet commented that when the tide goes out we can see who is naked. In this brutal business environment, it also exposes who your friends are. A smaller group of die-hard, honest, and hardworking entrepreneurs and their priceless employees that survive this deserve to thrive as a recovery emerges.

No one can know when the tide will turn back to growth and recovery. Lets hope it is already upon us.

Hang on tight. The ride isn't over yet.

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