I.T. Strategies Analysis: How Quad's Order for 20 HP Inkjet Web Presses Significantly Alters Book Market
HANOVER, MA—January 16, 2015—Yesterday, Quad/Graphics announced it has placed an order for 20 of HP’s most productive color production inkjet web presses to be deployed over the next three years. According to Quad, the plan includes investing in:
- 20 or more HP high-speed color digital web presses—the widest, most productive technology available in the marketplace today;
- Front-end workflow solutions for accepting orders and putting them immediately into production; and
- Back-end integrated systems for finishing, distribution and fulfillment, including shipping directly to the end recipient with an auto-generated invoice.
The immediate impact is the unequivocal validation of inkjet technology for book printing applications. This means a likely end to future investments by book manufacturers in web-offset presses. Any future investment consideration in offset technology for book printing is bound to be heavily questioned by any book manufacturer’s board of directors, given the size of Quad’s order. (Depending on ramp-up, I.T. Strategies estimates it could be more than $100M over three-years including hardware, software, and supplies assuming Quad is successful in leveraging their digital printing opportunity.)
A second big impact is the alteration of the North American book market dynamics. Given that the majority of Quad’s business is in North America, the newly added capacity these units will bring will have a disproportional impact on book manufacturing in North America. There are many, many variables at play that make the outcome of Quad’s ability to fill these systems to maximum capacity, but assuming a best case scenario, Quad has enough capacity to end up "owning" 40 percent of all inkjet printed book pages in North America assuming all of those pages are offset replacement.
In the model, I.T. Strategies has assumed a gradual annual weighted ramp-up of page volumes; while the print volumes to transfer offset to digital are in place, the actual machine placements will be staggered. This means that while actual AMPV could be upwards of 50M pages within the first month of installation, the weighted average over the course of the year across all machines will be a lower average since installations will be spread out over the year. We’ve settled for simplicity reasons on a first year annual weighted average of at 25M per month per system for 2015 (greatly influenced by month of installation and ramp-up), growing it to 100M by full installation roll-out by 2018.
With these assumptions, Quad will be growing its new inkjet (they currently do own other inkjet systems that are already printing book pages) pages by a compounded rate of 152 percent annually. One has to put this projection in context of an overall book market where pages are flat to declining.
Click on the Chart Below to View the Hypothetical Inkjet Book Page Volume Impact from HP/Quad Deal:
This leads to the third big impact, which is that in order to be successful Quad has to directly substitute offset pages—something that historically digital printing has rarely achieved. Historically, digital color printing has been most successful in those application areas where it added some new type of value rather than creating greater economic operation efficiencies. With this much (color) capacity, it is very possible that Quad won’t be able to fill the systems with 100 percent book page volumes. This may mean that some of the new ink jet capacity will "spill" into Quad’s other high-volume businesses, magazine and catalog printing.
If so, this is very good news for the industry: many people believe/hope graphics is the next market that production ink jet will conquer from offset. This capacity, along with HP’s technology enhancements to be able to print on coated offset stocks, will open up many new applications for production ink jet technology. Now doubt the ability to upgrade these ink jet presses—as evidenced by a history of seven-years of upgrades to date—encouraged Quad/Graphics to make this significant investment commitment.
Shorter-term, there will no doubt be some anxiety about this much potential capacity entering the book manufacturing market. This could lead to some devaluation in the ability to price digital pages. But on the other hand, the deal has sent a clear signal to smaller and medium-size manufacturers that if they want to remain in the book manufacturing space they too have to adopt inkjet in order to remain competitive. Those smaller and medium size manufacturers are unlikely to be able to absorb similar capacities to the HP’s WebPresses by Quad, but they should be very interested in smaller capacity inkjet production printers.
The Bottom Line
It is not possible to know all the factors that went into a decision process such as this. Often people believe that the bigger the deal, the less the decision is based upon hard, predictable economic variables. They tend to be deals made upon faith, faith in the future.
This makes HP’s big win on balance very good for the industry as a whole. There is faith in growth of the production inkjet industry, backed by large financial commitment. Growth helps the entire industry, and if this deal opens the ability to spread capacity beyond book pages into graphics applications, HP will be able to claim credit for having truly started the transformation from offset to digital pages.
Source: I.T. Strategies.