Tuesday, August 11, 2009

Ricoh: Getting Ready to Rumble?

The August 3 issue of Barron’s had a great article on Ricoh and their acquisitions, including InfoPrint and IKON. The link below will take you to the article.

One item that was startling to me was the quote “IKON, which also hasn't delivered a profit to its new parent,….” It would seem to me that the war between RiKON (Ricoh owned IKON) and Canon is having a significant impact on IKON’s ability to make a profit. Word is that street level equipment margins at RiKON have been halved, to 14%, over the last year. Service margins are also taking a hit as RiKON fights off Canon’s assault on their service base, having to match aggressive offers. Whatever the reason it is clear that RiKON has been operating in the red for the last year.

More perplexing are the future revenue and expected operating profit EPS from RiKON, at ¥280 billion and ¥8 respectively. Converting to dollars, revenues would equal $3 billion with approximately $65 million in operating income. Let’s assume there were subsidiary sales of approximately $350 million between Ricoh and IKON, this still represents an approximately 30% decline in IKON’s pre acquisition revenues and an almost 40% reduction in operating income. Wild to say the least.

Ricoh has been reorganizing their direct operations for years. Well informed individuals have stated that Ricoh direct has been losing money for years, with those losses accelerating. It seems to make sense for Ricoh to combine their current RBS operations with RiKON. The question is not if but when, and it appears as if the current results indicate that the still nebulous answer is “sooner rather than later.” If Europe and Canada are any indication—both of which have been combined with the Ricoh direct operations—it could be real soon.

It is nice that Ricoh takes risks to increase their business. We will see how Ricoh’s IKON acquisition works out long term. I believe a lot of changes will need to occur if it is going to be successful. When this acquisition first occurred I stated it would be great for the independent dealer. One year later and clearly it is great for the independent dealer. Revenue is cratering, the entity is losing business, Canon is assaulting the base: In a nutshell RiKON is focused on survival. Carpe Diem!