Lexington, KY - Just as the Lexington-produced IBM Selectric typewriter gave way to digital word processing, technological obsolescence has again resulted in job losses in this central Kentucky city. Faced with declining demand for inkjet printers, Lexington-based Lexmark International, Inc., an outgrowth of the IBM typewriter business, is now coming to terms with its own encounter with progress, shutting down the company's remaining inkjet hardware business. The action cost 1,700 jobs worldwide, approximately 550 of them in the Lexington area.
350 of those workers are full-time employees in professional positions such as supply chain, research and development and the back office and will be eligible for a severance package from the printer manufacturer that has made strides in recent years in transitioning to a software-centric business. The other 200 workers affected locally are contract employees. Their contracts are being terminated.
Company officials declined to provide information pertaining to the average salary of those affected or the anticipated impact on the Lexington-Fayette County tax base. But according to Lexmark's 2011 Corporate Social Responsibility report, salaries of Lexmark employees in Lexington and surrounding communities averaged $99,080. From a total $329 million in local wages, Lexmark contributed nearly $7.5 million in taxes for local government and public schools, according to the document. Over the long term, the workforce reduction could cost the local economy approximately $34 million in lost wages with a commensurate impact on the tax base.
"Today’s announcement represents a difficult decision for us but one that we feel is necessary to drive the improved profitability for our company," Lexmark Chairman and CEO Paul Rooke told Business Lexington in an interview Tuesday morning.
The action, expected to result in an annual savings of $95 million once fully implemented, according to a release from the company. Of the approximately 1,700 jobs being eliminated worldwide, 1,100 are manufacturing positions. Tuesday's restructuring will leave the Lexington headquarters for the company with 2,300 full-time workers. The company does not release the number of contract workers it employs.
"We’re getting increasingly focused on higher value imagining and software solutions as we evolve from a hardware-centric to a solutions company. We do feel it is the right step for us in our evolution," Rooke said.
"One thing I’ve learned in all my years in this area of technology is that it’s constantly changing," Rooke added. "When we started Lexmark in ’91, we were in basically the dot-matrix printing business with one or two lasers and it’s changed over time."
"This is a tough reminder in tough times: in today's competitive economy, no market is forever. Even the strong struggle, and there's not a thing I can say that will make this announcement hurt any less," said Lexington Mayor Jim Gray. "We’re glad to be Lexmark's home and hope their business improves as the global economy improves. Our hearts go out to the people who lost their jobs and to their families. The best way to help them is to be a city where every action encourages good jobs and a strong economy. You've got my promise we'll keep doing just that."
At Commerce Lexington, the city's chamber of commerce, President and CEO Bob Quick said, "I know this had to be a difficult decision for Lexmark leadership to make. No company likes to make decisions like this; however they are looking long-term and are making strategic decisions to grow their overall business portfolio. For example, they are growing their 'imaging and software solutions' business with success. We will make available our resources to help those individuals whose jobs were affected."
Lexmark will continue to provide service, support and aftermarket supplies for its inkjet business.
Earlier this year the company released a new line of inkjet printers aimed at small office work groups to provide a lower cost option to laser printers. That line, called the OfficeEdge platform, performed better than previous inkjets, according to Rooke. "What we concluded was while the acceptance was better... it still wasn’t enough as we projected into the future to overcome some of the aggressive pricing and the investments required to make it a sustainable, acceptable return on our invested capital," he said.
Sales of inkjet printers have been plummeting in an era when GPS technology has replaced printed-out driving directions and school children submit electronic documents instead of papers. As Computerworld notes in a July 31 article about the rapidly increasing shift from paper to digital, "Printing out a document or a photo on a personal printer consumes expensive ink, and only the person you give it to can see it. Posting the same material online costs nothing, and countless people can see it."
The restructuring actions announced today are expected to result in reductions primarily in inkjet-related infrastructure as well as positions in research and development, supply chain and other support functions.
In Frankfort, Gov. Steve Beshear said his office is moving to assist Lexmark workers in finding new jobs. "I have authorized our Education and Workforce Development Cabinet to send its Rapid Response team to the company to provide these employees information about retraining, job opportunities, filing for unemployment insurance and other services."
Rooke said the company will try to reassign some of the employees affected by today's action, though he could not say how many that might be.
"Some will go into jobs we have elsewhere, some will go into the solutions initiatives, but we’re not breaking it out beyond the numbers we’ve [released]. We’re doing our best to redeploy as many as we can into accelerating our initiatives," he said.
The company has based its solutions operations - using digital imaging software to provide companies and sectors such as medical with paperless options to view documents from terminals and on mobile devices - in Lexington since its launch, and Rooke said Lexmark hopes to continue to grow in that area.
"Sometimes you’ve got to let go of the present to accelerate the future and that’s precisely what we’re doing," he said.
Tuesday's actions include closing the Cebu, Philippines, inkjet supplies manufacturing facility by the end of 2015. The actions also include eliminating inkjet development worldwide, including costs related to facilities, tooling, equipment, contract termination and scrapping in process inventory by the end of 2013.
The company is working with its strategic advisors to explore the sale of the company's inkjet-related technology.
Watch this article for updates.