Printer sales in China are growing so strongly that local firms may attempt to buy control of a major foreign printer maker to ensure a stake in the domestic market and a slice of international sales.
Sales of laser printers in China are expanding particularly fast, driven by business users, according to recent data from Lyra Research.
"Strong printer growth is expected to continue throughout the forecast period [to 2010], particularly in the laser printer market, as China's business users prefer laser output to inkjet for their mainstream business printing," said Lyra Research analysts Larry Jamieson and Ji Rong.
Total laser revenue, including hardware, cartridges and media, is expected to surpass US$5 billion by 2010.
Analysts suggest that a Chinese firm might attempt buy a foreign printer manufacturer to jump-start local printer manufacturing.
US printer maker Lexmark is the most commonly named target for such an acquisition attempt.
Giant Chinese PC vendor Lenovo is seen as the most likely buyer, perhaps as leader of a consortium, and almost certainly with government support.
"Lenovo wants to have an internationally competitive printer business within two to five years. We believe the company is very serious," said the Lyra analysts.
"We checked with Hong Liu, assistant vice president and general manager of Lenovo's peripheral business department, who confirmed this to us."
As Lenovo's largest shareholder, China's government, supported Lenovo's purchase of IBM's PC division last year, would be unlikely to object to a Lexmark purchase, the analysts believe.
Lexmark is profitable, unlike the IBM unit, and reported revenues of US$1.23 billion in the most recent quarter, up 1.6 percent on a year earlier. The company's share price has climbed steadily this year, and it now has a market capitalisation of US$6.5 billion.
Lenovo currently has around US$1 billion in cash reserves, but this figure is expected to fall. "If a purchase is made, it is not clear who would actually write the check," said Jamieson.
"But the government would almost certainly contribute funds, either through Lenovo or through a consortium if one is formed."
China is attracted by the high margins available from toner cartridges and other printer consumables, analysts believe, but wants to make sure it owns some of the technology in order to avoid the drain of high royalty fees to patent holders.
As China's leaders attempt to push the country's industry forward, their concerns go beyond mere economics.
"The Chinese government is extremely anxious to move Chinese industry beyond simple assembly, since the country now faces serious competition from countries such as Vietnam and India," said the Lyra analysts.
"If it fails to achieve this, the ramifications are huge. Millions of angry, unemployed workers could lead to political turmoil and, conceivably, the fall of the government."
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