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Photo by Ryan K. Morris
David Reeder
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Photo by Ryan K. Morris
Lexmark CEO David Reeder sits in on a sales meeting at the Lexmark headquarters in Lexington, KY on Tuesday, May 2, 2017. All Photos by Ryan K. Morris
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Photo by Ryan K. Morris
David Reeder
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Photo by Ryan K. Morris
David Reeder
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Cover photo by Ryan Morris
Lexmark International, Lexington’s storied maker of printers and a key economic engine here for decades, placed two big bets in early 2015: It spent a record $1.1 billion to buy Kofax Ltd., a California-based software company, and it hired David Reeder as chief financial officer.
A couple years on, only one of these wagers is still in play.
“It’s a work in progress,” said Reeder, who recently sat down with Business Lexington for an exclusive interview, his first extensive remarks since being named CEO several months ago.
Reeder’s new role at Lexmark is perhaps the least shocking change for the company over the past year.
The biggest was positively seismic: In April 2016 the company announced it had agreed to be acquired by a group of investors headed by China-based Apex Technology and PAG Asian Capital. At the time, Lexmark described the terms of the deal as an “all-cash transaction valued at approximately $3.6 billion, or $40.50 per share.” Several months later, after a formal review by the Committee on Foreign Investment in the United States — a federal board charged with reviewing national security implications of such sales or certain investments by foreign interests — the sale was approved in late November of last year. News of the completed sale came with another bombshell: Paul Rooke, the company veteran who led Lexmark for six often-tumultuous years, was out, replaced by the newcomer Reeder in his first role as a CEO.
“In the past I was in charge of finance and IT and real estate and accounting and audit and tax and those things, and really what I’ve layered on now is, fully all the operations,” Reeder said. “So even though I was involved with operations from the financial perspective in the past, now I’m running all of those and responsible for all of those as well.”
Same Name, Different Company
After the sale was announced, Lexmark’s new leadership took pains to highlight notes of continuity: the fact that the company had been purchased in total, instead of various parts going to different firms; that Lexington would remain the company headquarters; that the Lexmark name would remain.
But in truth, almost everything had changed. Lexmark was now a private company, wholly owned by a consortium of foreign investors and no longer listed on the stock exchange or beholden to shareholders. The renewal strategy pursued under Rooke to transform Lexmark into more of a digital services management company was abandoned.
And replacing Rooke — a 25-year company veteran who began here at IBM before the unit was spun off and rebranded Lexmark in 1991 — was Reeder, a relative outsider, a generation younger and stylistically different in many ways.
The married 42-year-old father of three may be new to the Bluegrass but is a bona fide son of the South, having grown up on a ranch in Cedarville, Arkansas, at the southern edge of the rugged Ozark National Forest. Reeder credits his early Catholic school education with instilling a lifelong love of learning. He said he earned a full academic scholarship to the University of Arkansas, where he studied chemical engineering, and later obtained an MBA at Southern Methodist University in Dallas while working for Texas Instruments.
“I got my MBA at night, wound up going through a management program at Texas Instruments, and it took me everywhere,” Reeder told Business Lexington shortly after his arrival here in 2015.
Indeed, throughout the 1990s, Reeder’s passport got a workout. Working for T.I., and later Broadcom, he lived at various times in London (where he met his wife); Kuala Lumpur, Malaysia; southern France; and Singapore, cultivating expertise and a reputation for addressing supply-chain problems. He returned to the U.S., working for Cisco and Electronics for Imaging Inc. in California before moving to Lexington for the Lexmark position.
A Year of Tumult
Reeder acknowledged the stress his employees have been under and the challenges he faces.
Reeder said he now reports to a private eight-member board (“all U.S. citizens … a majority with national security clearances”) that represent the consortium’s players and investors.
News of the company’s sale also coincided with last year’s heated presidential campaign that saw the eventual winner, Donald Trump, repeatedly sounding a populist message highly critical of China and the North American Free Trade Agreement. Since taking office, Trump has quickly retreated on a threat to label China a currency manipulator but is forging ahead with plans to renegotiate NAFTA. Reeder said the politics are worth watching but that there’s not much to be done until policies change.
“It certainly drives interesting conversations over coffee when you’re abroad,” he said, adding that no one really knows what might happen. “Talking to my business contacts, I don’t really know anyone who’s doing anything different.”
All the change and uncertainty also weighed on Lexmark’s employees, Reeder said. He insists that the returned focus to Lexmark’s core strengths is lifting morale, particularly among what he called the “imaging employee base.”
“Imagine your division has created $2 billion in profit, and … very little, proportionally speaking, is going back into investing into what you’re doing. It’s all going to the cool kids [in the software division]. So imagine the culture. You have 10,000 employees in imaging, you’ve got about 3,000 employees in software, and software is taking all the profits you’re making over here and they’re eating that for lunch and you’re looking around going, ‘I made that! Why are we being taxed?’”
New Tack
In early May when the company announced the sale of its “enterprise software” division, it marked the end of an era and a strategy.
“The company was looking for, ‘What’s the next transition?’” Reeder said, noting Lexmark’s history of successfully transitioning from typewriters to laser and ink jet printers. “The strategy was, we’re going to transition the company to a digital company.”
In the end, the $2 billion effort to move Lexmark into digital content management failed to show enough results.
What Apex, a much smaller company, offers is entree into growing markets in China, India and Indonesia, among other places.
Reeder has boiled down the new approach to a simple mantra: China, channel and cost.
“China’s market’s growing,” he said. “In fact it’s going to grow probably for the next 10 years. Our current market share in China is zero; it rounds to zero. … I want to go from zero percent to 10 percent quickly.”
Reeder says the entire worldwide printer marketplace is $65 billion-a-year industry, with Lexmark’s share stuck in the single digits.
“We have a 3 1/2 percent share. …
“They’re [Apex and others in the consortium] looking at this and saying, ‘Look at this big opportunity. Software’s a distraction. We don’t know what to do with it and, frankly, the Chinese market isn’t mature enough to do anything with that software.”
The “channel” portion is how printers are sold. Lexmark’s strength has been direct sales. The channel refers to selling through others, such as Amazon Marketplace and Ingram Micro.
“When you sell direct, you only touch the biggest companies,” he said, noting that market leader HP sells almost entirely through channels.
“We’re going to release 23 new products specifically through the channel by mid-year,” Reeder said. “We’re releasing them every month.”
Cost, Reeder concedes, is part of the new plan that causes the most angst. Lexmark has trimmed its workforce in recent years and officials said the current Lexington employee strength stands at 2,300. Reeder declined to say or speculate on further reductions but said his cost focus is geared toward growing revenue, which he said would provide employees with stability and peace of mind.
“It’s the elixir that cures all ills,” he said. “It truly is.”
Eight Is Not Enough
For now, Reeder says he’s focused on fighting competitors such as market leader HP, Ricoh, Canon and others.
“We wake up every day and we’re No. 8 in market share,” Reeder said. “I hate that. I hope everyone in this company hates that. … Why can’t we be No. 1? It’s an audacious goal, but no one wakes up in the morning going: I want to be No. 3, and you certainly don’t wake up going, I want to be No. 8. Why not us?”