Xaar warns on profits

Xaar issued a trading update just after Christmas saying “trading in the three months to December 2018 has continued at levels below our expectation” but the reasons behind this expose the weakness of the company’s overall position. 

The Xaar 1201 printhead was developed for wide format scanning printers in the Chinese market.

The trading update went on to say that Xaar is now expecting that its revenue in the second half of 2018 will be “only slightly better than the first half” which would mean that the total revenue for 2018 will be around £64 million (excluding £9.8 milion of one-off royalties received in the first half of the year). Xaar will announce its preliminary results on 21 March 2019.

To put this in context, Xaar posted revenues of £100 million for the year ending December 2017 so this means that for 2018 Xaar has seen its revenues fall by over a third. More worryingly, the second half of the year is typically better for Xaar. 

Essentially the company is still suffering from its over-exposure to the ceramics market. This saw massive growth starting around 2009 but the market peaked in 2013, causing Xaar a huge problem as around 75 percent of its revenue that year depended on the ceramic market. Thus Xaar’s revenues fell from a high point of £134.1 million in 2013 to £93.5 million in 2015. 

Doug Edwards, Xaar’s CEO, says that “90 percent, maybe even 95 percent of the ceramic market is now digital” meaning that there are very few new installations, just replacements. Normally when a market shrinks suddenly there would be some consolidation amongst suppliers but that hasn’t happened leaving a very competitive, price sensitive market. Xaar has lost further market share as OEMs such as EFI have switched to other printhead suppliers. However, Edwards says that this prompted the company to launch the 2001 printhead, adding: “We are starting to get some pretty good traction so I think that we will start to gain a little bit more market share.”

Edwards says that the company is offsetting the decline in the ceramics market by introducing new printheads in an effort to develop into other business areas, including packaging, direct to shape printing, coding and marking and 3D printing. He adds: “And we did a few licensing deals to offset this decline.” But despite this Xaar is still dependent on the ceramics market to some extent. China accounts for roughly half of the worldwide ceramics market and Edwards says that Xaar’s latest problems are largely due to the slowdown in the Chinese economy hitting its remaining ceramic business.

Xaar’s Chinese woes continue with slower than expected uptake on the 1201 printheads. This printhead was developed specifically to address the highly price sensitive Chinese market for scanning wide format graphics printers. This problem has been compounded by OEMs taking longer than expected to get their printers to market though Edwards says that Xaar is working more closely with integrators to help iron out difficulties. 

Edwards says that it makes sense to go after the Chinese market because it is so large but points out that the company has also increased its presence in the US market, which now accounts for 20 percent of Xaar’s revenues. 

Edwards is confident that the revenues will start to pick up, pointing out that the company has launched a range of new printheads in the last two years and that these are starting to show up in new printers. He adds: “We are very pleased with where the 5601 is now and are starting to work with a number of OEMs. That has been a significant investment. And we are happy with the 3D business with Stratasys and we have the first beta machines going out.” 

However, Edwards says that the issues with the ceramics market will likely affect Xaar for the next year or so, adding: “We are getting to the point where ceramics is less important to us.”

Leave a Reply

Your e-mail address will not be published. Required fields are marked *