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Shares in Lexmark were down about 11 per cent on Tuesday after the US printer maker reported a 42 per cent drop in second-quarter earnings and said it could miss Wall Street expectations in the current period due to aggressive competition from rivals such as Hewlett-Packard.

Lexmark, which supplies printers to Dell, said sales of laser printers improved, but margins fell as competitors cut prices and demand for inkjet printers in Europe was slower than expected in the quarter ended June 30.

Lexmark had net income of $79.9m, or 64 cents per share, compared with $136.6m, or $1.02 per share, the year before. Not including a tax cost of $53m from the repatriation of foreign earnings, quarterly profit was $1.06, matching Wall Street expectations.

The company said revenue rose 3 per cent to $1.28bn compared with $1.25bn, but short of analysts' forecast of $1.33bn. Lexmark said operating margin narrowed to 13.7 per cent from 14.9 per cent.

Increased competition, aggressive pricing and slow growth in developed markets had pressured all major printer makers in recent quarters. Lexmark, which has about 19 per cent of the US inkjet market, said inkjet printer prices fell 20 per cent and laser printers dropped 17 per cent from last year.

HP, the largest printer maker with about 49 per cent of the US inkjet market, aggressively cut prices this year to regain market share lost in 2004. Dell stepped up pressure on Lexmark by cutting retail prices of its own printers.

Lexmark said it would cut 275 jobs, or about 2 per cent of its workforce, in a move to free up $23m to invest in strategic initiatives and new products. The printer maker said third quarter earnings per share would be 95 cents to $1.05, below the analyst consensus of $1.06 per share.

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