March 10, 1997

Heidelberg announces plans for Linotype-Hell

Embraces core competencies while downsizing and spinning off others

Heidelberg sent a team of key executives to the Linotype-Hell Users' Group meeting in Orlando recently to announce changes slated to take place immediately following the April 1, 1997, consummation of its acquisition of Linotype-Hell. The executives included Bernhard Schreier, who was installed as chairman of Linotype-Hell AG by Heidelberg; Hans Peetz-Larsen, president of Heidelberg USA; and Niels Winther, president of Linotype-Hell, who also is a Heidelberg executive assigned to Linotype-Hell.

They also gave the users a glimpse into the long-run strategy behind the acquisition, much of which had been reported previously, but which hadn't had a similarly effective platform for such a presentation.

Strategy. The acquisition of Linotype-Hell is part of a multi-pronged strategy that calls for Heidelberg's expansion in four directions in order to become the dominant player in all phases of the paper-based workflow environment. The four directions and the companies Heidelberg has acquired or dealt with are:

• Heat-set web printing and cold-set web printing for newspapers — acquisition of Harris.
• Finishing systems — acquisitions of Sheridan Systems and Stahl.
• Digital imaging — technology partnership with Presstek. This initially involves the GTO DI and Quickmaster DI presses, but Heidelberg intends to expand into nonimpact printing equipment and software.
• Prepress — acquisition of Linotype-Hell. This acquisition provides instant expertise in digital processes, which Heidelberg believes will come to dominate the printing industry.

The acquisition. To support the acquisition of Linotype-Hell, Heidelberg said the move is a good fit culturally and that recent financial problems made the company available. (Linotype-Hell sales have decreased over the past five years.)

However, because of the financial problems and because Linotype-Hell has spread itself over diverse areas that Heidelberg does not consider to be core business, restructuring and cost reductions are essential. Thus, as of April 1, when the acquisition is legally complete, Heidelberg will bring input, workflow technologies and output into its core business and will spin off six other divisions. These include the following:

• Ultre, the developer of recorders acquired when Linotype purchased Hell.
• Fonts.
• The LinoPress editorial and classified newspaper system development.
• Desktop Solutions, which focuses primarily on the low-end Saphir, Jade and Opal scanners.
• Engraving Systems, which will reclaim the Hell name.
• Printed Circuit Boards.

These legally independent spinoffs will have their own business plans and be responsible for their own sales.

In the U.S., the core businesses will move to Atlanta and the three Linotype-Hell facilities located on Long Island, NY, will be consolidated into one.

In Germany, as was announced last fall, the Eschborn facility will be closed, and Linotype-Hell operations will be centered in Kiel, which is owned by the company and is where two-thirds of the engineers are located. Restructuring and relocations are expected to be completed by the end of June.

Scanners. Heidelberg outlined its views on the core products that will make up the future product line. In the scanner field, Heidelberg expects continued demand for drum and high-quality flatbed scanners, with descreening capabilities to support digital workflows. With this in mind, the Linotype-Hell operation will continue to produce high-end and midrange drum scanners. It will expand the new Tango vertical drum scanner (see Vol. 26, No. 11).

The company will continue to market the midrange Topaz CCD scanner family.

Desktop scanners, such as the Opal and Saphir, will be available through the Desktop Solutions operation that is being spun off.

Output. Heidelberg expects continued demand for 4-up and 8-up internal drum imagesetters (such as the Herkules and Signasetter) and 4-up capstan imagers (of which the Linotronic 530 is the only machine in the company's line).

Interest is picking up in dry-film recorders (the DrySetter). Sales of CTP systems (the Gutenberg) are rising, especially in the U.S., with formats of 8-up to as big as 32-up.

Heidelberg expects to see a demand for lower-end CTP products and for a wide range of digital printing systems, from color copiers to full digital presses.

Heidelberg will continue a commitment to imagesetting equipment for the foreseeable future. Although CTP solutions are coming fast in the U.S., other parts of the world, especially the Far East, remain devoted to film. The Signasetter, Herkules and Quasar (2-up) internal-drum machines will continue to be produced. Capstan machines will be marketed by the Ultre spinoff. More products that support high-quality dry-film imaging will be added to the DrySetter line, Heidelberg said.

For platesetters, Heidelberg will continue support for the Gutenberg semiautomatic and fully automatic lines and will develop a complete range of standard and thermal solutions. The company will provide thermal platesetters that operate in the 1064-nm range as soon as plates are standardized. The company expects to begin offering the 1064-nm plates in the second half of this year.

The role of Delta. Delta technology will be the key for Heidelberg's role in controller and workflow prepress software. The company said it will integrate Delta throughout its systems, although the details weren't disclosed regarding the DI presses, where there could be options to use Delta RIPs in conjunction with the current Harlequin RIP or to replace the Harlequin RIP.

In addition, Heidelberg promised to open up the Delta technology so that it can be interfaced with other vendors' equipment.

Delta technology will be sold both as part of Linotype-Hell's and Heidelberg's systems and also as an open system.

Digital focus. Heidelberg wants to expand its offerings into the prepress area so it can provide complete printing solutions to its customers. But the acquisition of Linotype-Hell goes deeper than that. In some areas, Heidelberg has been a pioneer in converting to digital processes, which it believes eventually will dominate the printing industry. It has already developed the GTO and Quickmaster Digital Imaging presses and has announced plans to introduce nonimpact printing technology to its line.

But digital printing is only part of the story. The Linotype-Hell acquisition will enable Heidelberg to move farther upstream in offering turnkey digital systems. Heidelberg sees this expansion both in offering a wider line of capabilities to its traditional printing customers and in addressing the needs of service bureaus and quick printers, which it may not have as customers now.

Many of these customers presumably will choose to buy complete systems from one vendor — Heidelberg — rather than put together a system with components from various sources. This factor may be even more true as customers expand into new areas — printers into prepress work and prepress companies into printing — and want the assistance of a friendly supplier.

Our perspective. When Heidelberg's plan to acquire Linotype-Hell was announced last summer, we published a long commentary in which we suggested that the deal may not have been quite what Heidelberg had thought it would be (see Vol. 25, No. 22). Among other things, we noted how Linotype-Hell had lost its market positions in several key areas, so Heidelberg would have to take vigorous action to turn the fortunes around.

These latest announcements appear to be a step in that direction. The first objective is to halt the slide and restore profitability to the various operations. Spinning off individual components should help do that. Those that remain under independent Heidelberg ownership will be subject to intense scrutiny and those that fail to meet expectations can be cut. If any others are sold off, they will no longer be a drain on resources.

Heidelberg's plan to open up the Delta technology to work in broader environments is a necessity, not only because it opens it to new markets and the possibility of additional functionality, but also because it projects a more positive image in a market that frowns on anything with a closed or proprietary label. This development might help Heidelberg in its quest to become known as a supplier of everything from software to full systems. And it will allow the industry to apply some of the advances of the Delta technology to existing equipment.

There has been concern voiced in the industry that a company that has traditionally sold iron is now running a prepress operation, and that its prepress systems will be priced low to serve as incentives to purchase Heidelberg presses. After all, this is the practice that currently is running rampant in the imagesetter market as companies with ready supplies of consumables are bundling them with heavily discounted imagers in very attractive packages for the customer.

We don't have any inside information that suggests either that this may happen or that it won't. However, we think it is notable that Heidelberg didn't take this approach with its acquisitions of finishing equipment. In addition, Heidelberg intends to sell the Linotype-Hell products as stand-alone technologies with their own profit centers, besides selling them as components of total systems.

Conclusion. Heidelberg has a good start toward launching a Linotype-Hell business that can hold its own in the market after a succession of mostly unprofitable years:

• Staff level. It has made a lot of personnel cuts that needed to be made, although it isn't clear yet that the employment level after these cuts will be appropriate for the level of business that it can achieve.
• Spinoffs. It has separated the "noncore technologies" from the core business and begun the effort to set up the noncore entities as stand-alone operations.
• Focus.It has brought a better focus to the "core technologies" that will be merged into the organization.

Heidelberg has a history of dominating the markets it chooses to enter. It is clear that its effort with Linotype-Hell will be taken seriously. The first step — facing the realities of belt-tightening and cuts — is behind it. Much remains to be done, including dealing with morale issues as offices are closed, people are moved and cuts take hold. But witnessing the digital revolution as it extends further into the press arena should be a fascinating experience, both from within the company and from the outside. If Heidelberg can pull it off, it could cause some ripples elsewhere around the industry.