Office Machines, NEC

SIC 3579

Industry report:

Companies principally engaged in manufacturing miscellaneous office machines and devices comprise this industry classification. Such devices include typewriting, mailroom, and dictation machines. In addition, a multitude of companies in the industry produce specialty products, such as paper shredders, envelope stuffing machines, ticket counters, and coin wrapping machines. Establishments primarily engaged in manufacturing modems, facsimile machines, and other communications interface equipment are classified in SIC 3661: Telephone and Telegraph Apparatus.

Industry Snapshot

This industry has many diverse product offerings, including time clocks, stapling machines, binding machines, collating and sorting machines, forms-handling equipment, address-labeling machines, automatic list finders, embossing machines, and ticket counters. Sales of miscellaneous office machines tend to fluctuate with other economic trends. While some segments of this industry were growing, particularly those that incorporated new digital and automating capabilities, other segments were declining. The main reasons for this decrease included an increased use of computers, foreign competition, increased productivity, reduced corporate spending, and U.S. demographic changes.

Manufacturers responded to the more competitive environment of the 2000s by integrating the latest technology into new product offerings, infiltrating new channels of distribution and targeting home offices. Sustaining the industry during the early part of the 2000s were record numbers of new business starts; all the new businesses required office equipment and supplies. In addition, the booming success of the direct mail industry contributed to growth in the mailroom equipment segment of the market.

As the second decade of the twenty-first century began, the industry was struggling with the effects of the economic recession that began in 2008. Although developing economies such as those in China and India experienced increases in office equipment sales in 2009, the opposite was true with traditional leaders. Along with the U.S., Europe and Japan had negative growth for the first time since Wold War II. While this caused decline in the worldwide industry, the demand for increasingly technologically advanced office equipment promised increased revenues for manufacturers into the 2010s.

Organization and Structure

Typewriters and word processing machines traditionally have accounted for a large segment of the miscellaneous business machines industry, although their market share continued to decline as computers took their place in the office. While most of the units sold in the late twentieth century were electronic typewriters, some companies still marketed electromechanical typewriters, which resemble traditional manual typewriters but use electricity to reduce the effort required by the typist and to increase the quality of type.

Electronic typewriters take the electromechanical concept a step further by reducing the number of moving parts and featuring advanced capabilities. For instance, many electronic typewriters can recall a series of pressed keys and then delete those characters from a sheet of paper on command. Some units also allow the typist to store a word or phrase in the machine's memory, which automatically recalls and prints on command.

A third model of typewriter is the personal word processor (PWP). PWPs allow the typist to view text on a screen before it is actually transferred to paper, much like a personal computer (PC). Most PWPs are simply an electronic typewriter with a liquid crystal display and a central processing unit attached. Unlike PCs, PWPs usually offer access only to internally stored proprietary software programs. Many PWPs are also equipped with spreadsheet software, and some advanced units offered disk drives, DOS compatibility, and hand-held scanners.

Overall, typewriters and PWPs were less expensive and typically regarded as easier to use than most PCs. Even so, they continued to lag far behind PCs in popularity, despite efforts by major manufacturers to catch up. In 1996, Olympia, a home office company based in Dallas, launched a major effort to market its electronic typewriters as viable alternatives to PCs for performing simple word processing tasks without the hassle of booting up a computer. In 2000, Smith Corona Corp. launched a series of new typewriters and supplies and stepped up its marketing efforts with the goal of increasing typewriter sales. Despite these efforts, consumers continued to choose the PC's versatility over the typewriter's simplicity in the new century.

Mailroom Equipment.
Another major segment of the industry consisted of mailroom equipment. Designed to meter, sort, and track mail, such machines were used by the postal service as well as private organizations. While sorting machines could cost anywhere from $5,000 to $500,000 in the 2000s, they greatly reduced the cost of sorting mail manually from $35 per thousand to less than $3 per thousand pieces of mail. The most advanced sorters utilized optical character recognition (OCR) to read addresses and U.S. Postal Service bar codes.

Shredders, used to destroy internal printed documents, accounted for a slim segment of the market in the 1990s. Personal shredders used by small companies and professional practices ranged widely in options and prices. The more advanced models featured conveyer belts and were capable of shredding boxes, metal binders, and entire wastebaskets. Simple model paper shredders represented the fastest growing segment of the miscellaneous office products industry, mainly due to their increased popularity for home use. Consumers began buying shredders in increasing numbers because of privacy concerns and the increasing threat of identity theft and other types of white-collar crimes. Also, the prices of these devices had decreased to the point that they were affordable for the average consumer.

Other Products.
Making up the remaining portion of the miscellaneous office machines industry were a variety of specialty devices. Dictation machines, for instance, have been used by professionals and executives for whom certain jobs require the recording of their voices for later transcription. By the 2000s, hand-held dictation machines with liquid crystal displays (LCDs) commanded a large portion of the market.

Background and Development

The business machine industry emerged from the industrial revolution in the latter part of the nineteenth century. As the need to record and manage business information grew, several products, including the typewriter, were developed to meet demands. Although the typewriter was invented in 1714 by London engineer Henry Mill, the most famous devices were developed in the late 1800s. The Remington typewriter, first offered to the public in 1874, was one of the more popular early machines.

The first electromechanical typewriter was invented by Thomas Edison in 1872, although practical application of this device did not occur until the twentieth century. One of the first electric models, the Electromatic, was purchased by International Business Machines in 1933; after World War II, several other companies introduced electric typewriters. During the post-war era, the business machine industry flourished. A booming economy and new technology soon prompted the development of a plethora of labor-saving devices.

While dictation machines also gained widespread public acceptance during the mid-1900s, the invention of the integrated circuit in the 1960s brought hand-held recording devices into the professional mainstream. Dictaphones remained the primary means of recording information for doctors, lawyers, and business executives throughout the 1970s and much of the 1980s. The advent of personal computers, notebook computers, and cellular telephone technology adversely affected sales of dictation equipment in the 1980s, and by the early 1990s, dictation machines were largely being replaced with machines featuring alternative technologies.

As increasingly inexpensive computer and cellular technology was rendering dictaphones and typewriters obsolete, many business machine companies struggled to adapt to evolving market demands. Nevertheless, technological advances were opening new markets for other miscellaneous business machines--particularly postal equipment, due to increased postal volume and new postal requirements for addresses.

Shipments of miscellaneous business machines peaked in 1985 at more than $5 billion. After that time, however, several factors combined to deflate revenues and profit margins for manufacturers. Most important, the popularity of superior computer technology was affecting revenues from industry staples such as typewriters and dictation equipment. Although business machine manufacturers countered with PWPs and other low-cost, higher technology products, computers continued to deplete the market for even those items.

At the same time that computers and cellular phones were making industry waves, the U.S. business machine market experienced an economic recession in the late 1980s. Revenues from miscellaneous business machines fell to about $3.2 billion in 1987. Although sales picked up in 1988 and 1989, shipments only reached $3.5 to $4.0 billion per year before slumping again in the early 1990s.

In addition to alternative technologies and the economic recession, manufacturers were also facing a more competitive market in the 1980s and early 1990s. Many products, such as typewriters, had become low-cost commodity items that offered slim profit margins. In response to price competition from both domestic and foreign manufacturers, many U.S. companies moved their production operations overseas or increased automation in domestic facilities. The number of establishments in the industry dropped 23 percent from 1990 to 1996. As a result, industry employment in the United States plummeted from about 45,000 in 1982 to about 30,000 in the early 1990s. According to government figures, both the value of shipments and the number of establishments within the industry continued their downward slide into the 2000s. In 2007, there were only about 100 establishments involved in the industry, and value of shipments had dropped to $2.4 billion. As a result of this downward trend, employment in the industry also plummeted, to 6,100 in 2008. That same year, the value of shipments had fallen to $2.0 billion.

In response to these declining figures, manufacturers scrambled to buoy profits and remain competitive. Besides diverting investments into competing industries, such as computer-related office products, producers tailored product offerings to appeal to the growth market of the 1990s--small businesses.

By the mid-1990s, about 40 million home offices had emerged. Because the average home office spent $40 to $50 per week on business supplies, manufacturers increasingly catered to this segment. In an effort to reach small businesses and home office buyers, manufacturers also adjusted their marketing and distribution strategies. While producers once sold products primarily through dedicated office device resellers, many companies were using 50 or more different types of retailers to move their equipment.

One of the fastest growing distribution channels during this time was the discount superstore and business center, such as Wal-Mart, Office Depot, and K-Mart. In the mid-1990s, manufacturers distributed an estimated seven to 10 percent of their shipments through these retail chains. By 1997, there were more than 1,600 superstores in the North American market, and that number continued to grow. By 2008, U.S. Wal-Marts alone numbered more than 4,000.

Manufacturers also boosted sales by emphasizing distribution through equipment leasing companies. Many businesses favored the lease agreement in order to take advantage of changing technology and certain tax benefits. In addition, leasing allowed companies to reduce their capital equipment investment--an important point in the capital-starved environment of the 1990s.

According to the Direct Mail Information Service, despite the trend toward electronic communication and commerce, the printed direct mail industry continued to grow in the early 2000s. According to a study done by Pitney Bowes in 2003, the majority of consumers preferred regular mail over e-mail; 86 percent preferred it for confidential materials and 66 percent preferred it for any document. This was good news to those businesses that employed direct mail and excellent news for manufacturers of mailroom equipment and machinery.

Consequently, demand for better, faster, and more flexible mailroom equipment continued. New markets were opening up for shrink-wrapping equipment, enveloping machinery, and polythene postal wrap equipment. The trend also was toward automated digital equipment and electronic-linked equipment and network systems for mail information and services. According to Pitney Bowes, more than 60 percent of the market in 2003 was comprised of digital equipment. Growth in this segment also was assured due to the number of businesses creating in-house mailroom systems.

The export market was growing even faster than the domestic market, buoyed by currency valuations. In the early 2000s, Japan was the fastest growing importer of goods from this industry, primarily due to the newer digital equipment capabilities.

Current Conditions

Sales in the miscellaneous office machinery industry reached $6.1 billion in 2009. Almost 90 percent of sales occurred in Connecticut, home of industry leaders Oce and Pitney Bowes. Other revenue-leading states were Illinois, New York, Ohio, Texas, and Alabama. Top employing states, other than Connecticut, which accounted for about 20 percent of all employees, included Kentucky (15 percent), Illinois (13 percent), New Jersey and Tennessee (six percent each), and Minnesota (five percent).

Mailing machines accounted for a large majority of sales, followed at a distance by binding machines, paper handling machines, volting machines, and time clocks. Although more than 83 percent of establishments employed fewer than 50 workers, 90 percent of industry revenues came from large companies employing more than 2,500.

Industry Leaders

In 2010, industry leaders included Canon USA Inc., of Lake Success, New York. The firm had annual sales of more than $10.3 billion and 11,000 employees in 2009. Almost half of Canon's sales came from office equipment. Another leader was Trumbull, Connecticut-based Oce North America, a division of the Netherlands' Oce N.V., with sales of $3.3 billion in 2009. Pitney Bowes Inc. of Stamford, Connecticut, with $5.6 billion in 2009 sales and more than 33,000 employees. Pitney Bowes was the leader in the postage meter segment, commanding 80 percent of the market.

In the early 2000s, the top suppliers to the government, which spent more than $319 million on office machines in 2001, included SRI International, Xerox Corp., and Berkshire Hathaway.

Research and Technology

Manufacturers sought to retain market share and revenues by delivering new products and technology in this industry. PWPs represented efforts by typewriter companies to combat the dominance of PCs. Smith Corona introduced a new selection of typewriters and related equipment in an effort to boost the company's lagging sales. By the late 2000s, Smith Corona offered electronic typewriters that featured built-in dictionaries, spell check, and grammar check features as well as LCD displays. Olympia also expanded its line of electronic typewriters and other office equipment. Nevertheless, typewriters accounted for less than one percent of sales in the industry by the late 2000s, and even some of those went to collectors.

Competitors also were improving other office products such as paper shredders. Fellowes Global, a maker of shredders and other office products, introduced its Microshed series, which could shred paper documents into nearly dust at 3,000 particles per page, as compared to about 400 particles per page with a cross-cut shredder.

In the mailroom equipment segment, the trend was toward greater automation and greater digital capabilities. Along with greater opportunities for e-commerce, bar code printers were expected to grow annually, according to research analysts. This projection was largely due to the trend toward direct coding and marking, new compliance standards, and mobility of the workforce.

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