Xaar has launched an internal review of its printhead business, following disappointing interim results, led by its largest division.
Sales of printheads were hit by the continuing sharp decline in demand from the ceramics market, down by 69%, and by a build up of inventory in the new Xaar 1201 head, not because of head issues but because a key Chinese OEM has suffered vibration problems in the scanning carriage on implementing the technology.
“Other OEMs have not had this problem. Nevertheless, we are not happy with the financial performance,” says chief executive Doug Edwards. Revenue from the graphic arts sector fell 40% as a result.
On the positive side an announcement that packaging press manufacturer Windmoeller & Holscher has decided to use the Xaar 5601 thin film aqueous inkjet head in a digital press to be launched at Drupa, is a sign that the Huntingdon company is on the right track.
However, the take up of the advanced printhead is slower than anticipated though its potential remains strong. The question is whether Xaar as it is currently configured is in the best position to exploit the latent demand.
The W&H decision comes after extensive testing of the Xaar and rival heads and is a strong endorsement of the technology. But this will not show through in the immediate sales figures. Though in the longer term, Edwards points out that each press like this can have many multiples of printheads. Talks are well advanced with other OEMs and Edwards predicts that a number of others will be ready to show machines with the company’s printheads on board at the show in less than two years’ time.
The 5601 head is part of a portfolio of seven new products introduced in the last two years serving different aspects of the digital print universe, from high speed single-pass printing for flexible packaging and commercial print applications to the lay down of highly viscous materials for 3D and other industry print applications.
However, there is concern that Xaar by itself may not be able to maximise the opportunity in all areas; hence the strategic review that is now underway. There are partnerships with Xerox and with Ricoh and further joint R&D partnership and licensing deals may prove the way ahead. The review is expected to take six months, says Edwards. "We want to ensure that the new products to realise their full potential, which means we may need to hitch ourselves to a bigger player, with a bigger, bolder step than we have already taken. We simply do not have the scale of the competitors are up against."
The company has been split into three business units concentrating on printheads, 3D printing, where a partnership deal with Stratasys opens the way to a fast developing market and where Xaar’s high speed sintering technology is a strong advantage, and in direct to shape printing. This too is an area with long term growth potential, though at least responsible for some revenue. The deal with Stratasys points to a valuation of $3-40 million for this business, Edwards says. The US company has invested $4 million and has an option to inject a further $6 million.
In the six months, product print delivered £5.3 million (£6.5 million) of sales to the overall revenue of £35.3 million, down from £44.0 million. The company blames the aggressive decline in ceramics and the slower than anticipated uptake of the new products. The thin film heads represent the future with applications in textile and decor as well as packaging and commercial print. In contrast the bulk heads servicing ceramics are being managed for cash with less development for this market.
In contrast revenue from the coding sector increased in double digits. However, this was not enough to compensate for the poor performance in other areas. Consequently, at the pretax level, Xaar reported half year profits of £3.2 million (£7.9 million).
Doug Edwards, chief executive of Xaar, says that in order to make the best of the printheads that the company has developed in the last two years, it is investigating the benefits of teaming up with a larger player in the market. This comes as headwinds in ceramics and a hiccup with a wide format customer have hit the company's sales in the first six months.