Discussion

By Dr Joe Webb on Oct 08, 2008

The article says...
"The upturn will come, as it came [after] the last five crises I've lived [through] in this company," says Chief Executive Bernhard Schreier...
----
Like others in the industry, there still seems to be a belief that this is cyclical. It's not. It's a sea change that could have been seen nearly ten years ago. It's only in the last year that HDM's press releases and news quotes mention media shifts with some regularity. Before then, it was always something like "less spending on advertising" or something like that. I have still never seen anything about their stock buyback being regretted, one of the worst use of funds the company could have even contemplated.

This is not cyclical. Every time the industry has suffered through an economic downturn there was also an underlying technological shift occurring. A good example is the late 1970s and early 1980s, when the shift from camera separations to scanner separations was underway. It changed costs of color prepress so radically, and as it played out until the end of the economic problems around 1982 or 1983, that HDM benefitted with a robust press market in the 1980s as color replaced much black & white or spot color work. In the mini-recession of 1990-1992 era, desktop publishing was changing costs again, first with typesetting and page layout costs, and then with full page makeup, which led to an upturn in press sales in the late 1990s.

This time, however, the tech change leads to benefits outside of our business, and not inside it, and that is the real difference in this situation, as HDM's press sales were lackluster though the economic growth of 2003-2007.

The article did not mention the comments of Schreier a few months ago about the prospects of Russian buyers swooping in and grabbing the company. Whether Russian or not, the company may have no choice, and the long-rumored merger with KBA or manroland, despite regulatory issues, may actually happen if regulators are convinced that is the only upside.

Talk about surviving -- an interesting marketing story -- the company made it out of World War II and found it had to sell presses with the name "Original Heidelberg" metal tags on them. There were press counterfeiters in eastern Europe who were making their own Heidelberg presses. The company kept forging ahead and overcame a variety of challenges through the years. In the U.S., they never fully came into their own until they bought Heidelberg Eastern from East Asiatic Company, and finally had ownership of their full distribution channel. HE sold HDM presses basically from the east coast up to the Rockies, with the rest of the states covered by factory-owned Heidelberg West. EAC, one of the oldest corporations in the world, attempted to sell other graphic arts products, like vertical cameras, and other prepress and postpress products, as a graphic arts dealer, called EAC Graphics. Through the years, HDM had relationships with many postpress equipment suppliers, and bought many of them. Companies rarely bought a press, but would buy entirely new pressrooms from HDM.

Heidelberg Eastern advertising was quite simple. While many would complain it was "simplistic," the formula was quite clear. A picture of a new press in the background, with a plant owner with rolled up sleeves holding a press sheet or some papers, and a quote about how pleased and profitable they were since the time they owned the press. Sometimes they cited that this was their latest Heidelberg press. It was old-style advertising at its best, something disparaged today, but it struck a chord, and can still be more effective than much of the B2B advertising that goes on today.

The relationship of press owners and the Heidelberg sales force was legendary. Imagine selling German presses in the US after WWII... yet, many returning servicemen and the generation who followed them would, with long tenures with the company. The stories of Heidelberg sales reps being invited to weddings, confirmations, Bar Mitzvahs, baptisms, and other family events were repeated constantly. The sales reps didn't just know the press, they knew the owner (almost like the old joke "a good lawyer knows the law, a great lawyer knows the judge").

The trends affecting HDM are long and well-documented. How radical a change in structure, operations, and strategy the company can make is not just a comment about the company, but our industry. Our suppliers reflect our industry, and vice versa. It's a time for leadership and uncommon thinking for everyone.

 

By Heidelberg Owner on Oct 08, 2008

"The relationship of press owners and the Heidelberg sales force was legendary."

The key word "was" is past tense, as is the relationships they have destroyed over the past decade.

 

By Al Eddy on Oct 08, 2008

Dr. Joe,
You are right about the "Heidelberg Legend". I worked for EAC Graphics in the early 1980's and met many of those Heidelberg East salesmen who were almost family to the people and companies they sold presses to. One of them used to tell a great story that when something like this: "My son is an archeologist and when he digs in the ground and finds ancient weapons he knows the people living there had been warriors. When he finds ancient plows, he knows they were farmers. A thousand years from now when someone from a distant planet digs and finds Heidelberg presses, they will know we were printers".

 

By Jack on Oct 08, 2008

It's just amazing to me that with all that's happening with technology transforming print marketing that Heidelberg still is in a state of denial. They will have to make fundamental changes to their business model to stand a chance of retaining the dominance they've enjoyed for many years. So far they've been unable or unwilling to do that.

 

By Michael Josefowicz on Oct 08, 2008

Dr Joe-

A question:
Do you think Heidelberg's real market might be in the global emerging economies. I would think lots of presses are going to be needed in China and India and Malaysia and Russia and Brazil....

Do you happen to know if they are looking at this way?

 

By Dr Joe Webb on Oct 08, 2008

Re: the emerging market press opportunity

We have to remember that emerging markets can step onto the technology train at whatever moment arrives. That is, they don't have to go through adoption of old technology and then deal with its displacement: they can build cell phone networks and not have to wire everyone.

The same is true with presses. They can get on the digital train immediately. Many of these countries still have problems with basic electrical systems, so any production technology implementation still have to deal with uneven basic services that developed countries take for granted.

Digital media will co-exist with new print markets right from the beginning. There will be no print business to shift to digital media.

Many emerging markets have never had free speech or a free press, so therefore there has never been an advertising market. The idea of communicating with prospects is new for home-grown or local businesses. Obviously, global brands have that experience, but in these new markets, their media allocations will be quite different. There is a great reliance on broadcast media in these markets, but that will change.

The idea of a newspaper is not new, but a newspaper with advertising is. Emerging markets newspapers will grow from the beginning without lucrative classified advertising sections, and with an online presence, from the outset. This will be interesting to watch.

Literacy and incomes are still problems in emerging markets, but they are both going in the right directions. Emerging markets economies are still fragile, and fraught with potential of political instability that could lead to a pullback in all of the decisions that have made them grow. But the demographics are quite clear.

All of these markets were once outlets for used equipment from North America and Europe. For the past few years, they have been buying new equipment. Their reliance of previous generation equipment to satisfy the needs of a tiny market has been replaced with an understanding of workflow connectivity and productivity. While these markets will be bright spots for all suppliers, they cannot assume that traditional production equipment will have the same penetration and usage profile it did in older markets.

The big beneficiaries will be companies like Xerox, HP, and others in those categories. Web press companies will get to install some new newspaper presses. I see sheetfed offset as kind of a soft middle of the market that can do well for a while, but digital printing will benefit most.

In the long run, electronic media will have the upper hand as wealth and literacy increase.

 

By Michael Josefowicz on Oct 08, 2008

I agree that to serve the advertising function, print is on a secular retreat all over the world.

Your point about the emerging world leap froging over the stages the North has gone through is well taken.

Any thoughts about the non advertising use of print. I'm betting that education, health and government is the next growth area, both here in the States and around the world. I think if Heidelberg made sheet fed presses cheaper and better than the Asian competitors there is still lost of room for them to grow.

In the interests of shameless self and promotion and coincidence, just this morning, I put a screed on my blog that lays out the advantage of print for education. http://sellingprint.blogspot.com/2008/10/tsunamis-and-selling-print.html

I bet it turns out that it will have the same advantages for health and government.

As for advertising? It's a secular shrinking market for print. Internet and retail stores are reducing it to a niche player. Still ok to make money today and maybe tomorrow. But no growth. Too much competition and therefore ever shrinking margins.

 

By Erik Nikkanen on Oct 08, 2008

Denial of reality kind of goes with an industry that believes in myths. The myth of a cyclical downturn is just one of many.

In my view, Heidelberg has taken some strange steps over the years and it maybe that it is related to a fear of not knowing what to do or how to do things.

It gets rid of digital printing technology just as the age of digital printing arrives. It gets rid of web printing technology and moves back into a corner with sheetfed only technology just when there are signs that web presses with quick and simple repeat length change technology is aiming at replacing the sheetfed press.

Heidelberg insists on moving to expensive and overly complicated technology to manage basically simple problems that can be controlled by low cost technology.

It introduces new technology (Anicolor) which is basically and older technology that has been developed by other press manufacturers.

The press market is shrinking quickly but innovation at Heidelberg is done in five year plans that can not be deviated from. There is no interest internally there to find new ideas and new knowledge quickly. They know it all.

The only saving grace for Heidelberg is that the other press manufacturers are pretty much in the same mental state. If one of the top three broke out of that condition, it would change the press market landscape.

 

By Andrew Tribute on Oct 08, 2008

I'm sorry but I have to significantly disagree with most of what has been said above. I recently spent time with Bernhard Schreier before Heidelberg announced its latest figures, as he indicated to me that the situation was cyclical in a similar fashion to early downturns. This is as he stated to The Wall Street Journal.

Joe Webb says this time it is not cyclical and gives examples of the changes in the industry that have not been cyclical. Where Joe is wrong is that the examples he quoted such as desktop publishing and desktop color killing typesetting were of situations where technology introduced a cheaper and easier to use approach to the problem, but they still fed the printing presses. The indication implied is that digital printing will kill offset printing and the future inkjet presses from HP and Kodak will do this. That is total rubbish. What these presses will do is eat into the profitable area of offset whereas up to now digital printing has taken away the non-profitable work from offset. It will be a long time before digital printing seriously impacts into the medium and long run offset work like magazines, catalogs and much marketing collateral.

Most of the growth in digital printing that PIRA project is in the short run area and in one to one personalized marketing. At this time I see little of digital pushing products like magazines into personalized editions.

Another area where both the Wall Street Journal and Dr Joe are wrong is that Heidelberg does not sell into newspapers, does not have web offset and forgets that Heidelberg's main push for the future is into packaging. Packaging is not dying and is growing significantly and Heidelberg's strategy is to take work away from Manroland and KBA in this area. The implication that because Goss has introduced a web press to sell into the sheet fed space it will impact on Heidelberg is ignoring the flexibility of sheetfed printing in handling a wide range of work, something that will be difficult with the Goss press.

Offset printing will continue for a long time and there will no doubt be consolidation in the suppliers for this industry as there is too much capacity. I don't however expect to see competition coming to Heidelberg from Chinese or Indian manufacturers. The competition will predominantly come from Komori, a company spending even more than Heidelberg on increasing its offset manufacturing capacity. They may have the benefit of the Yen vs Euro values, but Heidelberg currently has a much stronger total offering with its full workflows and finishing operations.

Heidelberg has made many mistakes in the past. Its attempts to compete in the digital print area in partnering with Kodak were a disaster brought about by the arrogance of Heidelberg's engineers that thought they knew best on how to build a digital press. They also knew little about how to sell such a product. Today Heidelberg is concentrating on its core offset business where the only real growth is taking business away from its competitors and developing its packaging business. It does however have some interesting developments using inkjet technologies to move into security printing and secure packaging.

What is also not covered in the other comments is Heidelberg still has a superb distribution channel throughout the world. USA is just a small part of its market but is the one that has caused Heidelberg's current problems by the financial situation in this market stopping North American printers buying presses. Nothing new will happen at GraphExpo to change this. Elsewhere in the world Heidelberg is very strong but the credit crunch impacts on everybody.

I believe that this problem is cyclical but there will be a long delay before the market picks up. Heidelberg faces serious difficulties in Germany because of the power of its trade unions and cannot make major changes in the way one can in the US. Its management faces a tough time in sorting this out and may need some significant changes. Perhaps there are no Russians with big check books to help them out, but I fully expect Heidelberg to maintain its role as the standard bearer for this industry. It sets standards in areas of training and support that other companies try to follow. Lets support them rather than generating such a negative and inaccurate response. In this I also believe that the article in the Wall Street Journal was badly written and lacked a true objective researched view.

 

By Adam Dewitz on Oct 08, 2008

Andy says: "It will be a long time before digital printing seriously impacts into the medium and long run offset work like magazines, catalogs and much marketing collateral."

The threat to offset for those applications is not print it's the internet and e-paper devices.

 

By Patrick Henry on Oct 08, 2008

Three cheers and a big stein of beer to Andy for putting the situation into correct perspective as only he can. "Rubbish" is not too strong a word for the kind of exaggeration being spread by the Wall Street Journal article under review in this thread.

 

By Dr Joe Webb on Oct 08, 2008

Andy, Patrick... I know stocks are in a nosedive of late, but HDM's stock is below 10 euros, and has only been as high as the 15 range in recent months. There's a reason for that. The article's statement "Since January, however, Heidelberger's share price has more than halved, and it has issued three profit warnings, most recently last week" is not bad reporting. I'm trying to find the bad reporting in the article, and it escapes me.

Where Andy says "Where Joe is wrong is that the examples he quoted such as desktop publishing and desktop color killing typesetting were of situations where technology introduced a cheaper and easier to use approach to the problem, but they still fed the printing presses." ... is exactly where I was correct. Those technologies, as I wrote, led to INCREASES in press sales, despite the retrograde economic conditions near those times. Those prepress changes created a period of greater demand for print, and higher profits for printers, because they removed logistical and cost impediments in the creation or printed materials. I think Andy misinterpreted what I wrote and owes me an official GraphExpo show floor hot dog :)

Nor did I write anything about Heidelberg and newspapers; my newspaper comments were about emerging markets and their use of printed materials. In the WSJ article, it is mentioned because HDM sold that division to Goss, and spends some space explaining that niche market area. As far as digital printing goes, the comments were about the emerging markets, again, and formats such as catalogs and magazines may not develop in a significant manner because of the presence of digital media that does not have to displace print. Again, those comments were not about HDM at all, but about print in general.

This time the relationship of print and content creation technology is very different. Technologies for content creation and deployment are leading content outside of our industry. Even digital printing has as its competitors electronic information distribution of all types, and will not be immune to its undercurrents.

 

By Andrew Tribute on Oct 08, 2008

My apologies Dr. Joe for misquoting you and also my apologies for the fact I will have to owe you that hot dog as I have had to pull out of coming to Chicago.

There is a perceived lack of vision in Heidelberg as it appears stuck in a time warp of its current technology having been seriously hurt by its venture into digital printing with Kodak. I do see that the company is developing in a number of other areas but it does have a difficulty in seeing new markets as most of its management has grown up within Heidelberg. It also has the limitation of the German management structure of a Supervisory Board overseeing the Management Board. This Supervisory Board is largely made up of respected senior German high-level business people who have little experience of operating in the rapidly changing world of electronic media. A broader market view coming from outside the company may help in planning the future. However its major short-term problem is it will be staggeringly difficult to make really major staff and cost reductions quickly to adjust to market conditions under the constraints of the German labor market.

 

By Ralf Schlozer on Oct 09, 2008

Being German i know that nowadays these adjustments might be not as difficult as always perceived :)
Although we and many others advised Heidelberg not to sell their digital activities (despite the shortcomings - see above) we all are and were in the hands of the financial markets - not only in these days.
RWE - a major power company and the former owner of Heidelberg at that time - was trying to sell off all non-core activities. Obviously before floating you want to get rid of all non-profit making activities (digital and web). It was equally financial window dressing as too much traditional engineering to get out of digital. Today Heidelberg might not have the funds to get out of the box. HP's IPG has more than 5 times the revenue of Heidelberg and 12 times the operating income.

 

By Bill Litho on Oct 09, 2008

"Andy, Patrick… I know stocks are in a nosedive of late, but HDM’s stock is below 10 euros, and has only been as high as the 15 range in recent months."

Perhaps this has a lot to due to the fact they have just built a new factory to build their large format presses. Sales are very slow for their large format press and they have huge overhead, not to mention they haven't been able to recoup their R&D costs.

 

By Dr Joe Webb on Oct 09, 2008

What? No hot dog with Andy Tribute!? I am crushed! We could have made a great WTT video event out of it :) We will have to find some other time and place for a meal that would make a vegetarian shudder.

A lot of HDM's problems have been with its ownership. It has been a great industrial company. It is being undermined by the free flow of electrons of media. I see them trying to do the right things, but as you note, there are barriers to making true organic changes in their business.

The economists (especially the Austrian and Chicago schools, and particularly Milton Friedman) always warned that all regulations and agreements are based on current businesses, but never the businesses not yet formed or the employees not yet available. These acts are always designed to improve the status quo but always end up building constraints that end up maintaining it. Capital then finds ways to flow around them and go elsewhere. It does not happen right away, and sometimes takes years. For years there were no alternatives, and now there are. It's not just HDM, it's the entire industry.

I was grousing with another consultant yesterday about the economic issues of the day. With the situation as it is now, I suggested that we might see a replay of the used equipment market as we saw in 2002-2003. These were relatively new equipment originally purchased in 1998 and 1999 for which their leases were in default and press companies had to take them back. I am aware of a situation of a large web & sheetfed plant that got a nearly $20 million write-down of their lease because the supplier could not take the equipment back and that was their best option.

We could be heading back to that kind of period again. The presses of 1998-1999 were bought with a level of exuberance and volume that was not repeated in the most recent years, but there may be enough young equipment coming to market that new press sales could be depressed as suppliers find them new homes. The same may be true for some digital presses as well.

So it may not be just that tighter credit slows the new equipment market, it could be that a repeat of 2002-2003 might be in the offing, extending the problems for a couple more years until that equipment is absorbed.

And for every year of that time, it is more of a change in consumer and business habits for electronics and gadgets and digital documents and digital delivery. Tick... tick... tick...

 

By Michael Josefowicz on Oct 09, 2008

Consider that the marriage between Print and marketing/advertising is ending in an ugly divorce after 100 years of a wonderful mutually supportive relationship.

Andy says "Most of the growth in digital printing that PIRA project is in the short run area and in one to one personalized marketing. At this time I see little of digital pushing products like magazines into personalized editions"

Adam says "The threat to offset for those applications is not print it’s the internet and e-paper devices".

Makes sense to me.

Andy says "I don’t however expect to see competition coming to Heidelberg from Chinese or Indian manufacturers. The competition will predominantly come from Komori, a company spending even more than Heidelberg on increasing its offset manufacturing capacity."

After watching Tata take over the world steel industry, and the Indian generic drug industry. And the cheapest car in the world being built in India, I'm not so sure about this one.

Andy says "Today Heidelberg is concentrating on its core offset business where the only real growth is taking business away from its competitors and developing its packaging business."

That makes really good sense to me. No doubt that as emerging markets will buy more stuff, that stuff has to go into a package. That might well turn out to be the defensible advantage for sheet fed offset going forward. Packaging is not primarily advertising, it's a "must have" in the real world. My personal bet is that books and other non marketing informational product will also turn out to be a profitable niche.

Andy says "What is also not covered in the other comments is Heidelberg still has a superb distribution channel throughout the world."

This might turn out to be the real secret sauce . Given that the American market is saturated, active sales channels world wide is a huge advantage. The trick will be to fill that channel with products new markets want to buy. And monetizing the service needed to maintain the channel.

Joe says "As far as digital printing goes, the comments were about the emerging markets, again, and formats such as catalogs and magazines may not develop in a significant manner because of the presence of digital media that does not have to displace print."

Makes sense to me.

Joe says "These acts are always designed to improve the status quo but always end up building constraints that end up maintaining it. Capital then finds ways to flow around them and go elsewhere. It does not happen right away, and sometimes takes years. For years there were no alternatives, and now there are. It’s not just HDM, it’s the entire industry."

The irony is that usually the big companies are the very ones that fight for those regulations to protect their existing markets. Darn those unanticipated consequences:)

 

By Dr Joe Webb on Oct 09, 2008

Mike - re "The irony is that usually the big companies are the very ones that fight for those regulations to protect their existing markets. Darn those unanticipated consequences:)"

I wish that was the case... it's the large companies that are consulted in the regulatory process, and through political entrepreneurship, agree to the very regulations that they help create.

One of the effects of this is to develop regulations that only they can comply with, erecting barriers to entry that are higher than before, discouraging new competitors from coming into that business.

 

By Michael Josefowicz on Oct 09, 2008

Dr.Joe,

I didn't make my point clearly.

The "unintended consequences" I was referring to are the effects of a protected environment on a company's ability to find and scale game changing innovation.

The very barriers to entry that they erect are what makes it hard for them to remain leaders when the environment radically change.

 

By Andrew Tribute on Oct 09, 2008

There is one additional problem that is compounding the situation with sales of offset presses. In many cases printers use their suppliers, such as Heidelberg, to provide the financing to purchase the presses rather than using their banks or other financial institutions. With the credit crunch and the diving Heidelberg stock price it is becoming increasingly difficult for printers to secure funding for presses via the suppliers. This tightening of credit for smaller printers is bad news for the press suppliers as many printers lose their source for funding investment in new presses.

 

By Pat Berger on Oct 10, 2008

Killing your own sales with your new technology.

With the presses Heidelberg is making today they can replace 2 or 3 presses from 15 years ago. If you are only selling one when you were able to sell 2 or 3 for the same work load that has an extreme long term effect on offset presses needed.

 

By Dr Joe Webb on Oct 10, 2008

Re: Augmenting Andy's comments about leasing...
My impression is that Heidelberg and others got out of leasing directly to customers a while ago; it was quite common. Then they started to work with leasing companies and guaranteed the leases. Most of the press vendors got really burned by this in the 2002-2003 range as they took back numerous presses and had to re-sell them to customers who would have otherwise bought new. The smaller printers problem is usually even more difficult since the owner often has to personally guarantee their purchases, and used to do this with (theme from "Jaws" in the background) equity in their residence as collateral. Someone will have to blink here to sell equipment. Company credit managers will have a lot a weight now because that "see, I told you so" can be uttered quite easily now. Usually the credit folks were always known as "sales suppressors" for not approving marginal deals, especially at the end of the sales quarter. They have probably saved their companies in the process.

Re: Pat's comments about killing sales with your own technology
When presses are only a replacement market, there is no choice. The real issue is that those new presses also have less staffing required, and that is a primary justification in the purchase decision. Heidelberg has adjusted for this over the years by broadening their product lines with more postpress equipment and some workflow capabilities. They also sold more expensive presses (more units, coaters, controls). This is something foreseen for years about where this was headed so if they were not able to deal with this, that's a sign of an even larger problem. If the market was growing, no one would notice. Declining markets expose everything.

 

By Dr Joe Webb on Oct 10, 2008

Re: Mike's comments about "The very barriers to entry that they erect are what makes it hard for them to remain leaders when the environment radically change."

You are right, this is exactly the case. When legislators, regulators, and business owners are in bed together, that is a prime time for myopia to set in. The higher the barriers to entry, the greater the incentive to go around them and divert the business elsewhere into something they can't change.

 

By John Lloyd, III on Oct 11, 2008

Yes they are, Big time! They even have manufacturing facilities in China.

 

By John Lloyd, III on Oct 11, 2008

My comments were in responce to:

 

By John Lloyd, III on Oct 11, 2008

My comments were in response to:

By Michael Josefowicz on Oct 8, 2008 | Reply

Do you think Heidelberg’s real market might be in the global emerging economies. I would think lots of presses are going to be needed in China and India and Malaysia and Russia and Brazil….

Do you happen to know if they are looking at this way?

 

By Michael Josefowicz on Oct 12, 2008

John,

Thanks for the info.

That makes me believe that we in the North and West are looking at their situation from a parochial point of view.

Like many other things, the growing markets are moving to the South and East. That leaves Europeans both in the US and Europe working in mature markets with somewhat different rules.

Looking at it from a global perspective makes it much more sensible for Heidelberg to refocus on it's core strength; shedding digital and web presses to leverage their history in sheet fed presses serving what will probably be an exploding packaging market in Asia and the South.

How that's going to play out for manufacturing presses in Germany and the service network for rest of us in the States is still an open question.

 

By Michael Josefowicz on Oct 12, 2008

Just a thing to think about:

In an earlier post, Andy said
“I don’t however expect to see competition coming to Heidelberg from Chinese or Indian manufacturers. The competition will predominantly come from Komori, a company spending even more than Heidelberg on increasing its offset manufacturing capacity.”

If Heidelberg winds up manufacturing presses in China is it still a German company or might it become for all practical purposes a Chinese company?

If Komori does the same thing, maybe the future can be usefully thought of as competition between two Chinese companies.

 

By Ralf Schlozer on Oct 13, 2008

Both - emerging markets and packaging - might be opportunities for Heidelberg, but neither will be big enough for a return to former glory.
There will be stiff competition in emerging markets both from existing players and new low cost players. You do not need a lot of automation if the press minder earns a buck an hour, so Indian and Chinese press manfuacturers will have their share. Also if emerging markets start buying new presses, less used presses will be bought out of US and Europe - which will make it more difficult to sell new ones here.
Also the sheetfed offset packaging market is not that big, as a lot of packaging is not produced on sheetfed offset presses. And with companies like MAN Roland and KBA having collected experience in these markets for dozens of years it will not be an easy start for HD either.
The one growth area HD is focusing on now is getting a bigger slice from the consumables markets (remember, this is where the digital companies make their profits). They made some acquisitions and more will follow. But getting press users to buy HD consumables will be at least a big a challenge as the other ones.

 

By Jan Eskildsen on Oct 13, 2008

As already have been written the use of an anilox roller for ink distribution is not new technology (Erik Nikkanen). That is also true, when it comes to large format (sheet fed) presses for packaging (Ralf Schlozer). Workflow is not really new technology either, and the competitors also provide that.
As Andy wrote some time ago (WTT) the trade press and consultants were advised by Mr. Schreier to buy Heidelberg shares last year in December. They used to cost more than 35 euros and even had topped 40 euros, but was now only 28 euros, so it was a good time to invest.
After the pre-drupa event in Düsseldorf in March, I checked up on the share price, and now it was down to 16 euros. Believe it or not, I know a multi millionaire and I called him for advice.
He said (from memory) : If you invest and hope to sell for a better price or earn money on a year to year basis, you can forget about the past. It's not about how big, the company has been, or how clever they were in the past. It's all about the future. Do they have a unique product or something else, that point to the future?
Well, do they?

 

By Michael Josefowicz on Oct 13, 2008

Do you think that HD is working on simpler, cheaper presses for the emerging markets?

I know that P&G redesigned their Western products to deliver very small packages of shampoo, for example. Smaller profit per package but maintaining the dollar amount of profit with larger markets in China and India.

Given HD's strong sales channels do you think "support" can be monetized, in addition to consumables? It might turn out to be "the value is in the network" situation.

You mention "restoring the glory days". I think that is how a secular trend, instead of a cyclical bump, plays out on the ground.

The real issue has become new business models, as opposed to working the old business models harder.

 

By Ralf Schlozer on Oct 13, 2008

I do not think that HD could ever compete in a low end market with China and India. They need to exploit their intellectual property and expertise. The only way is up (bigger, faster, more automated).
Actually support is the main profit maker for press manufacturers. But HD want's to do business with supplies as well (and there is a lot of supplies going into a press and on finishing).
However I do not see a major press manufacturer really getting into new business models. Maybe it is even better for the industry - before getting wound up somewhere on that way - to focus on improving presses (including the whole infrastructure) and service & sales.

 

By Michael Josefowicz on Oct 13, 2008

You might be right when you say that they should "focus on improving presses, service and sales"
But the question is for which market? Europe/USA or the emerging markets?

I think in principle it might be possible to compete in the low end market. If they take their expertise to develop product for the bottom of the pyramid since the top of the pyramid has become saturated.

I would think first, that at the bottom of the pyramid print is and will be for quite a while the best media for communication.

Second, the market size at the bottom of the pyramid is much, much larger than at the top.

Third, the low labor costs you mention is in the process of change as industrialization moves through the emerging nations.

So, super energy efficient, high tech presses that are designed to meet the needs of that market could be a growing opportunity for the next twenty years.

Consider that GM seems to doing quite well in Brazil with ethanol based automobiles, at the same time as they are crashing and burning in the American market.

Perhaps there is an analogy for presses.

 

By Michael Josefowicz on Oct 13, 2008

Jan said "It’s all about the future. Do they have a unique product or something else, that point to the future?"

Maybe it's not about a unique product. But rather a new market that can be addresses with older, but cheaper, better, faster for a previously under served market.

There are few companies on the planet that has delivered more new products than Xerox in the last three years. Yet their stock price hasn't moved.

 

By Bill Litho on Oct 13, 2008

Developing markets start out in the print industry by purchasing older lower technology presses. They start out buying by price only because in many cases they can't raise the capital. Banks have restrictions on loaning money without an insurance policy. As print companies grow they can afford newer more productive equipment. Ten years ago the sales of new presses in China was small. The sale of new equipment to Brazil, India or Vietnam is small today. The key is to get enough of your company's used equipment into the developing market. That way pressmen are trained and the owners are familiar with the technology and the company and will eventually purchase new.

 

By Erik Nikkanen on Oct 13, 2008

My interest is exclusively with the future performance of presses. As a mechanical engineer, I had to develop the science that explains what happens in offset presses with respect to the manufacturing requirements of consistent and predictable density control.

This science was not available in the industry. Basically the industry is clueless about what is really happening in the press and what has to be done to transform the process into one that is consistent and predictable and that costs less.

One has not obtained simple press technologies that will make the old technologies obsolete because the press manufacturers do not understand the process well enough to make the numerous correct design decisions to make future technologies. This does not mean that they don't make well engineered equipment but their science is very weak.

One does not have to go to a future technology to obtain significant improvements in performance. Legacy presses can be modified, at relatively low cost to perform much much better. This could be good news for the developing world and for printers that lack capital to buy new. The problem is that it won't be done because there is no demand for it. Press manufacturers or press re-builders do not want to go through the steps required.

There is a strong future for offset technology but maybe not for the industry in general. Printing is basically a simple process and the existing method of applying ink to an imaged plate is a very efficient way to generate a patterned image. Very low tech.

Very high tech methods will always have a problem with support. Companies that make very high tech equipment like inkjets, will not always want to support them. A press build with rollers and other simpler technologies can always be maintained by engineering and tradespeople.

Printing calls for low cost and low tech solutions that perform better because there is better science behind them.

The idea that printers are going to be transformed into consultants to their customers or gurus in other media seems unlikely since they don't really understand their own processes that well.

I can see a good potential for much better offset technologies but a difficult time for printers.

Will the potential of offset technologies materialize? Maybe not. Press manufacturers would rather go bankrupt than try different things. Many of the press manufacturers that I have tried to interest in new technology and new knowledge have gone bankrupt or had financial troubles and were sold. King press, Didde, Goss, Sanden, etc. Maybe when times get even harder, Heidelberg, Manroland, KBA or the other press manufacturers will be desperate enough to try anything. But probably not. They rather go bankrupt.

If you were an investor, why would you want to put your money in companies that just refuse to find out what is possible? Not only that, they continually risk having a competitor get the knowledge.

I guess they think ignorance is bliss. Not a good business plan.

 

By Michael Josefowicz on Oct 14, 2008

Erik-

You raise an interesting point when you say,

"Very high tech methods will always have a problem with support.. . . A press built with rollers and other simpler technologies can always be maintained by engineering and tradespeople."

That suggests that local sustainability has to be considered in press design to monetize their value in emerging markets.

Do I understand you to say that by using the science it is possible to make presses that are both cheaper and better? Do you have a link that might describe how much cheaper and how much better?

Given that Tata is now building the "world's cheapest car" in India, perhaps some well capitalized entrepreneur in the China or India would be more interested in what you have to say.

You also say "Press manufacturers would rather go bankrupt than try different things." I would add that might have been true. But not so much when there is a realistic possibility of going bankrupt. Investment banks didn't want to try different things. Then in 3 weeks they went bankrupt or disappeared. I'm not suggesting the same thing could happen as fast to HM, but the prospect of one's hanging does tend to focus the mind.

Another thing to consider is that the kernel of the value of HD and others is the press itself. Maybe the real opportunity is in pressing non ink onto different substrates. Sirgei Brin is personally invested in a start up that prints solar panels. In today's WTT there is a press release from a company in Mass set up to use inkjet for solar panels.

Bill, you say "Developing markets start out in the print industry by purchasing older lower technology presses"

Maybe that also is a legacy trait of a 20th century world that is rapidly changing. When presses are not specifically designed for bottom of the pyramid, there is no choice but to buy used presses because of the price.

But this might radically change if a press were specifically designed for conditions in the emerging world.

 

By Erik Nikkanen on Oct 15, 2008

"You also say “Press manufacturers would rather go bankrupt than try different things.” I would add that might have been true. But not so much when there is a realistic possibility of going bankrupt.
snip
I’m not suggesting the same thing could happen as fast to HM, but the prospect of one’s hanging does tend to focus the mind."

It seems very logical that a company would look for opportunities when things get tough but that does not really happen that much. When things get tough, R&D budgets are cut. When things are good, then there is no need to innovate. This behaviour is more related to the culture of the company. To focus the mind on opportunities there has to be a mind that wants to be focused.

When looking at press manufacturing one sees a group that has done very little innovation over a very long time when compared to other industries. Engineers who stay at these press manufacturers, stay because they are not required to do much innovation. It is relatively safe. Engineers that really want to innovate, don't go into or stay in press manufacturing. One does not find "Skunk Works" type of focused innovation groups in these companies. One does not find new discoveries in science related to printing but only the never ending mundane experiments that never really describe the process. To innovate you really need to understand the physics of the problem and there is no interest in understanding the physics of the problem in the press because no one expects anyone to truly innovate.

So I suggest, that even when faced with bankruptcy, press manufacturers will not try anything new. It is unfortunate because that is where the opportunities are. That is what other industries are doing all the time. Lean does not get your there but innovation will.

 

By Erik Nikkanen on Oct 15, 2008

"Do I understand you to say that by using the science it is possible to make presses that are both cheaper and better? Do you have a link that might describe how much cheaper and how much better?"

Michael,

Yes, this is the model other industries use. They use science to describe the physics of the problem and from that improvements can be made that improve performance and lower cost. It has been done in the aerospace, computer, electronics, etc industries. Because science has been developed related to these industries, the future performance of technology can be predetermined and the path along which technologies can be developed to obtain that performance.

In the printing industry, you do not have that kind of science that describes the process and which is predicable. The development of technologies in the printing industry is done more by engineering trial and error than by a clear understanding of what is needed. This results in expensive technologies that do not work that well. Good engineering can not overcome bad science.

I don't have a link to show how much less expensive it can be but I can give you some examples.

My Ink Transfer Blade (ITB) technology corrects a problem in the press that causes variation in ink feed into the roller train. The cause of ink/water balance problems. It consists of basically a special blade that contacts the ink fountain roller and forces the ink to a pickup roller. That's it. This low cost technology is based on the principle of Conservation of Mass. The ink printed out of the press will equal the ink feed into the press. If you want a consistent solid print density, you need a consistent ink feed. It is independent of water.

Anyhow the ITB is a low cost method that would eliminate the need for closed loop colour control systems, which only maintain ink feed in an indirect way. Closed loop colour control systems respond to variations in ink feed but the ITB prevents variations in ink feed.

Man Roland had a US patent (#4328748) which has expired but was a binary ink fountain. A true digital ink fountain. Each ink key has only two position. Open or closed. The rate of ink feed is determined by the proportion of time the key is open. Now this concept is potentially less expensive because it does not require expensive proportional control (stepping motors etc.) of the key position. It is just on or off. This simple and low cost concept is much more accurate than the conventional ink fountain in the difficult to control low coverage region. If you wanted to control a 2% ink feed rate, then one just sets it to be open only 2% of the time. It also has a true zero set point making presetting more accurate.

This is a great concept and I would have patented it myself if it were not for the fact that Manroland already did. The problem with the concept is that it does not work with the conventional ductor design that intermittently takes ink from the ink fountain roller. But the binary ink fountain works with the ITB concept because the ITB transfers what ever ink is metered to it.

The result is that one can get a very accurate inking system for less cost. Goss has digital inkers but they are very expensive and for reasons I won't go through here, are not very suitable for commercial printing.

Then add to that a presetting ink key software that properly calculates the required ink output and the result is basically a keyless system. Even though is has keys, they would not have to be adjusted when they are set properly right from the start. Developing software for that would not be that expensive but one needs to understand what the algorithm has to be to get to the desired result.

So I hope you can see, there are opportunities to improve even existing presses at low cost. There are even more issues that can be corrected in the press but the above items would be the starting point before other problems can be corrected. The improvements have to be done in the right sequence or the benefits are not obtained.

 

By Michael Josefowicz on Oct 16, 2008

That makes sense, but I have no information to know if that is how it plays out at HM.

Usually real innovation comes from outside large successful corporations. Google does seem to have a different model. My understanding is that the pay their engineers for about 10% of their time to follow up their personal interest. Of course Google invented a money machine, so it's a lot easier to invest in the future.

But I wouldn't be so hard on large corporations. Their job is to avert risk and protect their shareholders. Consider that the nature of innovation is that most of it doesn't work out in the market place.

Also consider that even fast growing niches have to first, be recognized and then have to be very quickly and intelligently scaled. A large corporation can not afford to look at anything that can't quickly scale.

Not easy in the best of circumstances. Either much harder or a little easier when the going gets really rough.

Erik-
I'm still curious about the "how much" question.
I understand that you are a basic researcher so may not have the information. But maybe someone else following this conversation can help.

Two questions:
1. Given the best use of the science, what might be the lowest purchase price for a four color 28 x 40 or a 19x25 sheetfed press with a reasonable productive life span and delivering very stable ink density.

2. What is best estimate of the variable costs, - in the US/Europe, in China, in India, in the Middle East - of running that better, faster, cheaper press?

Assume that it is produced in the best location in the world, regardless of legacy manufacturing facilities.

 

By Mark Rauth on Oct 16, 2008

Eric,

Innovation is relative. Most of the North American web press suppliers you mentioned are out of business because of many factors, lack of innovations were certainly one of them but not always the leading cause of failure.

In the case of Muller Martini, the innovations developed over the past 10 years have been significant in terms of results while not perhaps to the degree as some other industries they have allowed the replacement of at least 2 older presses with 1 new and sometimes 3 for 1.

 

By Michael Josefowicz on Oct 16, 2008

Mark-

Just curious if you are in a position to share any info on rate of growth of Muller Martini sales in Europe/USA vs China/India?

 

By Erik Nikkanen on Oct 16, 2008

Mark,

You are perfectly correct that improvements have been made. Much better engineered presses have been developed.

My background is bit influenced by the press I first was involved with starting in 1984. It was a web press for packaging material, was completely computerized, had ink key presetting via plate scans, temperature controlled roller train and fountain solution, had EB inks. The operators input production data directly into a central MIS system.

I didn't realize at the time that this capability in presses was not the norm. The norm was actually pretty crude in 1984.

I think web press manufacturers have actually done more innovation than sheetfed press manufacturers. They were the first to develop shaftless drives, first mechanical then digital inkers (positive feed), register controls, variable print length, inline closed loop colour control, inline camera and inspection systems, etc.

No doubt about it, there has been innovation. But it has been mostly the application of known engineering concepts to printing. It has not been innovation based on new science.

As you say, it is relative. But relative is what is important. You may have a great press but if your competitor develops a press that starts up and goes directly to preset densities without the operator making adjustments and uses very little paper and runs consistently without adjustments, do you think your customers will notice the relative difference? I think they would.

My point is that press manufacturers are complacent and just because they think they have a good product, they leave themselves open to a competitor that develops a relatively better product because the competitor goes a bit farther in finding out what can be done and then protects the advantage. If your people are not planning for the future some nasty surprises can pop up.

 

By Michael Josefowicz on Nov 15, 2008

just found this and thought it is to the point...

From a previous post to Erik,
"Given that Tata is now building the “world’s cheapest car” in India, perhaps some well capitalized entrepreneur in the China or India would be more interested in what you have to say."


Q1 2009 Revenue Increases 15.6% and Net Income Climbs 26.1% Year-over-Year

BEIJING, Nov. 14 /Xinhua-PRNewswire/ -- Asian Financial, Inc. ('Asian Financial', or the 'Company'), a leading offset printing equipment provider in China, through its wholly-owned operating subsidiary, Duoyuan Digital Printing Technology Industry (China) Co., Ltd. ('Duoyuan'), today announced its financial results for the three months ended September 30, 2008.
From IStock analyst..
http://www.istockanalyst.com/article/viewiStockNews+articleid_2800642.html