On the heels of what Scitex President and CEO Nachum "Homi" Shamir called "an amazing success" at the Xplor 2003 Conference in Atlanta last month, the company announced strong third quarter results on Monday, with a 24% year-over-year quarterly increase in revenues. As the economy begins to rebound, Scitex appears to be capitalizing on an increasing demand for color printing in both the graphic arts and the packaging and signage segments.

Shamir indicated, in an interview yesterday with WhatTheyThink, that he attributed a portion of Scitex’ success at Xplor to the fact that neither IBM nor Oce chose to exhibit equipment there. Echoing feedback from a number of other industry executives at the show, Shamir said, "There were a lot of very important existing and prospective customers at the show, and their key decisions makers were there as well. They were able to spend a lot of time with us, and as a result, we had a successful product launch and a good sales pipeline coming out of the show." Scitex Digital Printing announced broad changes to its VersaMark brand family as part of its strategic plan to expand the options for customers to use its digital printing technology.

Scitex Digital Printing
In commenting on Scitex’ third quarter results, Shamir indicated that approximately 60% of Scitex Digital Printing revenues are attributable to equipment sales, while the remaining 40% comes from service and supplies.

While historically Scitex Digital Printing has seen a higher receptivity to its high-speed color inkjet line in Europe and Asia than the U.S., Shamir indicates that business activity is picking up in North America, with trial units having been placed in some U.S. accounts, and he expects to see the North American business do well over the next couple of quarters and beyond.

Scitex Digital in the European Market
With respect to the European market, Shamir stated, "Color is penetrating the European market faster than the U.S. European businesses seem to have much more awareness of the value of color, and are more willing to accept new technology." He also outlined the company’s association with Xerox in Europe, stating, "When a Xerox representative locates a high-speed inkjet opportunity, we support Xerox in making the sale. These sales easily range from $1 to $3 million, and are larger and more complex that the usual Xerox sale, so they rely on our technical support to properly configure and implement the solution. Our product line is very complementary to theirs."

Scitex Digital Printing in Asia
The company has also had tremendous success in Asian markets. Shamir discussed a Chinese success story that came about as the result of a suggestion to the Chinese government by a Scitex distributor. China’s tax authorities were having difficulty collecting a newly-imposed Value-Added Tax (VAT), especially for cash purchases. In an effort to optimize tax collections, the government introduced a revolutionary receipt produced with digital printing technology from Scitex. This receipt, known as "Special Invoice" in China, encourages businesses to follow proper tax filing procedures and is aimed at reducing tax evasion. The special invoice, which incorporates a scratch and win game, resulted in a five-fold tax revenue increase in its pilot in a suburb of Beijing within the first year. Not only has the government made the use of the special receipts mandatory for all registered retail businesses in China, but customers demand them as well, since the scratch-off tickets offer the opportunity to win instant cash prizes.

The program has been so successful in China that the governments of Thailand and Vietnam have decided to implement similar programs, which will result in incremental Scitex sales. Shamir also commented that 95% of the world’s scratch-off lottery tickets are being printed on Scitex equipment.

"Additionally," Shamir points out, "many of the Asian countries have much more robust CRM implementations than you find in North America. Especially in Korea, we have found them to be quite advanced in CRM as well as the mobile telecom environment, and they want to take full advantage of their billing. We have two customers doing CRM full-color transactional printing in Korea alone."

Drupa 2004
As Shamir had indicated in an earlier interview with WhatTheyThink, Scitex will be showing its new higher-quality next-generation inkjet technology, a significant advancement over existing technology. Shamir said, "We are shipping two units to Drupa, and we fully expect those units to be sold to customers at the show.”

EFI Relationship
Shamir indicates that the EFI relationship is progressing nicely, and stated that the companies are working toward having EFI’s new server product available at Drupa as a controller for the four-drop technology. While this next generation server will probably not remain a Scitex exclusive, Shamir noted that the need to drive 2,000 pages per minute in full color required enhancements to the speed of the current EFI controller architecture. He stated, "I am really proud to be a part of bringing this kind of new technology to the industry, both the VersaMark with improved color capabilities and the increased controller speed from EFI. Additionally, adding EFI’s workflow will be a huge advantage to us and to our customers."

Scitex Vision
Scitex Vision also had a good quarter. Shamir indicates that combining Vision with Aprion has provided better focus on Scitex core inkjet technologies and has provided an opportunity to utilize increased Scitex content in the product line. According to Shamir, in the packaging and signage market, Scitex is one of the two key players. Vision also had a successful show, the week prior to Xplor, also held in Atlanta, where two new products were launched and met with good success, including customer orders at the show. Shamir said, "I am very optimistic about this part of the industry. We are also seeing good success with these products in Third World countries since particularly the large signage is an inexpensive advertising medium. He continues, "We spend a lot of money at Vision on development and R&D, and merging Aprion into Vision gave us the capability of adding another technology into the Vision product line. We expect to see a lot of play in the packaging, signage and textile markets."

Scitex—The Future

Scitex announced this week that the company is considering strategic alternatives including the possible sale of Scitex Digital Printing. Shamir declined to comment on this topic or industry rumors relative to the company’s future. However, he was bullish on the future prospects for Scitex overall, and indicated that the company has been quietly migrating from a holding company to an operating company model. "While we still have a portfolio comprised of holdings in various companies, including RealTimeImage and XMPie, we are mainly concentrating our time on Scitex Digital Printing and Vision. Those are the revenue contributors, and they share between them the commonality of inkjet technology. While we are, of course, keeping an eye on our other investments, this increased focus on our core business is a shift from our past, where management energies were often consumed by aspects of the portfolio with less contribution. We are now clearly focused on our bread and butter, and you can see the impact of that in our third quarter earnings."


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