HP's Cash-Cow Ink Business Is in Trouble

HP Inc. (NYSE: HPQ) managed to beat expectations when it reported its third-quarter results last week, thanks to solid growth in the PC segment and substantial share buybacks. But the printing business, responsible for the bulk of HP's profits, didn't do so well. Printing revenue was down 5.3% year over year, and segment operating margin contracted by 40 basis points.

While sales of printing hardware tumbled in the quarter, the biggest problem was weak sales of supplies. HP's printer business follows a razor-and-blade business model: The company has built a large hardware install base, and that install base drives sales of its high-margin ink and toner. This strategy has worked for a long time, but serious cracks have started to form.

Image source: HP.

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Source Fool.com