Epson outlines its strategy related to the Fiery acquisition in its November 1, 2024, investor call

Topline Overview

From a top-line perspective, Epson’s overall revenue was in line with their internal plan, but business profit was sharply higher, mainly due to their progress in controlling expenses in each business segment. For the quarter, both revenue and profits in the printing segment increased in excess of 18% year over year, quite an achievement in a turbulent economy and considering the pressure the printing industry has been under for some time now. Strong ink sales were an important contributor to both metrics. The numbers were significantly lower, in the low double digits, when looking specifically at commercial and industrial printing.

The company projects a year-over-year change in revenue and profit for printing solutions of +26% and +20.2%, respectively. This does not include the impact of the Fiery acquisition since the transaction has yet to close. Absent Fiery, the full-year outlook for printing solutions is much rosier, and one would expect Fiery to add to that, assuming it closes before year end, which the company indicates will be the case, estimating closing in December. The company projects a full-year increase in revenue and profit for printing solutions of +28.3% and +19.8%, respectively.

While Epson has had little to no M&A activity in the past, the company has added actively investing in growth businesses, including through M&A, as a key growth strategy. Commercial and industrial printing, including printhead sales, is identified as a growth market for 2024 and beyond, with the Fiery acquisition connected to that strategy. This is due, they say, to market expansion due to accelerated digitalization as well as creation of new market opportunities.

Why Fiery?

While the company has been refining its inkjet technology on an ongoing basis, which has helped with the overall growth strategy, they say, “However, to digitize the entire process from input to output of print data, we determined that we needed to acquire software platform technology such as system solutions that we didn’t have to create new value. This is why we decided to acquire Fiery.” Another driver for the acquisition was the opportunity for generating value as a software platform, wherein the company says it has made limited, albeit steady, progress. It is anticipated that the “acquisition of Fiery will sharply increase the value of software solutions … by complementing Epson's color control technology and workflow software.” This, they say, positions them to create solutions that offer high color reproducibility, high image quality, and ease of use as well as optimized solutions for the industrial printing market.”

This includes using Fiery DFEs and workflow to drive Epson printers, while at the same time maintaining the firewalls Fiery has put in place to ensure information specific to an OEM or other partner will not be shared with other businesses.

The chart below shows where Fiery fits in Epson’s printing innovation growth strategy.

Our Take

Epson is a formidable competitor as a printer manufacturer. They have also leveraged their technology across a range of industries, including textiles, and plan to increase that diversification even more. The acquisition of Fiery can’t help but accelerate this process, as they, hopefully, bring Fiery’s OEM partners into their network. Clearly, this could only happen if Fiery remains a wholly owned subsidiary that is firewalled off from the rest of Epson as it concerns Fiery’s OEM partners. There has been speculation that some of those partners might turn to other solutions, including primary usage of their proprietary DFEs.

Proprietary DFEs are becoming an important part of the strategy of printer manufacturers. Establishing a workflow management foothold in the plant is one way to encourage future purchases and centralized management, especially in production print, as many of the DFE workflow functions move to the cloud. The Fiery OEM base is still fairly MFP-centric, and this is an area that has seen increasing downward pressure as companies move to digital communications.

According to some people familiar with the conversations, most of the OEMs plan, at least for now, to continue their Fiery partnerships. Time will tell as the OEMs launch their next rounds of new products in 2025 and beyond. Overall, however, after listening to the strategy behind the acquisition, we believe this was a costly, but smart, move on the part of Epson. Much of their future success, it seems, rests on how quickly the digitization process moves in key target markets. As many of us have seen, this analog-to-digital transformation usually takes much more time than enthusiastic projections on the part of manufacturers and pundits.

For example, in textiles, which is a key market for Epson printing solutions, while the volume of printed textiles continues to grow, the percentage of those textiles printed digitally has been stuck at about 10% for some time. But it will happen eventually. I harken back to the early days of production color digital printing and the associated improved variable data opportunity, where the common belief among manufacturers and pundits was that there would be rapid market adoption. Well, there was market adoption as we see in today’s printing segment, but it was not as rapid as some of us enthusiasts thought it would be. In commercial, packaging, and display graphics, the transformation is well underway. But in textiles and other industrial segments, it is much slower. A lot of that can be attributed to cheaper analog solutions out of Asia, as well as the fact that in those industrial segments, printing is not as standalone as it is in commercial, packaging and signs. That is to say, there are other parts of the workflow involved in the final creation of a product that are barriers to the more rapid adoption you would expect to see driven by reshoring production to North America and Europe. In textiles, specifically in North America, the biggest barrier—aside from convincing brands digital is the way to go—is the availability of sewing expertise. There are a number of initiatives underway seeking to solve that problem, but it takes time.

We’ll be following the progress of the Epson/Fiery combo and will look forward to seeing what impact it has on the overall market, including on the analog-to-digital transformation in Epson’s chosen industry segments, as well as what new innovations and opportunities this acquisition—and others expected to follow—are brought to market.