HP Toner Cartridge Shortage: It’s Not Over
Last January, news websites and industry publications began reporting that there was a shortage of the HP CE285A, or 85A, black toner cartridge used in the monochrome LaserJet Pro P1102w printer and LaserJet Pro M1212 MFP. The shortage left some distributors out of stock and frustrated customers, some of whom vented on HP’s “customer reviews” message board for the cartridge. At the time, HP issued a public statement attributing the shortage to the “tremendous demand” it has experience for the HP LaserJet P1102w and M1212, which were announced in the spring of 2010. The company promised, “We are working quickly to meet the growing market demand for this product and minimize the impact to our channel partners and customers.”
Now that a couple of months have passed, we wondered if HP and its manufacturing partner, Canon, have been able to ramp up production to meet market demand for the HP 85A. It seems that while HP and Canon are continuing to work to address the situation, this toner cartridge remains in short supply. Moreover, Gap Intelligence, a research firm well known for following retail and e-commerce channels for PCs and PC peripherals, tells us that this is not the only HP toner cartridge for which supply is constrained.
We reviewed a selected number of online retailers to see which had the HP 85A in stock. We found that online retailers had inventory, although the cartridge was out of stock or in limited supply in some area brick-and-mortar stores (see table). But as anyone who has ever ordered something online only to later receive a message saying that the desired product is backordered well knows, a promise of availability on a website is not necessarily ironclad. And availability in e-commerce channels does not guarantee availability in store and vice versa.
So, we contacted Chris Barnes, VP of Research and Solutions Development for Gap Intelligence, to find out what his firm has seen regarding supply of the HP 85A in the various distribution channels Gap monitors. He says, “The CE285A had extremely limited to no inventory during the end of the year 2010, starting as early as September or October, but inventory levels shot up again by the end of January.”
The shortage, however, does not appear to be at and end. Barnes says, “It looks like inventory levels may be dropping once again as inventory levels are again constrained.” He describes inventory levels for the 85A as “very low with some major distributors reporting thousands of backordered units.”
We asked whether Gap Intelligence has detected any similar shortages for other HP SKUs, and Barnes replied, “The CE278A looks to similarly be experiencing product constraint as inventory levels have significantly decreased in the last two months. Currently, inventories are highly constrained with thousands on backorder and ETAs of late March to early April.” The HP CE278A, or 78A, black toner cartridge is used in the LaserJet Pro P1566 and P1606 series. Our examination of which online retailers had the 78A cartridge also indicates that HP is experiencing more demand than it can meet for this SKU (see table).
HP’s Public Statement
HP declined to answer any of our questions on the 85A toner cartridge shortage, whether it has been resolved, and whether it is experiencing shortages for additional SKUs. The firm provided us with the same public statement it issued when news reports of the toner shortage first began to circulate. In addition to providing the explanations noted above, the statement reads:
Q. Doesn’t HP have the ability to accurately forecast demand?
A. The quick uptake for the HP LaserJet P1102W and the HP LaserJet M1212 MFP printers created an unusual spike in demand for the black toner cartridge CE285A.
Q. Why is there a shortage of toner supplies available for channel partners?
A. The demand for the hardware has created the shortage of available supplies. We are working quickly to meet the growing market demand and minimize the impact to our channel partners and customers.
Q. Why is the cartridge available in certain retail locations but not available through distributors?
A. The high demand for this product has created shortages in both retail and our distribution network. We are working quickly to meet the growing market demand and minimize the impact to all our customers.
Q. What is HP doing to improve the predictability and linearity of its supply chain product availability?
A. HP has taken immediate measures to resolve this issue as quickly as possible. We expect to quickly meet the growing market demand and minimize the impact to our channel partners and customers.
Like most public statements of this nature, HP’s is useful but scant on specifics.
HP and Canon have had some challenges in managing inventory during the recession. We have heard that when the recession hit and sales of printer products nosedived, HP was alarmed by inventory levels and ordered Canon to curtail production, which Canon did. Then, when the economy began to turn around and demand increased, the partners had too little inventory of some products and little production capacity. This resulted in shortages of both hardware and cartridges—shortages that went on throughout 2009 and into 2010. Now, it appears that even though Canon has stepped up production and taken measures to straighten out its supply chain, the company is unable to keep up with demand for certain cartridges.
Meeting the demand for hardware doesn’t seem to be an issue. Over the last few quarters, HP has consistently reported strong sales of many of its laser products. In its results for the first quarter (see News Briefing, “HP’s Q1 Financials Disappoint Despite Strong IPG Performance”), HP reported 20 percent growth in Color LaserJet units and 63 percent growth in printer-based MFP units. While this is obviously great news for HP and its manufacturing partner, it seems that the firms had not expected such strong demand for certain hardware products. Still, we have not heard of any shortages for the LaserJet Pro P1102w printer and LaserJet Pro M1212 MFP.
It is unclear why whichever facility or facilities are manufacturing the HP 85A and 78A have been unable to keep up with demand. It may be that Canon is having trouble sourcing certain components for these cartridges. Or it may be that Canon’s series of delays in expanding its capacity for manufacturing toner and toner cartridge components in Japan are impacting finished cartridge availability.
On December 2, Canon announced that it would begin construction in June 2011 of Hita Canon Materials Inc., a facility for manufacturing toner and toner cartridge components, based in Hita City, Oita Prefecture, Japan. The firm’s goal is have Hita Canon Materials begin operations in May 2012. This facility has been plagued by construction delays. Construction of the facility was originally supposed to begin in December 2008 with operations to commence in September 2009. Canon pushed back construction dates when the world economy began to fall into recession. This was undoubtedly the right decision to make at the time, but it is possible the move is now constraining the supply of toner and various toner cartridge components. It is hard to say for sure without confirmation from HP or Canon, and neither partner has been willing to discuss the toner cartridge shortage in much detail.
Earthquake in Japan
Given recent events in Japan, it is likely that shortages will get worse before they get better. The nearly 9.0-magnitude earthquake that occurred in northeastern Japan on March 11, the resulting tsunami, aftershocks, and efforts to avoid complete meltdowns at damaged nuclear power plants are an unprecedented cataclysmic series of events for the region, resulting in enormous loss of life, destruction of infrastructure, concerns about the levels of radiation already being emitted, and the possibility of complete meltdowns at nuclear power plants. (To donate to the American Red Cross and support relief efforts in Japan, click here.)
Obviously, given the scope of this calamity on Japan and its people, toner production and HP’s need for more supply of the 85A and 78A may have moved several spots down on Canon’s priority list. Canon has released a damage report and has suspended operations at some facilities in Japan, including some that manufacture printer supplies, although, as noted above, it is not clear to us which of Canon’s many worldwide facilities are manufacturing the 85A and 78A. Canon manufactures toner cartridges at other sites around the world, including at Canon Virginia, and Canon can presumably shift some of its production to other facilities. Still, the situation in Japan does not bode well for increased toner supply from Canon or for Canon meeting its target dates for the construction of Hita Canon Materials. In fact, we expect that the industry as a whole will experience some supply interruptions as many Japanese OEMs attempt to cope with this series of horrific calamities.
Opportunity for Compatible Makers
While it is possible that some potential customers may eschew the LaserJet P1102w and M1212 out of fear of finding the 85A toner out-of-stock, we believe that most customers for low-end monochrome laser hardware will not be well informed about this issue, and that demand will remain strong for these products. Thus, demand for the 85A will remain strong as well. And customers that have already purchased these devices and found the toner to be out-of-stock may be contributing to the toner shortage by stockpiling 85A cartridges to avoid running out. HP and Canon must take the number of customers stocking up on cartridges into their estimates or run the risk of actually over increasing manufacturing capacity for this SKU as well as the 78A. Tuning manufacturing capacity to market demand definitely poses many challenges.
Another key challenge for HP is that any shortage in supply of the 85A and 78A toner cartridges is likely to boost sales of compatibles, and compatibles for both HP SKUs are now widely available online. Customers who become accustomed to spending much less on compatible SKUs may not be eager to pay full price for OEM cartridges. Thus, for compatible makers, any shortage of supply of original HP toner cartridges represents a market opportunity.