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Commentary & Analysis

Thinking Into the Box

By Frank Romano December 1,

By WhatTheyThink Staff
Published: November 30, 2003

By Frank Romano December 1, 2003 -- Cadmus Communications net sales for the fourth quarter of fiscal year 2003 were $114.4 million, an increase of 5% from $109.0 million in the same quarter last year. The Publisher Services Group reported a 3% gain to $99.2 million in sales, while the Specialty Packaging Group reported a 19% jump to $12.7 million, primarily due to new business from the healthcare market. And here lies a tale: why would a publication printer move into packaging? About a decade ago, under the leadership of Wallace Stettinius, the company experimented with printing plastic sheets on its offset lithographic presses. In the last few years, Cadmus focused on the health care market because it is high-volume and high-frequency work—pharmaceutical companies produce drugs that need packaging…constantly. As a vertical market, healthcare allows more consistent volume and development of efficiencies as the same product is produced continuously—although the 19% gain in packaging for the quarter may not be sustainable. That growth would not have come from publications. Cadmus is also developing a global strategy with low labor rate production facilities in the Dominican Republic and in India. The joint venture in India is located in Mumbai, with 80% ownership by Cadmus. This facility offers a full range of content processing, content management, and related services including coding, conversion, and pagination services to the international publishing community. By January 2004, a second facility will be able to provide editorial account management and content management directly from India to North American and European customers. The Mumbai facility is already expanding outside core publication markets with new customer work involving legal publishing and publishing of engineering-related information. Competition in the print market is focused on reducing cost, improving productivity, and rationalizing capacity. The important question for Cadmus and every other printer is: what happens if pricing falls faster than you can cut costs? Many printers appear to be following a strategy that commoditizes products and services. They should be increasing perceived values of print products to positively affect pricing and reduce vulnerability to negative print trends. Cadmus does not see the pricing environment for print services getting better in the foreseeable future. In excess of 70% of their revenue is in two to three year contracts. As part of the renewal process, its sales group works on making the contract less and less about print. For instance, ArticleWorks is a comprehensive content and digital rights management system that allows publishers and content managers to deliver content in either printed or on-line formats. It facilitates incremental revenue from existing content. For specialty magazines, Cadmus’s core market, there is an increase in ad pages and a few new start-ups for the first time in a long time. But Cadmus, and every other printer, must look at new avenues of revenue building that may move them away from the traditional commercial printer markets, which may not be the growth areas of the next decade.



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