Lexmark To Exit Inkjet Printer Unit, Fire 1,700; Shares Soar 20%

Printer specialist Lexmark International Inc. (NYSE: LXK) said it will fire 1,700 employees, mainly in the Philippines, as part of strategy to exit its aging inkjet printer business.

Although the company said the firings as part of a general restructuring would result in a pre-tax charge as high as $110 million this year, with an additional $50 million through 2015, the Lexington, Ky., company also announced plans to buy back an additional $100 million worth of shares by Dec. 31.

The news pleased investors because shares of Lexmark soared as much as 20 percent early Tuesday before easing to $21.90, up $2.89, or 15 percent, toward midday.

Formerly the printers unit of International Business Machines Corp. (NYSE: IBM), Lexmark was spun out of the computing giant to private equity specialist Clayton, Dubilier & Rice before conducting its initial public offering in 1995.

The company faces huge competition from Hewlett-Packard Co. (NYSE: HPQ), the No. 1 computer company and printer giant, as well as Japanese rivals including Canon Inc. (NYSE: CAJ), which is a major HP supplier; Xerox Corp. (NYSE: XRX) at the high end, as well as bankrupt Eastman Kodak Co. (Pink: EKDKQ) which announced plans to focus solely on printers if it can sell its imaging assets to emerge from bankruptcy.

The announcement "represents difficult decisions," said Paul Rooke, who took over as Lexmark's third CEO last year. He added management would try to sell the older-model inkjet assets. The future focus will remain on laser-jet printers as well as the company's emphasis on services for enterprises, he added.

Before the announcement, shares of Lexmark had fallen nearly 43 percent this year and 37 percent for the past 52 weeks. Other technology companies, including AOL Inc. (NYSE: AOL), Yahoo Inc. (Nasdaq: YHOO) and Research in Motion (Nasdaq: RIMM) faced challenges from outside investors this year after similar performance.

A check of U.S. Securities and Exchange Commission filings doesn't indicate Lexmark is facing similar problems. Most of the company's shares is owned by mutual funds and large institutional investors, though, who can pressure management.

Among the company's directors are Mike Maples, a former senior VP of Microsoft (Nasdaq: MSFT), the world's biggest software company, and Ralph Gomory, former chief scientist of IBM.

Lexmark previously reported second-quarter net income fell sharply from last year. Net income plunged to only $39.2 million, or 55 cents a share, from $101.3 million, or $1.27 a share, a year earlier. Revenue eased to only $918.6 million from $1.04 billion a year earlier.

As well, leading U.S. PC sales, headed by both HP and Dell, reported anemic sales in their most recent quarters, as market forecasters at IDC have trimmed their predictions for 2012 gains.

Lexmark's payroll now is about 13,300.